This Labor Day, Let’s Recommit To Ending Forced Arbitration

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Jackie Adelsberg

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Workers


Reading Forced Arbitration With Magnifying Glass

Reading Forced Arbitration With Magnifying Glass
CREDIT: Shutterstock/Irina999petrova

Since 1882, our nation has celebrated Labor Day in recognition of the labor movement and the contributions workers have made to America’s prosperity and well-being. This Labor Day feels particularly significant given the Supreme Court’s recent hard right turn on labor issues. Horrendous decisions such as Janus v. AFSCME, Epic Systems Corp. v. Lewis, and Cedar Point Nursery v. Hassid have made it more difficult for workers to fight for better wages, improve their working conditions, and organize in the workplace.  

However, in a rare and surprising win for workers last term, the justices unanimously ruled that the Federal Arbitration Act (FAA) does not favor arbitration but simply puts it “on equal footing with other contracts.” The case, Morgan v. Sundance, involved an hourly Taco Bell worker, Robyn Morgan, who sued her employer, Sundance, for failure to pay her and similarly situated workers for all their work. Specifically, Ms. Morgan alleged Sundance’s wage and hour practices violated federal law by keeping employees from earning overtime pay, including a scheme in which the company “shifted” hours between weeks to avoid triggering overtime.  

Although Sundance’s employment agreement contained an arbitration provision, the company initially defended itself in federal district court as if no arbitration agreement existed. Then, after nearly eight months of litigation, Sundance changed its mind and tried to compel arbitration. Ms. Morgan opposed this, arguing that Sundance had waived its right to arbitrate by defending itself in court for so many months. Ultimately, the U.S. Supreme Court agreed.  

This raises the question: Why did Ms. Morgan try so hard to avoid arbitration in the first place? 

Quite simply, arbitration is horrible for workers. Companies claim arbitration is an expeditious and economical alternative to litigation; in actuality, forced arbitration, in the form of arbitration clauses, creates one-sided arrangements that deny employees the typical safeguards afforded by court proceedings. In arbitration, there is no right to a jury, no discovery, no transparency, no legal precedents to follow, and no meaningful judicial review. Due to the absence of these checks and balances — and the fact that the private arbitrator is often hand-picked and paid for by the defending company — the deck is stacked against workers. 

Increasingly, arbitration clauses also require workers to waive their right to participate in class actions. This means that in addition to losing their right to file a lawsuit individually, employees may lose the right to address widespread violations that would otherwise be financially difficult to pursue through collective legal action. Typically, forcing individual employees to go it alone destroys workers’ ability to hold abusive employers accountable. Concerningly, the practice of forced arbitration disproportionately affects low-wage workers, workers of color, and female workers, who are particularly susceptible to infringements of their workplace rights.  

Forced arbitration gives extraordinary advantages to corporations over workers. As a result, very few workers bring claims, and even fewer prevail, because the entire system is slanted against them. Even the handful of plaintiffs who win receive much smaller payouts than they would have likely received in a real courtroom.  

Staring at this rigged system, Ms. Morgan pursued her wage theft claims in federal court. Like many corporations before it, Sundance attempted to use the Federal Arbitration Act (FAA) as a justification for moving the dispute behind closed doors. But in a surprising 9-0 decision, the Supreme Court sided with the worker, holding that that the FAA does not favor arbitration. Justice Kagan explained that courts cannot create “custom-made rules” to “tilt the playing field in favor of (or against) arbitration.” Accordingly, the Court ruled that Ms. Morgan may continue pursuing her legal arguments in federal court, where Sundance had already defended itself for multiple months.  

This is a significant and welcome victory for workers. The Court’s ruling overrules pro-arbitration rules that nine different circuits had adopted, which will improve access to justice for workers across the country. The attorney for Ms. Morgan, Karla Gilbride of Public Justice, stated this decision “will send a message to all corporations who include arbitration provisions in their contracts with workers and consumers that those arbitration provisions will be treated just like any other term in their contract— no worse, but also no better.”  

At the same time, this decision is a relatively small win in the ever-growing forced arbitration scheme. Corporations may now be more likely to invoke their arbitration provisions immediately to avoid getting turned away from arbitration later. If Sundance had sought to force Ms. Morgan into arbitration at the beginning of the case, rather than eight months into the lawsuit, it likely would have gotten its way.  

While there is an increasing push to ban forced arbitration, particularly when it comes to sexual harassment claims, the practice remains extremely prevalent. It’s estimated that more than half of non-unionized private sector employees, approximately 60 million workers, are currently subject to forced arbitration. As long as forced arbitration exists, companies will continue to get away with bad behavior by barring workers from seeking legal recourse in court. 

That’s why Alliance for Justice has called upon Congress to pass the Forced Arbitration Injustice Repeal Act (FAIR Act), which would stop corporations from forcing arbitration on consumers, workers, patients, and small businesses who do not want it. AFJ has also urged the Consumer Financial Protection Bureau to promulgate rules prohibiting arbitration in consumer financial services products and services under its jurisdiction. 

This Labor Day, we should celebrate the thousands of workers who have fought to create fairer, more equitable workplaces while rededicating ourselves to the fight for improved labor conditions, including the end of forced arbitration.

Jackie Adelsberg is a Dorot Fellow at Alliance for Justice.