Summer Associate Arbitration Clauses: Why Disclosure Isn't Enough
This weekend a mini-scandal erupted over the law firm Munger, Tolles requiring its summer associates to sign pre-dispute arbitration clauses. Munger, Tolles was rightly shamed into rescinding the practice, but one suspects that Munger, Tolles isn't the only firm doing or contemplating doing this.
I believe law schools have a particular duty to stand up here and protect their students. Law students seeking firm jobs are at an incredibly disadvantage in terms of both market power and knowledge. The students are often heavily leveraged and desperate to land a high-paying job with a large law firm in order to service their educational debt, and even when debt doesn't drive them, a summer associate position at a large firm is often seen as a stepping stone to career success. Law students really have no bargaining power in terms of their contractual relationship with summer employers. It's take-it-or-leave-it, and leave-it isn't an option for law students. Law students also lack knowledge about the importance of an arbitration clause in terms of the procedural and substantive rights they will surrender and knowledge about the firm culture they are stepping into and the likelihood it will result in a dispute of some sort (e.g., sexual harassment). Whatever one thinks of the virtues of arbitration generally, this strikes me as a very clear cut case of pre-dispute arbitration agreements being inappropriate. I don't think it's a stretch to call such arbitration provisions unfair and unconscionable both procedurally and substantively. (Does anyone think the firms are doing this for the summer associates' benefit?)
I believe that the appropriate response for law schools in light of the situation is to refuse access to on-campus interviewing to any firm that requires its summer associates to sign an arbitration clause. Schools have done this when their students civil rights were being threatened both under don't-ask-don't-tell and in the era when firms would often refuse interviews to women and people of color. The right to have one's grievances heard before a court (including for race and gender discrimination!) is also a civil right. It is a civil right that is fundamental to the whole endeavor of law schools, and schools should be just as vigilant to protecting their students civil rights in this instance as they have in the face of discrimination.
I recognize that firms often require their regular associates to agree to arbitration. That's crappy, but it's not something law schools can readily address. I do believe, however, that law schools have a duty to stand up against abusive business practices targeted at their students. 2Ls and 3Ls have less knowledge and less bargaining power than someone who already has a JD. Moreover, alumni have left the nest; students are still in the care of the school.
I also recognize that schools are reluctant to be overly paternalistic--at least when it suits them--and that they are concerned about limiting students' job possibilities. Indeed, students may themselves not support such a limitation on facilitated access to firms. But should schools really be sending students off to abusive employers? And if schools don't take a stand now, won't the problem become all the more pervasive? I personally do not want to be part of a scheme to deprive students of their civil rights under the guise of contract.
Why Disclosure Is NOT a Solution.
Some have suggested disclosure as a solution—make law firms that want to interview on-campus disclose whether they require their summer associates (and regular associates) agree to arbitration clauses and whether these clauses cover certain things such as sexual harassment claims. The thinking of disclosure proponents is that there will be a shaming effect on law firms that will result in arbitration clauses being dropped or at least in those covering things like sexual harassment being dropped.
I think that this disclosure approach is ridiculously sanguine about the value of disclosure. There's a large literature about consumer disclosures. The take away from that literature is that disclosures are generally not very effective, particularly when they involve (1) complex information and (2) the disclosure is not made immediately before the moment of decision. A disclosure made up front at the start of an interviewing process that a firm requires arbitration is unlikely to affect student behavior. The timing is well before students make decisions of what offers to take; a rational student will interview everywhere irrespective of the presence of arbitration clauses and then see what his/her options are, but at that point the disclosure is long-forgotten. Moreover, even with such a disclosure, are students going to understand what an arbitration clause means in real terms to them? Doubtful. And how many students are really going to anticipate ever having a dispute with an employer? Just as people don't usually get married anticipating a divorce, they also don't usually take jobs anticipating problems with the employer. There's a lurking optimism bias problem on top of everything. It just seems nuts to me that disclosure will be effective.
Indeed, disclosure could make things worse. Say that firms have to disclose (a) whether they have an arbitration requirement, and (b) whether it covers sexual harassment. Adding in that second question makes a firm that says "Yes, No" look better than a firm that says "Yes, Yes," when the problem is really about the presence of arbitration in general, not about it extending to sexual harassment (and just how is such a claim defined, pray tell?). The result is that students will feel better about Yes, No firms than they should, as they won't look as bad as Yes, Yes firms. The result, I suspect is to push the whole market to Yes, No, which is a worse outcome than some No, No, and some Yes, Yes. (Anyone want to try to formalize the game theory here?)
Despite these huge problems with disclosure, I suspect that this is where the conversation ends up. Schools will require some form of disclosure and will pat themselves on the back for standing up for their students and fly the Mission Accomplished banner high. And this is how disclosure regulation often works—a political compromise that allows people to say that they've done something without it actually changing the world in any material way. (Want an example--look at Gramm-Leach-Bliley Act privacy disclosures and regulations--disclose and do more or less what you want.) Law schools of all places should be better than this and not fall for the same worthless disclosure route that has been the dominant method of consumer contract regulation for the last 75 years or so. We owe it to our students.