Submitted Testimony of Laura M. Flegel, National Employment Lawyers Association and The Employee Rights Advocacy Institute For Law & Policy Legislative & Public Policy Director to the Subcommittee on Antitrust, Commercial, and Administrative Law Committee on the Judiciary United States House of Representatives on Justice Restored: Ending Forced Arbitration and Protecting Fundamental Rights

1. 1. Introduction Founded in 1985, the National Employment Lawyers Association (NELA) is the largest bar association in the country focused solely on empowering workers’ rights attorneys. NELA and its 69 circuit, state, and local affiliates have a combined membership of over 4,000 attorneys who are committed to protecting the rights of workers in employment, wage and hour, labor, and civil rights disputes. For more than two decades, NELA has called on Congress to end the insidious corporate practice of forcing workers and consumers to address disputes in secret, one-sided arbitration proceedings because the evidence demonstrates that forced arbitration is harmful to workers.Founded in 2008, The Employee Rights Advocacy Institute For Law & Policy (“The Institute”) is the related charitable public interest organization of NELA. The Institute advances workers’ rights through research, thought leadership, and education for policymakers, advocates, and the public. Since its inception, The Institute has studied the effects of forced arbitration on working people and has published several works exposing the harms of forced arbitration.

      NELA and The Institute welcome the opportunity to support passage of this important legislation. If you have questions or wish to discuss NELA’s engagement with this bill, please do not hesitate to contact NELA’s Legislative & Public Policy Director, Laura Flegel, lflegel@nelahq.org.The FAIR Act is critical to justice for working people in all sectors of the economy. If passed, it would level the playing field for workers who face wage theft, discrimination, harassment, or other illegal treatment in the workplace and who are seeking to enforce their rights under law. NELA urges Members of Congress to pass the FAIR Act in the 117^th Congress.

   2. Millions Of Workers Are Forced To Accept Arbitration Clauses, Often As A Condition Of Employment

The arbitration clauses that would be made invalid and unenforceable by the FAIR Act are clauses that working people are effectively forced into. Some are signed by employees as a condition of employment and others are buried in fine print of onboarding documents in workplace or employee handbooks. Often, the worker isn’t even aware that she or he “agreed” to this unless and until there is a dispute. Some forced arbitration clauses are shared in an email, in a letter to all employees, or through a company’s internal computer network. Forcing workers to choose between signing or accepting a forced arbitration clause or losing their jobs is not a real choice at all. Burying such a clause in employee onboarding documents is a practice that is common, but should be abhorrent to anyone who believes that informed consent is the correct model when one waives one’s rights or enters into a contract.

 

According to a 2017 report, over 60 million employees are required to forgo their constitutional right to take their employer to court—regardless of the severity of employer misconduct—if they want to get or keep their job.^[i] More than 60 percent of the non-unionized workforce is bound by a forced arbitration clause and that number is still on the rise.^[ii] A 2019 report projected that by the year 2024 more than 80% of all non-union private-sector employees will be required to sign away their right to sue in court if they want to keep earning a paycheck.^[iii] No one starts a new job anticipating that she or he will have to litigate a discrimination, harassment, or wage theft claim. But all of these things happen to working people and when they do, an employee should be able to vindicate his or her rights under the law.

1. 1. Forced Arbitration Clauses Allow Corporations To Evade Accountability For Illegal Misconduct Forced arbitration clauses allow employers to cheat workers while protecting themselves from accountability. They allow companies to hide systemic harassment and discrimination, including sexual harassment. Class action bans are ubiquitous in forced arbitration clauses, and the combination of class action bans and forced arbitration virtually guarantees that many individual employees will drop valid claims because they lack the resources as well as the less measurable support of others who are facing or have faced the same wrongdoing.Since 1938, when the Fair Labor Standards Act was enacted, the United States Congress has recognized the need for a range of employee protections, and enacted important laws to foster safe, fair, and equitable workplaces. Federal workplace protections, such as the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Uniformed Services Employment and Reemployment Rights Act, aim to eradicate discrimination, retaliation, and wage theft in the workplace. These statutes represent hard-fought efforts to address pervasive mistreatment of different groups of workers. They have a broad social purpose and provide remedies for individual workers. But these laws are only effective if they can be enforced in a meaningful way—which includes individuals and groups of workers having the ability to seek enforcement in a court of law. Forced arbitration denies workers access to meaningful enforcement of the workplace rights established by Congress.

      Up to 722,000 otherwise valid claims of employer wrongdoing “go missing” each year because of forced arbitration.^[iv] Data shows that forced arbitration results in massive claim suppression, changing the course of the law on important issues. The effect of claim suppression is that individual workers who litigate their claims in arbitration get a process that is far less fair than the process would be in a court of law. Some forced arbitration clauses deter the filing of claims by imposing extremely short time frames to file a complaint, limiting the employee’s access to crucial evidence, restricting the damages that the employee can seek, or requiring high arbitrator fees. Many forced arbitration clauses also prohibit collective arbitrations.

