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'Arbitration 2.0': Inside the secretive legal battle dividing Silicon Valley

As Tesla seeks to resolve racism complaints in private arbitration, some other tech companies begin to back away from the practice.

DeWitt Lambert

Former Tesla factory worker DeWitt Lambert sued over alleged racial discrimination and harassment, but lost after his case was moved to private arbitration. He said he hadn't realized he'd agreed to the process when he was hired.

Photo: MediaNews Group/Bay Area News Group via Getty Images

DeWitt Lambert was shocked when he lost his racial discrimination case against Tesla, where he worked for more than a year installing seat belts and airbags.

In a 2017 lawsuit, Lambert, who is black, alleged rampant use of racial slurs and frequent harassment from fellow assembly line workers at the automaker's Silicon Valley factory. He compiled a dozen complaints he'd sent to Tesla HR, plus a video from inside the factory, where a co-worker said he would "shred you up in pieces, n—. Cut you up, n—." But Tesla argued in legal filings that Lambert also used racial slurs, and that he was friends with the co-workers whom he said threatened him in the video.

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Last spring, an arbitrator hired by Tesla to resolve the case in a series of closed-door hearings agreed the slurs weren't racist. Rather, they were "consistent with lyrics and images commonly found in rap songs and freestyle rap competitions," retired Marin County Judge Lynn Duryee wrote in a decision reviewed by Protocol. In a footnote, Duryee cited lyrics on genius.com for a song by Insanity, a little-known Canadian rapper.

"The way they did it, I felt like I didn't even stand a chance," said Lambert, a 47-year-old electrician who drove to California from his Alabama hometown eight years ago in search of better job prospects.

The dispute between Lambert and Tesla wasn't decided in a public courtroom because Lambert, like an estimated 65% of employees at large non-union U.S. companies, had signed an agreement to settle any legal issues with his employer in private arbitration proceedings. He had consented — unknowingly, he said — to a process that employers call efficient and fair, but that is prompting a backlash in Silicon Valley amid a broader reckoning over workers' rights at tech companies.

"In many cases, it's a get-out-of-jail-free card for companies," said Oakland civil rights lawyer Bryan Schwartz, who represents another former Tesla worker who sued the company for racial discrimination shortly after Lambert. "Or certainly, that's how they see it."

In three racism lawsuits filed against Tesla since 2017, court filings show the company has stuck to a strategy of trying to convince judges that as many workers' cases as possible should be moved to arbitration, where those who file complaints face longer odds and a process that keeps details of their allegations from other workers and the public. In one case, the automaker asked a judge to move the dispute to arbitration even though a contractor had not signed an arbitration agreement.

At the same time, other tech companies are going in the opposite direction. In the last two years, under intense pressure from employees, Google, Facebook, Uber, Lyft, Airbnb, Microsoft and eBay, among others, have relaxed their mandatory arbitration policies, though in many cases only for sexual harassment complaints.

Tesla did not respond to multiple requests for comment on its arbitration policy and allegations of racism at the Fremont factory. The company and CEO Elon Musk have said Tesla does not tolerate discrimination or harassment of any kind, though Musk wrote in an email to employees, which was later made public, that "if someone is a jerk to you, but sincerely apologizes, it is important to be thick-skinned and accept that apology."

'That was the first demand'

Arbitration agreements are common not only for factory workers, but white-collar office staffers as well as consumers who agree to cell phone contracts, banking terms and many other services. The practice of requiring arbitration as a term of employment has been bolstered in recent years by the Supreme Court in rulings that have also limited workers' ability to bring class-action lawsuits.

Companies say arbitration is a faster, cheaper avenue to resolve legal claims, and in the tech industry, it is often pitched as a way to keep trade secrets or sensitive information about executives out of public records. Workers' rights lawyers counter that businesses use it to keep unflattering disputes out of the public eye and slash potential payouts. While employees prevail in about half of cases against employers in state courts, they win 20% to 30% in arbitration, according to a 2018 "California Law Review" analysis.

"The tech world has led the way in recent years in compelling arbitration," said Cliff Palefsky, a San Francisco workers' rights lawyer who has been suing tech companies since the microchip reigned in Silicon Valley. He uses tech parlance to describe the trend of companies using arbitration to fend off class-action lawsuits: "Arbitration 2.0."

But that may be starting to change with companies putting an end to mandatory arbitration for cases involving sexual harassment in the wake of the #MeToo movement. Google last year went a step further and ended mandatory arbitration in all employee disputes, but not before worker pressure snowballed into advocating for a federal bill to outlaw forced arbitration.

