Should You Arbitrate Internal Retaliation Claims?

When an employee reports harassment or compliance concerns, you're already managing a high-stakes situation. Then comes the legal question: can you require that employee to arbitrate any future dispute about how you handled their report?

An Ohio appeals court recently ruled that TransDigm Group cannot compel its former general counsel to arbitrate her retaliation lawsuit after she reported sexual harassment and antitrust compliance issues. The court's reasoning was direct: sexual harassment allegations are not subject to arbitration.

This decision reflects a broader judicial trend and creates a decision point for ethics and hotline program leaders. You need to know when arbitration clauses protect your organization and when they backfire.

The Decision You're Facing

You're reviewing your employment agreements, separation packages, or dispute resolution policies. The question: should you require employees to arbitrate claims that arise from internal reporting?

This isn't a simple yes-or-no answer. The enforceability of your arbitration clause depends on what the employee reported, how your clause is written, and which jurisdiction will review it.

Key Factors That Affect Your Choice

What was reported? Courts increasingly treat sexual harassment claims differently from other employment disputes. The Ohio court's ruling reflects a policy view that harassment claims involve public interest concerns that shouldn't be hidden in private arbitration.

Who is the reporter? A general counsel reporting compliance concerns occupies a unique position. They're both an employee and a fiduciary with ethical obligations to the organization. Courts may scrutinize whether forcing arbitration undermines that reporting duty.

What does your clause actually say? Generic arbitration language written ten years ago may not account for current judicial skepticism. If your clause doesn't explicitly carve out harassment claims or acknowledge anti-retaliation protections, you're operating with an untested tool.

What's your enforcement goal? Be honest about why you want arbitration. If it's to resolve disputes efficiently and confidentially, that's defensible. If it's to discourage reporting by making the process more burdensome, you've already lost the ethical argument, and you'll likely lose the legal one too.

Path A: Don't Require Arbitration for Retaliation Claims

Choose this path when your primary goal is protecting your Speak-Up Program's credibility and avoiding the judicial resistance you see in cases like TransDigm's.

When this makes sense:

• Your organization operates in multiple states with varying arbitration laws
• You've had prior harassment or discrimination complaints
• Your general counsel or senior compliance leaders have reporting obligations
• You want to demonstrate that anti-retaliation safeguards are genuine, not procedural theater

What you gain: You remove a barrier that employees and their attorneys view as hostile to reporting. You signal that retaliation claims will be handled transparently. You avoid the legal cost and reputational damage of fighting to enforce an arbitration clause that a court may reject anyway.

What you give up: You lose control over the forum. Retaliation lawsuits will proceed in court, with public filings and potential jury trials. Discovery may be broader. Settlement leverage shifts.

Practical steps:

• Revise employment agreements to explicitly exclude harassment, discrimination, and retaliation claims from mandatory arbitration
• Train your HR and legal teams to explain this exclusion when employees ask about dispute resolution
• Document that the exclusion is intentional, not an oversight, so you can point to it as evidence of good faith if other employment claims go to arbitration

Path B: Offer Optional Arbitration with Clear Carve-Outs

Choose this path when you want the efficiency of arbitration for routine employment disputes but need to protect your reporting channels.

When this makes sense:

• You have a well-functioning internal investigation process
• You want to preserve arbitration for wage-and-hour, benefits, or performance disputes
• You're willing to make arbitration genuinely optional for sensitive claims
• You can afford to write and maintain a sophisticated, state-specific clause

What you gain: You keep arbitration available for disputes where it works well. You demonstrate that you've thought carefully about which claims belong in which forum. You may still achieve confidential resolution if an employee chooses arbitration.

What you give up: You create a two-track system that requires careful administration. You need to train managers and HR on which claims fall under which process. You accept that employees will choose the court path for high-stakes retaliation claims.

Practical steps:

• Draft clear carve-out language: "This arbitration agreement does not apply to claims of sexual harassment, discrimination based on protected class, or retaliation for reporting compliance concerns."
• Make the carve-out bilateral so it applies to both the company and the employee
• Review your language annually as courts continue to narrow arbitration's scope
• If you offer optional arbitration for carved-out claims, ensure the employee has independent time to consult an attorney before choosing

Path C: Maintain Broad Arbitration But Expect Litigation Over Enforcement

Choose this path only if you're prepared to defend your clause in court and you have a specific legal strategy.

When this makes sense:

• You operate in a jurisdiction with strong pro-arbitration precedent
• Your arbitration clause is recent, carefully drafted, and already excludes the categories courts are rejecting
• You have outside counsel advising that your clause will survive a motion to compel
• The specific facts of a dispute make arbitration genuinely appropriate

What you gain: You preserve maximum optionality. If a court enforces your clause, you get the benefits of arbitration. If not, you're in the same position as Path A but you tried.

What you give up: You spend legal fees fighting over the threshold question of forum before you even address the merits. You send a signal to employees that you'll use procedural tools to control how they pursue claims. You risk a published opinion, like the Ohio court's TransDigm ruling, that sets adverse precedent.

Practical steps:

• Don't choose this path by default or inertia; choose it because counsel has reviewed your specific clause and advised it's defensible
• Monitor case law in your jurisdictions quarterly, not annually
• Be prepared to concede the arbitration fight quickly if the legal landscape shifts
• Never use the arbitration fight as leverage to pressure a settlement; courts notice, and it undermines your credibility in future disputes

Summary Matrix

What This Means for Your Reporting Channels

The TransDigm ruling isn't an isolated case. It's part of a pattern where courts protect employees who report serious misconduct, especially harassment and compliance violations.

Your arbitration policy is now part of your anti-retaliation safeguards. Employees and their attorneys will read your dispute resolution clause as a signal about whether you genuinely welcome reports or merely tolerate them.

If your general counsel reports harassment or antitrust concerns, and your first response is to point to an arbitration clause, you've already damaged the reporting culture you're trying to build. The legal fight over arbitrability becomes the story, not the substance of what was reported.

Choose the path that aligns with how you want your organization to handle hard reports. Then write your policies to match that choice.