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This is what happens when you try to sue your boss

Bloomberg logoBloomberg 1/26/2019 Max Abelson
© Michael Deforge/Bloomberg

Millions of American workers sign away legal rights without knowing what they’re in for: Arbitration Hell.

The proof that the fight between Alex Beigelman and UBS had descended into absurdity was the dispute over the granola bar. It was the fifth day of arbitration hearings, and a lawyer for UBS, the financial conglomerate where Beigelman had worked, seemed to be having some windpipe trouble.

“I tried to eat a Kind bar really quickly,” the bank lawyer said. “And I have all of that granola crunchy stuff stuck in my throat.”

“TMI,” answered Linda Friedman, the civil rights attorney who was representing Beigelman.

“I’m sorry, Linda, if you think that’s too much information,” the bank lawyer replied.

In front of the three arbitrators who would decide the case, Friedman challenged the opposing counsel’s familiarity with snack food. “It’s not,” she said, “a Kind bar.”

Beigelman was watching it all with a mix of bewilderment and fury. For three years he’d been scuffling with UBS Group AG, based in Zurich, over $1 million in pay he thought he was owed. In 2015 the bank let him go right before his bonus was due. He hired a lawyer and fought back. But because Beigelman had signed an arbitration agreement when he started his job, he was ushered into an enigmatic system of corporate justice where proceedings are secretive and the odds of workers winning are long. Beigelman’s hearings were held in a Lower Manhattan conference room during four days in October 2017. There was a five-month recess, and now, the following March, it seemed to be reaching a Kafkaesque, possibly even Dantesque, conclusion.

If you have a job in the U.S., chances are good you’ve signed an arbitration agreement that will stop you from suing your bosses in court for pretty much any reason. About 60 million Americans, including workers in 2 out of 3 big nonunion companies, are bound by the agreements, according to the Economic Policy Institute. Arbitration has sucked in bakers, bankers, engineers, exterminators, nurses, plumbers, roofers, teachers and truckers.

After the #MeToo movement revealed that forced arbitration has been used to keep sexual harassment complaints quiet, a handful of companies, including Google and Facebook Inc., agreed to get rid of it for harassment claims. But that’s less a win for workers’ rights than it would seem. If you want to sue your boss for cheating you out of money or discriminating against you because of your race, you’re still out of luck, stuck in this shadow legal system. And yet no one except those who’ve been through arbitration understands what it’s really like, how it works, or whether it leads to anything resembling justice.

Beigelman and his lawyers decided to do something about that. Infuriated by their experience, they shared more than a thousand pages of transcripts with Bloomberg Businessweek. Reading through them doesn’t give the impression of grand injustice as much as it feels like getting stuck at an endless dinner with guests who despise each other. It would be funny if someone’s livelihood wasn’t on the line.

Related video: Buyer beware - losing your ight to sue (provided by Consumer Reports)

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Was the arbitrator asleep?

The hearings were under way when one of Beigelman’s lawyers thought he saw Ken Stewart, the arbitrator in question, doze off. “He was right next to me,” the attorney, Matt Singer, recalls. Singer says his laptop power cord somehow got tangled with the sleeping arbitrator’s legs.

Stewart has no recollection of any naps. “Now, some of these cases, the testimony goes on and on and on, and sometimes the witness is very repetitive,” he says. “It’s a challenge for any arbitrator to have to keep paying close attention.”

The hearing was run by the self-regulatory arm of the finance industry, known as Finra. Banks and brokerages give the organization its money, and Congress gives it the authority to oversee Wall Street. It also arbitrates thousands of cases each year. The committee that looks after Finra’s arbitration process is made up of outside lawyers as well as attorneys from UBS and other companies.

Finra also hires the arbitrators. If you want to make it onto the roster of people who can decide cases such as this one, you don’t need a bachelor’s degree or experience in finance and law, just some college credits, a few years of work history, and a thumbs-up from Finra. You can apply online. The pay is $300 per session.

The head arbitrator in Beigelman’s case was Karen Bedrosian-Richardson, who has a background in insurance. “Do the arbitrators have any disclosures that they would like to make?” she asked at the outset, when the two sides sat down.

“I am legally blind,” Stewart, the alleged napper, answered. “That will not limit my ability to perform my services.” Bedrosian-Richardson then asked the group to speak loudly—because, she said, Stewart, who’s 84, is also hard-of-hearing. The third arbitrator, Martin Dehler, used to be a bank executive.