"That was the first demand for a reason," said Vicki Tardif, an ontologist at Google's office in Cambridge, Mass., who helped organize a 2017 global employee walkout and a group called Googlers For Ending Forced Arbitration. "It really does block things like pay transparency or how harassment claims are handled."

As employees lobbied for the change at Google's now-defunct weekly town halls, Tardif said, they had to confront the notion that relying on the bureaucratic public court system clashed with the Silicon Valley ethos. "Isn't private industry always better than government?" she remembers skeptical executives and co-workers wondering. "It's that sort of libertarian bent you have in tech."

She said it was only when employees enlisted members of Congress to question Google executives in public hearings, and when they invoked industry peer pressure — "Hey Google, can you at least be as good as Uber?" she said — that the company relented. Silicon Valley's ever-escalating war over talent didn't hurt, either: "I know of people who were getting calls from headhunters saying, 'Hey, come work for us, we don't force people into arbitration,'" Tardif said.

It was March 2019 when Google stopped enforcing arbitration clauses in new employment disputes. The company has since rewritten its offer letters, while creating a policy that "explicitly provides that claims are not subject to mandatory arbitration," said Google spokesperson Jenn Kaiser. Contract workers and vendors may still be bound by arbitration agreements, and full-time employees can opt to pursue private arbitration — long a popular option for privacy-conscious executives.

"Arbitration can have a number of advantages over being in court in resolving disputes quickly and fairly," Kaiser said. "We expect some employees will still choose arbitration."

Choice should be a central feature in arbitration, said Gary Benton, a longtime commercial arbitrator and founder of the Silicon Valley Arbitration & Mediation Center. His organization focuses on business-to-business cases in Silicon Valley, where companies mutually agree to avoid the courts to resolve cases, often involving sensitive IP or international disputes.

"It works for them because both sides are agreeing," Benton said. "They like the ability to pick the decision-maker."

Workers, on the other hand, may not understand arbitration — or even that they've agreed to it in a big stack of hiring papers, critics say. They contend that employees are at an inherent disadvantage, since arbitrators may be financially motivated to favor companies that offer recurring work — a "repeat player" conflict of interest.

In the case of Lambert, the Tesla worker who alleged racism, the company hired the arbitrator through JAMS, a for-profit company formerly known as Judicial Arbitration and Mediation Services Inc. The day after his case was decided, Lambert's lawyer, Lawrence Organ, received a note about a potential conflict of interest. The same arbitrator had been hired to referee another Tesla case. "I believe my participation in the new case will not affect my neutrality," said the letter on JAMS letterhead signed by Duryee, the retired judge.

A JAMS spokesperson declined to comment on Lambert's case or other cases the company has handled for Tesla.

Elon gets involved

Lambert was, at least initially, optimistic about his case. Just days before he sued, Tesla General Counsel Todd Maron sent his lawyers an email offering $100,000 to quietly settle.

"Our CEO, Elon Musk, has reviewed this case personally," read the email, which included social media posts and statements from co-workers that Tesla had compiled to undercut Lambert's claims. "Notwithstanding everything that's in the attached document, he is sorry that this case did not get escalated much sooner, and he agrees that change is needed."

Lambert declined the offer, opting to argue for higher damages at trial, before an Alameda County Superior Court judge granted Tesla's motion to compel arbitration in July 2017.

A few months later, former Tesla elevator operator Owen Diaz and his son Demetric filed a racial discrimination suit that could go to trial as soon as May. Neither man had to sign an arbitration agreement because they were temporary workers employed through third-party staffing agencies. Diaz and his son allege that fellow factory workers and supervisors called them racial slurs, drew swastikas in factory bathrooms and scribbled a racist caricature in Diaz's work area — an environment "straight out of the Jim Crow era," the October 2017 lawsuit said.

In sending the case to trial late last year, U.S. District Judge William Orrick wrote, "The N-word is perhaps the most offensive and inflammatory racial slur in English, a word expressive of racial hatred and bigotry."

Temporary worker Marcus Vaughn filed the third racial discrimination suit against Tesla. The company argued in court filings that he should be subject to arbitration even though he did not sign an agreement. Vaughn had been emailed an arbitration agreement as part of a full-time Tesla job offer, his lawyers said, but he did not accept it. Last summer, a judge agreed the case should move forward.

In the meantime, more than two dozen other former Tesla workers have submitted sworn statements in the lawsuit, which was filed as a potential class-action claim. The automaker could attempt to push each of these people into arbitration, reducing or eliminating the class-action claim.