      Collective action bans make it impossible for low-wage workers to hold lawbreaking employers accountable because often an individual’s claims, even though legitimate, are too small to justify the costs of an arbitral proceeding.^[v] Forced arbitration clauses “dramatically reduce[] an employee’s chance of securing legal representation, as well as her chance of any kind of recovery, any kind of hearing, or any formal complaint being filed on her behalf.”^[vi] Additionally, the threat of a class legal action is a powerful tool to deter many companies from breaking employment laws or to persuade violators to begin complying with workplace protections. Workers all across the nation with little other bargaining power must retain this mechanism so they may continue to organize their workplaces, fight for better working conditions, and have an effective means to vindicate their workplace rights.

      Forced arbitration lacks the transparency and accountability checks inherent in our public justice system. Because the practice is confidential, taking place behind closed doors, forced arbitration enables employers to shield their misconduct from public scrutiny and precludes meaningful judicial review of arbitrators’ rulings. The secret nature of forced arbitration enables patterns of widespread workplace abuse to continue with no protection for current or future employees.

   2. Workers Forced Into Arbitration Are Less Likely To Win, Receive Smaller Awards, And Are Severely Disadvantaged

In all aspects of the proceedings, the deck is stacked against every employee upon whom forced arbitration is imposed. A forced arbitration clause means that employment claims are decided by private arbitrators. The employer unilaterally chooses the arbitrator who not only makes the final decision in the case, but establishes the procedural rules for the arbitration. In other words, the arbitrator and the rules are chosen by the employer with no input from the employee. Moreover, unlike America’s civil justice system that was developed through centuries of jurisprudence, forced arbitration does not provide important procedural guarantees of fairness and due process that are the hallmarks of courts of law.

Further, unlike a judge and jury in a public courtroom, arbitrators charge the parties for their services. Because arbitrators in the context of forced arbitration are chosen solely by the employer, the arbitrator has ongoing financial reliance on the employer. In contrast, the arbitrator’s relationship with the worker is a one-time relationship. This asymmetry undermines fundamental fairness. In some cases, costs must be paid up front. Finally, arbitrators’ decisions happen in a vacuum, with no lasting precedential impact, no public record of outcomes, and no trace left as to how arbitrators arrived at their decisions.

1. 1. Forced Arbitration Uniquely Harms Gig Workers By Enabling Misclassification And Stripping Them Of Workplace Protections And Due Process Rights

Forced arbitration allows gig companies to continue to misclassify their workers with impunity. Employees are covered by a range of laws that protect workers, including minimum wage, anti-discrimination, and laws supporting the right to join a union. Employees are also covered by social insurance protections, such as unemployment insurance, workers compensation, Social Security, retirement and disability benefits. However, because many gig workers are classified as independent contractors, they are not protected by these labor laws. Gig workers do not have an economic safety net if they become sick, injured, or laid off. They also do not have legal recourse if they face wage theft, discrimination, and other abuses during the course of their work. Moreover, because gig companies are circumventing these laws, they have no incentive to comply with them.

Critically, most courts find the issue of classification to be arbitrable under the terms and conditions of employment for gig workers.^[vii] By 2016, nearly two-thirds of gig companies included a forced arbitration clause, and almost all such clauses included a class action waiver.^[viii] The prevalence of forced arbitration clauses and class action bans enables misclassification of gig workers to continue in many ways. First, forced arbitration precludes workers from resolving their employment status in the courts, and it is unlikely they can resolve this particular issue in an arbitral proceeding. Second, even if misclassification is addressed in arbitration, the underlying systemic problem of misclassification will persist because any decision in this setting is non-precedential, secret, and only applicable to the individual workers arbitrating the claim. Finally, class action bans remove the deterrent effect of class litigation on misclassification. Simply put, the confluence of these factors makes it cheap for employers to misclassify their workers in ways that benefit the company at the expense of its workers.

The Supreme Court has consistently upheld forced arbitration and based their decisions largely on the premise that arbitration does not deprive claimants the ability to vindicate their due process rights as effectively as if they were in court. There is ample data showing that this premise is simply wrong. Workers lose more often, win smaller awards when they do prevail, and spend more money in arbitration than in court.^[ix] Gig workers are often even denied arbitration, and thus are not afforded any due process rights. Currently, companies like Postmates and DoorDash that rely on gig workers are refusing to pay arbitration fees and are barring claimants from proceeding with their claims, even in arbitration.^[x]

If forced arbitration was eliminated from the workplace, gig workers would be able to litigate issues like wage theft and misclassification in court. Instead, and at best, these workers are forced into arbitration, or at worst, denied any form of due process because they are denied access to any forum. Even if a gig worker is able to arbitrate their claims, and in the rare event that the worker wins, the win offers no deterrent effect to gig employers, who will continue to misclassify employees with impunity as long as forced arbitration and secrecy are permitted in gig employment contracts.

