Surprising many Council watchers, the Finance Committee approved an ordinance championed by Chairman Ed Burke (14) that would bar companies from doing business with the city if they include forced arbitration clauses in agreements with consumers and employees. Neither the Chicagoland Chamber of Commerce, the Illinois Retail Merchants Association (IRMA), Ald. Burke’s spokesperson, nor the Mayor’s staff were certain that a vote would be taken.

Attendance: Chairman Ed Burke (14), Pat Dowell (3) Sophia King (4), Gregory Mitchell (7), Anthony Beale (9), Marty Quinn (13), Raymond Lopez (15), David Moore (17), Derrick Curtis (18), Willie Cochran (20), Mike Zalewski (23), Jason Ervin (28), Ariel Reboyras (30), Scott Waguespack (32), Carrie Austin (34), Gilbert Villegas (36), Nick Sposato (38), Marge Laurino (39), Pat O’Connor (40), Brendan Reilly (42), John Arena (45), Harry Osterman (48)

“I don’t think anyone was expecting a vote today,” Tanya Triche of IRMA told Aldertrack after the meeting. “We were expecting for the subject matter experts to testify and sort of give the aldermen a good understanding of both sides of the issue and give the aldermen some time to ask the questions. My understanding is that it was going to be held.”

Administration sources tell Aldertrack they were not given advance notice of a vote. It is likely that the Mayor’s IGA staff, and Mayor Emanuel himself, may have been busy lobbying aldermen for changes to Ald. Anthony Beale’s (9) ride-share ordinance to make the regulations friendlier to Uber and Lyft, sources tell Aldertrack. Which explains why mayoral attention may not have been on Burke’s ordinance. Another option: Chairman Burke had planned to call a vote and never notified the administration.

Following the meeting, in an emailed statement sent to Aldertrack, Molly Poppe, a mayoral spokesperson said, “The Administration expressed serious concerns to the Chairman regarding this ordinance, and he has agreed to hold it until we are able to address these issues.” The Mayor’s team wants to look at the potential impact the ordinance would have on current contracts, spending, as well as who the city does business with, since mandatory arbitration clauses are included in almost all contracts.

Burke’s ordinance was first introduced in November. It’s unclear, given the administration’s concerns, if the proposal will be amended or held ahead of the June 22nd monthly City Council meeting. Burke’s office didn’t respond to a request for comment.

Yesterday, the measure passed unanimously by voice vote and would take effect within 60 days of passage if approved by the full City Council.

Existing city contracts may be impacted. The main clause in the ordinance: “No business entity shall be eligible to do business with the city if such business entity or any of its affiliates enters into any pre-dispute arbitration agreement with any natural person after the effective date of this ordinance that requires arbitration or an employment or consumer dispute or a dispute arising under any law intended to protect civil rights.”

Matt Link, an attorney with the Council’s Finance Committee who helped draft the ordinance, said after the vote that those companies would be in jeopardy of losing their existing contract with the city only if they entered into any new agreements with forced arbitration clauses after the effective date. But there could be some wiggle room for those city contractors.

The city’s Chief Procurement Officer, Jamie Rhee, could carve out exemptions on a case by case basis. During the hearing, when asked to specify how it would be enforced, Link told aldermen that he didn’t want to speculate, but the language could be added to the statement of financial interest or affidavit, documents businesses are required to submit to the city when they compete for an RFP (Request for Proposal).

Unions would be exempt from the law, as most labor unions use mandatory arbitration as the only way to reach collective bargaining agreements.

The move is unprecedented, as virtually every major company and bank, as detailed in this New York Times investigation, uses forced arbitration clauses in their contracts for things like credit cards, cell phones, cable, internet and online purchases. It was an issue Ald. Brendan Reilly (42) raised when he expressed  concern that the city could potentially find itself unable to find private contractors, or lose competitive options for future bidding opportunities.

“What if, say, all the cell phone providers say we’re not going to do this. Do we then not get cell phone providers…I’m just trying to figure out, do we then lose competitive options or the ability to bid these things?” asked Ald. Reilly, who remained skeptical that multi-billion dollar international companies would change their business practices to comply with a city law.   

Michelle Weinberg, a Supervising Attorney at Legal Assistance Foundation, who testified in support of the measure, responded to Reilly’s concerns, saying, “I can only speculate, but I would guess that the benefit to the company of being able to do business with the City of Chicago…outweighs the negligible impact of eliminating the arbitration clause.”

Other proponents of Burke’s measure like David Seligman, an attorney with the National Consumer Law Center, and Joshua Karsh, an attorney with Hughes, Socol, Piers, Resnick & Dym, say forced arbitration unfairly stacks the deck against consumers by barring them from filing a class action suit or taking their grievances to court. They pointed to large class action lawsuits against the tobacco industry and Enron to argue that if those companies had the clause buried within their contracts, the plaintiffs would have never made it inside a courtroom. Forced arbitration also keeps lawsuits against companies from the public record and eliminates the right to appeal an unfavorable decision.

If approved by the full City Council, Chicago would be the first city in the country to impose the rule, though President Obama signed an executive order in 2014 directing companies with federal contracts of $1 million or more not to require their employees to enter into predispute arbitration agreements for disputes arising out of Title VII of the Civil Rights Act or from torts related to sexual assault or harassment (except when valid contracts already exist).

“I think this is the way change starts. If government can start setting a good example, then I think that’s what we’re trying to do here,” said Ald. John Arena (45).

The Chicagoland Chamber of Commerce opposes the ordinance, citing the cost benefits of mandatory arbitration. The Chamber’s attorney David Ritter, a partner in the Chicago office of Barnes & Thornburg, explained that forced arbitration keeps legal costs low for companies, as court battles can go on for years with endless motions and appeals.

“The proposed ordinance would harm our already fragile economic climate by adding another unnecessary regulatory burden on businesses, and do very little to assist those it is attempting to protect,” said Ritter. “Who really wins with this proposed ordinance are the trial attorneys who receive significant legal fees from class actions, while the plaintiffs get very little in terms of relief.”

Hundreds of city contracts would be impacted, and even Chairman Burke expressed his surprise in learning “the extent and the breath” of how many businesses include the clause in employment and service agreements.

“The point is,” said Ald. Burke after reading off a lengthy list of companies that would be impacted, “We’re not going to solve all of the ills, but we can, I think, encourage companies that do business with us not to include mandatory arbitration clauses in their contracts if they want to do business with the city of Chicago.”

“Though, it’s safe to say there’s tens of millions of dollars in city contracts that could be affected by this,” responded Ald. Arena.

“That’s the only way you are going to get their attention, through their pocketbook,” Ald. Burke countered.