Corporate Governance » Arbitration Clause Said To Have Protected Abusive CEO At American Apparel

Arbitration Clause Said To Have Protected Abusive CEO At American Apparel

July 21, 2014

MIAMI BEACH, USA - AUGUST 2, 2010: shop the Apparel at ocean drive is open in the night in Miami Beach, Florida. Art Deco Night-Life in South Beach is one of the main tourist attractions in Miami.

Were it not for arbitration and confidentiality clauses that American Apparel put in place, the pattern of sexual harassment accusations against founder and CEO Dov Charney would likely have led to his ouster years earlier, Steven Davidoff Solomon says in the New York Times. Charney was eventually sent packing, but for at least a decade there were public accounts of inappropriate sexual behavior by Charney, the company’s founder. But the board used the legal protections to force harassment claims to be settled in arbitration, including prohibiting the outcome from being made public, keeping employees from speaking to the media without American Apparel’s permission, and in some cases an employment agreement that stated any failed lawsuit against the company would result in a $1 million fine. Those protections kept shareholders in the dark and delayed action. “[H]ad the board not been so aggressive in using arbitration clauses to American Apparel’s advantage, it would have been forced to act sooner,” Solomon writes. “It certainly didn’t appear to benefit employees.”

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