September 01, 2016

Confidential Arbitration Agreements for High-Profile Clients and Senior Executives

Suits by personal service employees can reveal sensitive confidential information if they are not kept out of court, and can involve extortionate demands

Kevin J. Hamilton and Harry H. Schneider Jr.

Arbitration agreements are commonplace today. It is difficult to obtain a credit card, sign up for cellular phone service, or purchase goods online without agreeing to arbitrate all disputes that arise from such transactions. Consumer advocates bemoan this development whereby citizens are required to abandon their right to go to court in favor of a system of “private justice.” Mandatory arbitration, they argue, deprives plaintiffs alleging common injury from pursuing their claims through more efficient class action lawsuits, prevents victims from sharing information obtained in discovery, and insulates defendants from the preclusive effects of prior adjudications of similar claims. Arbitration advocates, on the other hand, applaud the confidentiality, speed, and lower cost of arbitrating, rather than litigating, disputes. Both positions have merit, and neither traditional litigation nor arbitration is inherently superior for every situation.

There is one particular type of dispute, however, in which a well-drafted confidential arbitration agreement is preferred and serves to protect the interests of both parties: claims brought by personal service employees against high-profile clients or executives at the very apex of large businesses that are accompanied by threats to disclose confidential information of a sensational nature unless the claims are quickly resolved. Such clients are uniquely vulnerable to extortionate demands. Such claimants have unique access to personal and private information that can be abused. And both parties have a common interest in avoiding public disclosure of such information that, truthful or not, has the capacity to derail careers and foreclose future employment. For the claimant, unauthorized disclosure of such private information can have a chilling effect on any future employment. Use of a confidential arbitration agreement preserves privacy; allows legitimate claims to be either settled or litigated fairly based on the merits, rather than the threat of public embarrassment; and protects both the client and the claimant from the unwelcome effects of having to “go public” in order to obtain justice.

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