"They will, I'm sure, play the arbitration game with as many people as they can," said Schwartz, who along with lawyer Organ represents Vaughn and the other Tesla workers. "We're going to move full speed ahead."

Tesla has argued repeatedly in public statements that the lawyers, each of whom have won multimillion-dollar settlements in past cases, are attempting to extort the company for high trial damages. While opposing recent bills to reform arbitration, the U.S. Chamber of Commerce and other business groups have argued that workers can benefit from arbitration, and that it's "trial lawyers looking to cash in on excessive litigation" that benefit from going to court.

State and federal employment regulators can also intervene in some cases. Though the agency has yet to take action against Tesla, records from the California Department of Fair Employment and Housing obtained by Protocol show that 37 other Tesla workers have since 2018 been issued "right to sue" letters from the agency, a necessary precursor to a labor lawsuit in the state. Of those cases, nine included allegations of unfair treatment based on race or ethnicity.

Rise of mass arbitration

While some companies are changing their approaches to arbitration, plaintiffs' lawyers are ratcheting up the pressure.

In a bid to to undercut the argument that arbitration is the most expedient way to resolve disputes, attorneys who represent large numbers of tech workers or contractors have been filing massive numbers of arbitration claims, sometimes hundreds or even thousands at once. Some judges appear sympathetic to the approach, which could drastically alter how conflicts are fought — and paid for — in Silicon Valley.

Attorneys are using the strategy in two big cases now pending against Facebook and DoorDash, which each faces claims that it underpaid workers bound by arbitration agreements.

DoorDash is facing 5,010 separate arbitration claims, as of a February district court hearing in San Francisco, when the company was ordered by Judge William H. Alsup to pay $9.5 million in administrative fees to the American Arbitration Association. Alsup told lawyers for the gig-economy company that this was only fair after it blocked workers' attempts to bring a class-action claim.

"It's not in your interest anymore, and now you're wiggling around to find some way to squirm out of the agreement," Alsup said at a November court hearing. "I'm a lot older than you, and there's a lot of poetic justice here."

The reprimand came after DoorDash refused to pay higher estimated arbitration fees earlier in the case. A spokesperson for DoorDash said the company had begun arbitration with some contractors in the dispute, but wanted to verify other contractors' employment histories and arbitration agreements before moving forward en masse.

Facebook, which ended mandatory arbitration for sexual harassment cases in late 2018, has fought efforts to notify roughly 400 marketing employees that they may be eligible to file arbitration claims for back pay.

"It reveals their true purpose in rolling out arbitration agreements," said Teresa Becvar, a Chicago lawyer representing workers in the Facebook case. "It's because they prefer having no claims against them at all, and they want to prevent people from asserting their rights."

Facebook declined to comment on the case, and on specific changes to its arbitration policy.

Palefsky, the San Francisco workers' rights lawyer, said that some companies' decision to end mandatory arbitration only in cases of sexual harassment was "one of the most infuriating developments" in the labor battle. "There is no logical or moral distinction between discrimination cases," said Palefsky, who has helped author several measures to limit or bar mandatory arbitration, including California Assembly Bill 51, which is in limbo after a legal challenge. "It was really a political calculus and a PR calculus."

For a new generation of tech activists like Clarissa Redwine, who was fired from her job at Kickstarter last year after attempting to unionize the company, arbitration is one example of deepening mistrust between some tech workers and their employers. Redwine created a "Solidarity Onboarding Kit" — crowdfunded on Kickstarter, which she is suing — to educate tech workers about labor issues and encourage them to organize. Included is a sticker in the shape of a beer tap, reading, "Forced arbitration on tap."

"When you have rosé on tap, are you trading that for forced arbitration?" Redwine said, referring to office perks like happy hours. "Coming to terms with the idea that your employer is not looking out for you — I think that's one of the hardest things about organizing in tech."

For Lambert, the fallout has been severe since he went after Tesla. In 2017, his face all over the news and rattled by fears that former co-workers might seek retaliation, he said he left everything in his East Oakland rental house and drove back to Alabama.

After a period on administrative leave, Lambert was fired from Tesla in mid-2018, when the company said in a termination letter it had discovered problems with his work history and conduct. Back home in Mobile, he said work has been harder to find, and that it doesn't pay anywhere near the $22 an hour, plus overtime, that he earned at Tesla. Instead, he's picking up odd jobs wiring new houses and staying with a girlfriend, unable to afford his own place.

"When I say I lost everything," Lambert said, "I lost everything."

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