The COVID-19 pandemic has exposed and exacerbated the unjust and unequal conditions of the gig economy. Gig workers are subjected to significant health risks. Vulnerable workers in need of cash must expose themselves to a deadly virus. Higher wage earners are able to work from home, providing them with the privilege of safety through social distancing, while still earning a paycheck. Embedded in this unjust system is the fact that misclassified gig workers who are routinely exposed to these risks are never provided employer-sponsored healthcare (or often any healthcare at all), sick pay, or worker’s compensation. Most are not even provided basic protective gear at the employee’s expense. Unlike many other workers, gig workers do not get additional hazard pay despite their increased exposure to risk. At a time when access to healthcare and to a basic income are paramount, gig workers are exposed to enormous risks in jobs that often do not pay a living wage and offer no benefits. And these workers have no recourse. This is profoundly unjust. Eliminating forced arbitration and permitting gig workers to fight for their rights in court is an important first step in achieving justice for all workers.

1. 1. Congress Must Act

It is imperative for the well-being of, and to ensure justice for, everyday working people that Congress restore the original intent of the Federal Arbitration Act (FAA) and stop the misuse of the FAA to create advantages for corporations at cost to working people. Because the FAA has been contorted into something it was never intended to be by recent U.S. Supreme Court rulings^[xi], the federal legislature is the only governing body empowered to restore the workers’ access to the courts.

Forced arbitration is a system that was intentionally developed by corporate America to avoid accountability and circumvent laws that were enacted to protect working people. Workers who are forced to address disputes in private arbitration are denied the fundamental fairness, due process, and transparency that are the hallmarks of any court proceeding, while employers avoid public accountability. Congress has enacted legislation to protect workers from wage theft, workplace harassment, discrimination on the job, and many other harms. Forced arbitration makes enforcement of our laws nearly impossible for employees who have suffered harm.

Until Congress corrects the legal fiction—that workers with little to no bargaining power provided meaningful consent to the deprivation of their rights in exchange for a job—these clauses will continue to endanger individuals, the workplace, and the rule of law.

Voters and advocates overwhelmingly support ending forced arbitration in the American workplace. A national survey conducted in February 2019 found that 84% of voters supported ending forced arbitration in consumer and employment contracts.^[xii] Among those asked, 87% of Republicans, 83% of Democrats, and 80% of Independents supported legislation stopping companies from requiring the use of arbitration when a consumer or employee has a dispute or claim, and preserving consumers’ and employees’ choice to take their claims to court.^[xiii]

NELA and The Institute strongly support the FAIR Act. We commend Congressman Hank Johnson (D-GA) and the 155 co-sponsors of the bill. NELA urges Congress to move quickly to pass the FAIR Act in the House and the Senate in the 117^th Congress.

[i] Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Economic Policy Institute (Sept. 27, 2017), https://www.epi.org/files/pdf/135056.pdf.

[ii] Id.

[iii] Unchecked Corporate Power: Forced Arbitration, the Enforcement Crisis, and How Workers are Fighting Back, Center For Popular Democracy & Economic Policy Institute (May 2019), https://populardemocracy.org/sites/default/files/Unchecked-Corporate-Power-web.pdf.

[iv] Cynthia Estlund, The Black Hole Of Mandatory Arbitration, 101 N.C. L. Rev. 96, 113 (2018) (identifying as “missing” those claims we would expect to enter the arbitration process, based on the general rate of employment litigation and the number of employees covered by forced arbitration clauses, but that are never actually filed).

[v] See Forced Arbitration Gives Dishonest Employers A License To Steal, The Employee Rights Advocacy Institute For Law & Policy, http://employeerightsadvocacy.org/wp-content/uploads/2017/12/The-Institute-Faces-of-Forced-Arbitration-Wage-Theft-Fact-Sheet.pdf (last visited March 8, 2018).

[vi] Id.

[vii] Carissa Laughlin, Arbitration Clause Issues in Sharing Economy Contracts, J. Disp. Resol. 197, 199, 2017.

[viii] Elizabeth C. Tippett and Bridget Schaaff, How Concepcion and Italian Colors Affected Terms of Service Contracts in the Gig Economy, 170 Rutgers U. L. Rev. 459 (2018).

[ix] Taking “Forced” Out of Arbitration, The Employee Rights Advocacy Institute for Law & Policy, http://employeerightsadvocacy.org/wp-content/uploads/2016/06/Taking-Forced-Out-Of-Arbitration_English_Final.pdf.

[x] See Adam, et. al., v. Postmates, Inc., Case No. 3:19-cv-03042 (N.D. 2019); Postmates Inc. v. 10,356 Individuals, Case No. 2:20-cv-02783 (C.D. 2020); Abernathy et al. v. DoorDash Inc., Case No. 3:19-cv-07545 (N.D. 2019).  

[xi] See Justice Denied: How The U.S. Supreme Court Forced America’s Workers Into Arbitration, The Employee Rights Advocacy Institute for Law & Policy, http://employeerightsadvocacy.org/our-work/ending-forced-arbitration-in-the-workplace/justice-denied/.  

[xii] Hart Research Associates, National Survey On Required Arbitration, February 28, 2019  https://www.justice.org/sites/default/files/2.28.19%20Hart%20poll%20memo.pdf.

[xiii] Id.