The bigger a business is, the greater the potential for institutional corruption becomes. Large corporations often have to have large human resources and even accountability departments to ensure that no one person’s actions can impact the reputation and solvency of the company itself. Mandatory reporting and zero-tolerance policies are both examples of ways that companies limit liability. Mandatory arbitration for those who experience harassment is another.

Wells Fargo has made the news many times in recent years, often due to questionable corporate practices. However, they are currently in the news for doing something that could revolutionize the rights of workers in the banking and finance industry. Wells Fargo has decided to get rid of its mandatory arbitration clauses for the broader protection of their workers.

Forced arbitration is the standard in many professions

Given how lucrative finance can be, banks are always keen to avoid any issues that could diminish their income or tarnish their reputations. Historically, finance has been a boys’ club, although one can now see increased diversity among financial professionals. Still, there is an ongoing risk of sexual harassment for workers of all backgrounds and genders in any field, including banking and finance.

Banks have historically minimized the risk of harassment claims brought by staff by including forced arbitration clauses in their employment contracts. These clauses prevent workers from filing lawsuits in court and giving up their right to a jury trial against their employer and instead forcing the employees to go to arbitration before a retired judge or attorney that is being paid by the employer which has the repeat player syndrome among other disadvantages for the employees.

How forced arbitration hurts workers with valid claims

In theory, arbitration involves individuals experiencing a conflict working with a neutral third party who creates a resolution that binds those involved in the conflict. The problem with forced arbitration clauses when it comes to workplace sexual harassment or any employment disputes, among other things, is that the employer is often the one with the pre-existing relationship with the arbitration company providing services.

The arbitrators may therefore be less neutral than they should really be. Additionally, it is often negative publicity or the threat thereof that motivates a business to enforce its sexual harassment and discrimination policies.

Private arbitration removes the potential of damage to the business’s reputation, which may destroy any incentive for the company to hear out and support the workers experiencing harassment. Keeping things quiet allows high-ranking abusers and harassers to stay on the job, potentially making money for the company while mistreating workers. 

The removal of forced arbitration opens up legal pathways for victims

When an employment contract mandates arbitration as the resolution for sexual harassment claims or other employment disputes, the result may be that fewer people bring claims, as they assume they will not receive a fair hearing.

With the removal of the forced arbitration requirement from Wells Fargo employment contracts, the company potentially makes itself a better place for women, minorities, and all employees to work while also challenging an accepted standard in the financial industry that benefits no one but those with vested power.