Employment & Labor Insider

7. ARBITRATION

Any controversy, claim or dispute arising out of or relating to this Agreement or Performer's employment shall be brought before a mutually selected three-member arbitration panel and held in New York City in accordance with the rules of the American Arbitration Association then in effect. The arbitrators shall issue a full written opinion setting forth the reasons for their decisions. Such arbitration, all filings, evidence and testimony connected with the arbitration, and all relevant allegations and events leading up to the arbitration, shall be held in strict confidence. Judgment may be entered on the arbitrators' award in any court having jurisdiction; however, all papers filed with the court either ín support of or in opposition to the arbitrators' decision shall be filed under seal. Breach of confidentiality by any party shall be considered to be a material breach of this Agreement.

As we all know, Ms. Carlson contends that she was sexually harassed by her boss, Mr. Ailes. That seems to be "Any controversy, claim or dispute arising out of or relating to" her employment with Fox News.

Some commentators have made a big deal about the fact that Fox News was the other party to the contract, and not Mr. Ailes. Given Mr. Ailes' position, I just don't think that argument is going to fly. The agreement isn't limited to lawsuits against Fox News, and arguably Mr. Ailes is Fox News anyway. Moreover, the courts, including the Supreme Court of the United States, are delighted to enforce arbitration agreements.

Even if you believe agreements like this shouldn't be used with hourly employees who operate forklifts, or serve lattes, or answer the telephone, Ms. Carlson is clearly not that kind of employee. She had an agent, and presumably an attorney. She is a Stanford University alum and a former Miss America, for Pete's sake. I can't imagine that she wasn't every bit as sophisticated about the law, contracts, and arbitration as Fox was.

Are you with me so far?

So, Ms. Carlson believes that she was sexually harassed by Mr. Ailes and was non-renewed only because she declined his advances. Even though she lives in Connecticut and worked for Fox in New York, which is where the alleged harassment would have occurred, and even though she believes Mr. Ailes' conduct violated the New York City Human Rights Law, she retains an attorney in New Jersey and sues Mr. Ailes in New Jersey state court. And she doesn't sue Fox News at all. One commentator, writing shortly after the suit was filed, thought the lawyers were in a hurry, or not very good.

But it now appears that Ms. Carlson and her New Jersey lawyers were actually very smart - they probably left Fox out of the lawsuit on purpose because they knew the arbitration agreement did not allow them to sue Fox in court. They probably sued in New Jersey because courts in New Jersey are reputedly less likely to enforce arbitration agreements than courts in Connecticut or New York. And they probably figured that by doing it this way, they could get the publicity out about Mr. Ailes' alleged behavior before he could stop it.

Which worked exactly the way they (theoretically) hoped it would.

Mr. Ailes probably does not have the right to sue Ms. Carlson for defamation, because allegations made in a lawsuit are usually privileged. But he might be able to counterclaim for breach of contract. The arbitration clause specifically says that a breach of confidentiality is a "material breach of the agreement."

Mr. Ailes has removed the case to federal court in New Jersey, and he's asked the court to force Ms. Carlson to arbitrate. (Ms. Carlson will have an opportunity to argue against it, but she has not yet.)

If the federal court forces the parties to arbitrate, which is likely, I will go out on a limb and predict that Mr. Ailes will counterclaim for breach of contract. And wouldn't his damages include the significant, and foreseeable, harm to his reputation caused by Ms. Carlson's breach?

And how about this scenario? I'm just theorizing here, but what if an arbitrator finds that Ms. Carlson was either not sexually harassed, or not harassed severely, and that her contract was non-renewed because of bad ratings rather than her refusal to give in to Mr. Ailes' sexual advances? In which case her recovery could be minimal. Meanwhile, Mr. Ailes could win on his counterclaim and get a bundle, leaving Ms. Carlson with a net loss.

"We report, you decide." What do you think? Should be interesting to watch.