The real lesson from the ouster of Dov Charney at American Apparel is the danger of arbitration clauses.

That may not seem obvious given the bitter battle for control of the retailer and the accusations of sexual harassment.

But if American Apparel hadn’t been able to use arbitration and confidentiality clauses to keep investors and the public in the dark over those accusations, Mr. Charney would most likely have been shown the exit some years earlier.

By now, l’affaire Charney is well known. He founded the company and made the maker of tight-fitting shorts and shirts a retailing star with an in your face sexuality that apparently extended to the workplace.

In 2004, a female reporter from Jane magazine watched him engage in oral sex and then wrote about it. The article was full of quotes from Mr. Charney like, “Masturbation in front of women is underrated. ”

Ten years later, after Mr. Charney was fired, a number of commentators asked what took the board of American Apparel so long.

Joe Nocera wrote in a column in The New York Times that “both Charney and the American Apparel board of f er a case study in how not to
run a company” by allowing his conduct to go on for over a decade.

But had the board not been so aggressive in using arbitration clauses to American Apparel’s advantage, it would have been forced to act years sooner.

The company required that all employees sign agreements requiring them to arbitrate any disputes, including sexual harassment claims.

The purpose of these clauses was clear: to ensure that any dispute was kept quiet and protect the company from excessive damages. It certainly didn’t appear to benefit employees.

American Apparel required that the entire proceeding — including the outcome — be kept confidential. Employees were also contractually barred from disparaging or otherwise say anything bad about Mr. Charney or American Apparel. As if this were not enough, employees also were required to agree not to speak to the news media without the approval of American Apparel.

In the same way arbitration agreements allow employers to hide misconduct such as sexual harassment, it achieves the same goal for employers who are intentionally violating the Civil Rights Act of 1964 and maintaining predominately all-white/”Jewish”  workforces that are segregated by occupation.

To read more, click here: http://dealbook.nytimes.com/2014/07/15/arbitration-clauses-let-american-apparel-hide-misconduct/.