The arbitrators had awkward news for Beigelman. His lawyers had written an account of what happened to him at UBS as part of a prehearing brief. The document was meant to help prepare the arbitrators for the case. Unfortunately, they hadn’t received it, and no one was sure why.

That didn’t shock Friedman, whose firm, Stowell & Friedman Ltd., specializes in labor law. She worked on the Boom-Boom Room suit, brought in 1996 by a group of women who accused Smith Barney Inc. of harassment and discrimination. The company ended up paying more than $100 million, and Wall Street reacted with pledges to curb mandatory arbitration—which of course didn’t happen.

ntroducing Beigelman’s case, Friedman offered a version of events that, like so much good drama, was about betrayal. UBS, she said, gave her client positive reviews for his work on information security, then fired him to keep the bonus he was owed. UBS even held back money he was due as part of a deferred compensation package.

Friedman was up against Lloyd Chinn, a partner at the white-shoe firm Proskauer Rose LLP who specializes in defending finance companies against whistleblowers and harassment claims. He’s the kind of expensive lawyer banks turn to when their in-house counsels aren’t enough. “This is a very simple case,” Chinn said. If Beigelman had just signed what UBS had asked at the time of his dismissal—a release of any and all legal claims against the bank—he could’ve gotten the deferred compensation but not the bonus, because those are for current employees. That might sound a little harsh, he added, but that’s the way it goes.

Beigelman is 51, lives in a New York suburb with his wife, and has two children and a bunny named Moo. When he was around 8, his family immigrated from Ukraine to Queens, and he worked his way into Stuyvesant High School, the holy of holies for young overachievers in New York. He got his first programming job on Wall Street as an undergraduate at Polytechnic University, the Brooklyn engineering school that’s now part of New York University, in the 1980s, which led to jobs at Deutsche Bank, JPMorgan Chase, and then, in 2007, UBS.

The bank made him head of information security for the wealth management division’s Americas unit and promoted him in 2014 to managing director. It’s a perch that young bankers and traders fantasize about: On Wall Street, it means you’ve made choice friends, vanquished the right enemies, and gotten on track to wield influence over both. It doesn’t guarantee private-jet money, but the paydays are major.

Bonus season was coming up, and Beigelman figured he’d get at least the $468,000 the bank had handed him the last time around. That’s not what happened. He got a message two weeks into 2015, met an executive on a Tuesday, and was told he was now redundant and would be terminated.

Then Beigelman learned he wouldn’t be getting a bonus. If he wanted his deferred comp, about $530,000, he’d have to promise not to fight the termination. He did not agree to that. His 2007 offer letter from the bank had included a clause about settling disputes in arbitration, and three months after he was fired he demanded a hearing. But his contract didn’t necessarily stop him from bringing an ambitious kind of lawsuit called a class action, a high-stakes way to band together with others in court. Right before Christmas of 2016, he filed one with a former colleague that claimed it was illegal for the bank to keep all that money from workers who’d been laid off. The lawyer representing UBS in that case was Eugene Scalia, son of the late Supreme Court justice.

That coincidence gained extra resonance when the high court’s conservative majority decided last May that companies can use arbitration to stop employees from bringing class actions. UBS has already used the ruling to argue that Beigelman’s lawsuit is doomed.

***

If both sides actually want to be in arbitration, the process can be fast, cheap, and effective. That’s how UBS justifies it: “Arbitration, as recognized by courts, can be a fair but more efficient method,” says spokesman Peter Stack.

The process has a long history, going back at least as far as the Judgment of Solomon, the Old Testament story about the two mothers ordered to split a disputed child in half. Phoenician traders, an Athenian tyrant, and Marco Polo-era caravans had arbitration systems. In the U.S., Congress enshrined it in law a century ago.

But it wasn’t until the past three decades that vast numbers of American employees were pulled into arbitration with no choice. One of the key legal precedents sounds like the setup of a bad Borscht Belt joke: There was a husband-and-wife undertaker team in Yonkers named McMahon who met a stockbroker named McNulty. The couple invested their savings, hundreds of thousands of dollars got wiped out, lawsuits flew, and McNulty’s company wanted to enforce its contract’s arbitration provision. The McMahons said it was the American way to face a jury. In 1987 the Supreme Court decided in the brokerage’s favor. Four years later it sided with Wall Street again, forcing an employee into arbitration after he alleged age discrimination.

Today, millions of workers can be steered from courtroom litigation into a venue that gives them worse odds of winning and smaller judgments if they come out on top, says Alex Colvin, who teaches at Cornell and wrote the Economic Policy Institute study. He describes mandatory arbitration as unfair and ridiculous: “It’s halfway between Law & Order and Judge Judy,” Colvin says, “except nobody’s wearing robes.”

