From Applebee's to Uber, employers require workers to waive their rights to class-action lawsuits—but there's something cities can do to help them.
On Monday, a federal consumer watchdog agency announced a new rule that prohibits companies from adding clauses to consumer contracts that force them to arbitrate disputes. The move by the federal Consumer Financial Protection Bureau ensures the right of customers to pursue class-action lawsuits against banks, mobile providers, and other corporations, a win for consumers who have been locked out of court by clauses buried deep in the fine print.
However, it’s a victory that extends to consumers only—not to the people working for those companies who also find themselves under the thumb.
“It doesn't begin to address the pernicious spread of forced-arbitration clauses in employment contracts that prevent workers from fighting wage theft and workplace discrimination,” says Rachel Deutsch, senior attorney for worker justice at the Center for Popular Democracy. “We are not likely to see the federal government stepping up on that front.”
Wells Fargo, Citibank, Comcast, AT&T, and Time-Warner Cable are among the usual suspects that deploy mandatory arbitration clauses. But so are Olive Garden, T.G.I. Friday’s, and Applebee’s. Retail chains, too, including Macy’s and Target, as well as on-demand services such as Amazon, Uber, and Lyft—all companies that force their workers, not (just) their customers, to sign away their rights to class-action suits.
Forced arbitration has emerged as a critical concern among labor advocates in recent years. The practice has trickled down from banks and credit-card companies, the organizations that piloted this practice, to smaller employers. Even local bodegas in New York City make use of these clauses, says Deborah Axt, co–executive director of Make the Road New York, a nonprofit that represents the interests of working-class Latino communities. From Lyft to the local deli, businesses at all ends of the scale are taking a cue from giants like Verizon and insisting that they solve their problems out of court.
“The sense of visceral alarm for our membership base has been increasing,” Axt says.
Forced-arbitration clauses disproportionately affect low-wage workers. While the law that guides arbitration agreements is federal, local and state governments are starting to take action to protect the growing ranks of workers subject to these clauses. The gig economy in particular is shaping up as a local battleground for workers’ rights.
Case in point: A report on forced arbitration by the Center for Popular Democracy details the plight of one “Alexandria,” a contract worker for Handy, an app-based cleaning service. She alleges that jobs clocked for a certain amount of time sometimes required far more work to complete. A four-hour assignment turned into a 12-hour de-hoarding haul, for example. But because Handy categorizes Alexandria as an independent contractor, it fell on her to negotiate her fair pay with clients, putting her customer rating at risk (Handy merely processed the work and payment). After Alexandria finally deactivated her account, she alleges, the company tried to debit her credit card for missed appointments that Handy continued to schedule for her. In the end, her claims of alleged lost wages against Handy did not add up to enough to cover the costs of arbitration.
“Since at least 2013, Uber’s individual contracts with its drivers have contained an arbitration clause that prohibits the drivers from participating in a class or collective action,” writes Katherine V.W. Stone in a report for the Economic Policy Institute. “This composite mandatory arbitration/class action waiver clause has been the Sword of Damocles hanging over the Uber class action litigation.”
Arbitration mandates can take a variety of forms, from explicit contractual language (such as the example above) to company emails to physical postings in the workplace. These clauses prevent workers from joining together to sue their employers, meaning that anyone with a grievance has to go alone—even if many people share the same grievance. Arbitration forces David to go it alone against Goliath. The costs of arbitration lean toward the latter’s favor, as do the outcomes.
According to the American Association for Justice, parties to an arbitration faced hearing fees ranging on average from $250 to $750 per day. While litigation also adds up, most court fees are paid by attorneys working on contingency, while other costs (like the use of the courtroom or the salary for the judge) are paid by the court. And arbitration clauses can still require employees to cover fees if they lose.
“One of the stories in our report was about a Wells Fargo worker who was retaliated against for blowing the whistle on some of the fraudulent consumer practices at the bank,” Deutsh says, referring to Wells Fargo’s fake-account scandal. “He was pressured by the arbitrator into settling for a pittance because he was threatened with paying Wells Fargo’s legal fees, which were mounting in the proceeding.”
Plus, in the end, arbitration hearings rarely swing workers’ way. According to the Economic Policy Institute, employees win arbitration hearings about one-fifth of the time; workers are 1.7 times more likely to win hearings in federal court and 2.6 times more likely to win hearings in state court.
The courts’ read on arbitration has shifted substantially over the last three decades. Since 1984, the U.S. Supreme Court has reached a series of ever-more expansive interpretations of a 1925 law called the Federal Arbitration Act. The scope and deployment of arbitration agreements has grown as a result. Virtually all for-profit schools today (98 percent) employ mandatory arbitration clauses. (Notably, Trump University did not, paving the way to the $25 million settlement reached just after the 2016 election.) When former Fox News anchor Gretchen Carlson filed a lawsuit alleging sexual harassment, she sued Roger Ailes, not Fox News, as a way of bypassing mandatory arbitration. She received a $20 million settlement.
While the Consumer Financial Protection Bureau just restored consumer rights to class-action lawsuits, for low-wage workers, redress may fall to state or local government. One example is New York’s proposed Empowering People in Rights Enforcement (EMPIRE) Worker Protection Act, a bill modeled after a California state law. The bill aims to bridge the gap between widespread claims of wage theft and the state’s capacity to enforce labor protection laws. The EMPIRE Act would deputize workers and consumers to enforce certain statutes on behalf of the state, with the state retaining control of the suit (and receiving the majority of damages).
“Because the state hasn’t signed an arbitration agreement—even if the workers have been waived their right to pursue, for example, claims for minimum wage violations—[workers] can still, on behalf of the state, pursue the penalties that are included by statute that are designed to promote compliance, which the state has an interest in,” Deutsch says.
Another strategy is divestment. Seattle, for example, voted earlier this year to cut its $3 billion ties with Wells Fargo over its financing for the Dakota Access Pipeline. New York City has threatened to divest from any company that works on President Donald Trump’s border-wall pipe-dream. New York has already divested its pension funds from private-prison companies.
“In the same vein, big cities could choose not to do business with companies that use forced arbitration in their contracts with consumers and workers,” Deutsch says. “In addition to the values component, there’s a transparency imperative. Our justice system is designed to allow the public to observe judges imposing legally binding decisions, the court proceedings, judicial records—they’re all open to the public. But arbitration happens in secret. The decisions are virtually unreviewable by courts. And they aren’t public.”
Cities have an interest in knowing whether companies they invest in or support are discriminating against workers for their gender, for example, or failing to pay vendors fair wages. On process grounds alone, cities have an interest in a more transparent resolution to conflicts between employers and employees. The latter are unlikely to find much relief from the Trump administration or a conservative Supreme Court.
“Where a city has enforcement power to hold these corporations accountable for their legal violations that workers and consumers are not themselves able to hold them accountable for, then they can make that enforcement more robust,” Axt says.