Employers Write the Rules

For decades there have been signs of a mounting mandatory arbitration problem, but the picture wasn’t exactly clear. In 1995 the Government Accountability Office found that 7.6 percent of employers required employees to give up their rights to sue in a public court, making it a disturbing but not particularly widespread trend. In 2003, Colvin conducted a limited survey of the telecommunications industry and found that 14.1 percent of employers required the contracts, indicating the numbers were growing.

It was unclear how bad the problem had gotten until Colvin’s new study, which he discussed at an Economic Policy Institute (EPI) panel last week. His research determined that 53.9 percent of private-sector business establishments impose mandatory arbitration on their employees. The majority of nonunion, private-sector employers are working under mandatory arbitration clauses, 40 percent of which were imposed in just the last five years.

Ceilidh Gao, an attorney at the National Employment Law Project, joined Colvin on the EPI panel to explain what this looks like for workers on the ground. The upshot is that the conference room has replaced the courtroom — and of course, the conference room belongs to the company. “There’s the arbitrator, and there are the parties and their lawyers,” Gao explains. “There’s no jury, there’s no judge, and there’s no public access.” Arbitration is a private court, not a public court.

Gao says that there are three reasons mandatory arbitration is bad for workers: it’s rigged, it’s secret, and you have to go it alone. “Rigged sounds a little extreme,” she says, but if you’re a worker “it’s essentially a court where your opponent gets to write the rules, pick the judge and pay the judge.” It’s not surprising, then, that studies show that workers who bring claims to arbitration win less often than those who go to court — and even when they do win, they win smaller amounts than you typically see in employer-employee litigation.

“Plaintiffs come and go, but it’s the employers who are the repeat players,” Gao says, “and they’re the ones deciding whether this arbitrator is going to get more work.” The arbitrator thus has an economic incentive to side with employers, and indeed some studies show compelling empirical evidence that arbitrators are biased toward employers.

The secrecy of the process also poses problems, both for individual workers and workers in general. Because everything in arbitration happens behind closed doors, there’s nothing on the record, no public documents, no reporters sniffing around, no public pressure. This is part of the appeal for employers, allowing them to keep their labor-law infractions concealed from lawmakers, shareholders, and the general public. But a significant downside for workers is that arbitration conceals their claims from each other. And when they don’t know about each other’s grievances, they miss opportunities to see each other’s evidence, establish a pattern of corporate behavior to strengthen their case, and organize in non-legalistic ways around their objections and demands. Arbitration thus keeps workers disempowered through isolation and atomization.

Through class-action waivers, which completely bar workers from uniting to file suits together, corporations are increasingly formalizing their preference for dealing with workers individually. According to Colvin’s report, 25 million workers who are subject to forced arbitration are also subject to class-action waivers. This number will likely soar if the Supreme Court rules in favor of the corporation in the upcoming case National Labor Relations Board v. Murphy Oil USA, a decision that would render class-action waivers more enforceable. Justice Stephen Breyer has expressed concern that a pro-employer ruling would undermine the collective bargaining and labor protections that are the “entire heart of the New Deal.” Unfortunately, given the current makeup of the court, he may well be in the minority.

Atomizing Workers

Colvin’s report reveals that big employers are the most likely to use mandatory arbitration. This is unsurprising, since large corporations have sophisticated legal counsel devoted to protecting their interests over worker interests. But that doesn’t mean that workers at small firms are off the hook — small corporations typically notice and copy what the big firms do, and the practice is gaining popularity at breakneck speed.

Also unsurprisingly, the report shows that mandatory arbitration affects low-wage workers the most: in low-wage, private-sector workplaces, 64.5 percent of employers have mandatory arbitration clauses in their contracts. One consequence of this, a result of general demographic patterns in society and in the workplace, is that industries with more women workers and more black workers are both more likely to block employees from filing public lawsuits.

Colvin’s study also found that mandatory arbitration is most common in California, Texas, and North Carolina. He notes that the Fight for 15 campaign, which relies on class-action employee lawsuits as a primary tactic, has been popular in low-wage industries in these states. It’s possible, he suggests, that mandatory arbitration is emerging as a corporate defense mechanism in response to actions taken by the labor movement. Corporations are disciplined by the profit motive to protect themselves from expensive legal action, especially the kind that might drive wages up or require other expenditures that could threaten the bottom line. It’s safe to say, then, that the primary reason mandatory arbitration clauses are proliferating is simply that corporations have realized they can get away with it, and it’s good for profits. However, it’s also possible that in this specific instance that the practice is emerging partially in response to the threat of class-based organizing and increased worker power.

The problems with forced arbitration don’t all occur in the conference room. There’s also evidence of claim suppression, meaning it’s hard for workers to even get to the arbitration table in the first place, given that employers are the ones controlling the process. Gao cites a study estimating that “98 percent of workers we would expect to be filing claims are never making it to arbitration at all.” This means that vast numbers of workers with mandatory arbitration contracts are simply putting up with abuses by management, and if they attempt to seek redress, they find that the process is so difficult and overdetermined by management that their complaints never see the light of day.

Mandatory arbitration is “a back-door way for corporations to be able to repeal the laws that are on the books,” says Gao. If employees can’t bring their bosses before a public court, the laws protecting them become effectively moot. Wage and safety laws may stay on the books, but workers who have mandatory arbitration contracts have no effective legal recourse when they are broken, no way to seek genuine redress for abuses from management, no opportunity to appeal to a supposed impartial legal authority. Their means of self-advocacy is compromised so significantly that it’s as if those laws hardly existed at all.

The “equal opportunity, not equal outcome” defense of inequality under capitalism relies on the notion that, while we may be materially unequal, we’re at least all equal before the law. But in reality, capitalism undermines its own premise; by creating a system in which workers have to sell their labor to meet their basic needs — and most don’t get to be choosy about the terms of their employment — corporations’ power in society proves to be so great that it regularly overrides civil liberties. And as long as society is oriented around profit, the playing field will always be tilted.