At times, the Beigelman proceedings did seem like daytime TV. “I would like you to listen,” Chinn, the UBS lawyer, told Beigelman at one point. He went on. “Maybe you’re not understanding.”

“You’re asking me a question,” Beigelman said.

“I want to try this again. I’m trying to finish your cross-examination today.”
“And I’m answering the question.”

“So now I get to ask you some questions. You understand that is the process?”

“I do speak English, yes.”

The gulf between this system and the courtroom is why some attorneys adore arbitration. Steven Suflas, a veteran lawyer with financial clients, sees it as a way to stay away from the regular folk who decide big cases. “Who sits on juries, managers or employees?” he asks rhetorically. “Employees, all right. Tongue in cheek, every employee hates their boss. It’s human nature.” An arbitrator, on the other hand, “tends to be less emotional,” he says.

Another plus, in Suflas’s eyes, is secrecy. The public doesn’t need to find out about “juvenile behavior at the office holiday party” or every “bad boy who’s behaved badly,” he says. “Does the shining of the light on that improve things? No.”

The state of New York disagreed, banning mandatory arbitration for harassment claims last year. Barely a few days went by before attorneys inside Sullivan & Cromwell LLP, the powerful law firm, sent out a memo that told clients a loophole could actually make it toothless. A similar thing happened when the news hit that Facebook, Google, and Uber wouldn’t force workers into arbitration. It turned out the companies were applying that change only to harassment or assault.

***

One of the most memorable interludes of Beigelman’s hearings began when Chinn asked him if he had worked in human resources.

“I did not work in HR,” Beigelman replied.

“And you certainly didn’t make the decision with respect to your termination, correct?” Chinn said. Beigelman seemed to realize what the lawyer was getting at: Chinn was asking, in a roundabout way, if the employee had decided his own fate.

“Certainly not,” he answered.

Beigelman wanted the arbitrators to hear from an HR manager at UBS. But it turned out the woman was named on the bank’s witness list, not his own. Now Chinn announced that the bank wouldn’t be calling the manager. When Friedman protested, the UBS lawyer said that if she wanted to hear that witness so badly, she should have asked earlier.

“We agree with that,” Bedrosian-Richardson, the top arbitrator, nodded. To save money and time, the system limits testimony during a hearing, just as it cuts down on the documents the two sides have to share beforehand, and stops almost everyone from appealing afterward.

“Excuse me a moment,” Friedman said. “She’s outside in the hallway.”

“No,” Chinn said, declining to bring in the bank employee.

Eventually the UBS lawyer relented, the witness answered questions, and the bank’s team made a motion to dismiss Beigelman’s case. “You have to be employed when the bonus is paid,” Chinn said. “Period. End of story. You must be there.” At this moment of high drama, the granola struck.

Friedman’s argument was that UBS had robbed Beigelman by changing its pay policy after he’d already been hired, now forcing redundant workers to sign releases before they could get their deferred compensation and burying the new rule “in an appendix to an appendix.”

After Chinn’s rebuttal, she tried to continue her argument and got cut off. “No,” Dehler, one of the three arbitrators, said. “I think we’ve had enough.”

Later, Chinn was offering up some final words on behalf of the bank, but apparently Dehler was not in the room.

“I do object to this entire speech while one of the arbitrators is in the bathroom,” Friedman said.

Reading page 1,382 of the transcript, you can almost imagine a door swinging open theatrically as the arbitrator returned: “I’m sure you can fill me in,” Dehler said.

***

In May 2018, two months after Beigelman faced UBS in the conference room for that last time, the arbitrators handed down their decision. They awarded him more than $400,000, giving him the deferred comp, but allowed UBS to keep any bonus. Beigelman, who now runs his own risk advisory company, is less annoyed by the decision than by the process that led up to it. What bothers him, he says, is getting stuck in such a strange world for so long and knowing how many people will have to endure the same.

“He’s going to be OK,” Friedman says. “He’s a survivor.” Beigelman is also a Wall Street veteran who earned more in one year than many regular people will make in a lifetime. For some workers, Friedman continues, “the system does not work.” Even so, she found the process so senseless that she decided not to charge Beigelman any fees.

The week of the decision, Uber yielded to pressure from labor advocates by announcing it would allow workers to take individual harassment and assault complaints into courthouses.

A few days later, an industry group called the American Arbitration Association released chipper news: The number of employment arbitration cases had shot up about 10 percent. “We look forward to positive challenges and even greater success,” the report announced.

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