Forced Arbitration Robs Workers of Billions in Wages

This is the second of two posts on wage theft and how it hurts workers, families, and communities. You can read the first post here.

Corporations’ widespread use — and abuse — of forced arbitration in employment contracts allow them to steal billions of dollars from workers every year with impunity. Employers have unilaterally imposed mandatory arbitration agreements onto 60 million American workers, and the practice is only becoming more widespread. By 2024, 80 percent of nonunion workers will be subject to forced arbitration.

Those same employers cheat their workers out of billions by paying lower than the minimum wage, denying workers overtime wage rates, coercing employees to work “off the clock” before or after shifts, denying workers legally mandated breaks, confiscating tips, and more. Corporations rob workers of an estimated $15 billion per year through minimum wage violations alone, but the real extent of wage theft is likely even higher because wage violations are almost entirely unreported.

The surging costs of housing, transportation, utilities, and food exacerbate the burden of wage theft on workers and their families. Americans deserve a full and impartial opportunity to recover stolen wages, and current legislation sitting in the U.S. Senate must be part of the solution.

Forced arbitration systematically disadvantages workers who are victims of wage theft. Although the Fair Labor Standards Act — the federal law that establishes minimum wage and overtime standards — contains a private right of action for victims of wage theft, forced arbitration prevents workers from taking advantage of this right to recover stolen wages.

A February report from the Center for Progressive Reform explained that, because employers select the arbitrators that handle their disputes, arbitrators have financial incentives to favor employers in arbitration decisions to ensure they are re-hired. Arbitrators admit to feeling beholden to the corporations that hire them.

Arbitration is also an expensive process, disproportionately preventing low-income workers from holding their employers accountable for illegal wage theft. Arbitration fees can be thousands of dollars. Because of this financial barrier, workers rarely pursue arbitration to resolve wage disputes; of the 60 million employees subject to forced arbitration, only 0.02 percent have pursued it.

In 2019, 17 million workers earning less than $13 per hour were bound to mandatory arbitration agreements. Women and people of color earning low wages are more likely to be the victims of wage theft, yet they are forced into a rigged system of arbitration rather than a more impartial court of law.

When workers do arbitrate their wage grievances, they win less often and win smaller amounts than in a traditional court proceeding. The American Association of Justice found that over a five-year period, workers in only 282 cases were awarded monetary damages in forced arbitration proceedings — only 2.5 percent of total employment arbitration cases. In the rare instances when workers are successful in arbitration, the median award is one-fifth of that in federal class action lawsuits ($36,000 compared to $176,400).

Often, mandatory arbitration agreements also require employees to waive their right to bring a class or collective action. The U.S. Supreme Court’s 2018 decision in Epic Systems Corp. v. Lewis held that a mandatory arbitration agreement requiring individualized arbitration was enforceable because class and collective actions do not fall under “concerted activities” protected by the National Labor Relations Act (NLRA). This pro-arbitration decision has accelerated the practice of including collective action waivers in arbitration agreements, which bar workers from joining together to address systematic wage theft.

Federal Solutions to Forced Arbitration

Given the U.S. Supreme Court’s recent moves to allow forced arbitration in many instances, it’s up to Congress to act to prevent employers from using the practice to get away with wage theft. The U.S. House of Representatives has already passed the FAIR Act to ban forced arbitration clauses from most contacts. All it needs is an up-or-down vote in the U.S. Senate, but that chamber has been dragging its feet on the bill since mid-March.

Last year, the House also passed the Protecting the Right to Organize Act of 2021 to remedy the Epic Systems decision. The bill, if enacted, would amend the NLRA to make it an unfair labor practice for an employer to impose or enforce a pre-dispute agreement requiring an employee to waive the right to any kind of joint, class, or collective claim. An identical bill with 46 cosponsors in the Senate is sitting idly in committee.

These bills would dismantle the legal structures that currently protect and enrich the corporations that make exploitation and wage theft part of their business model. The Senate must open the opportunity for workers to address their grievances in an impartial courtroom, not in biased, closed-door arbitration proceedings.

To learn more about the adverse impact of forced arbitration on low-income workers and workers of color, you can read CPR’s February 2022 report on forced arbitration. To find detailed information on incidents of wage theft and other crimes against workers, visit CPR’s first- and only-of-its-kind Crimes Against Workers Database.

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