The State of State Laws to End Forced Arbitration

“If the history of laws around same-sex marriage have taught us anything, civil rights advocates will always prevail — it’s just a matter of when.”

While we need the FAIR Act, it hasn’t happened yet. Arbitration is growing and increasingly circumventing class action suits. The Federal Arbitration Act of 1925 regulates arbitration at the national level, and multiple supreme court rulings have found the FAA to pre-empt any state law that bans mandatory arbitration provisions. The current trajectory is not tenable — and state leaders are feeling the heat for not being able to protect their own constituents.

Every single state Attorney General, regardless of party, asked Congress to end forced arbitration for sexual harassment last year because they felt they couldn’t protect the citizens in their own states. If their calls are not answered, states will be forced to take action themselves. So unless the FAIR Act is passed, businesses will end up with a patchwork of state-by-state laws.

If the history of laws around same-sex marriage have taught us anything, civil rights advocates will always prevail — it’s just a matter of when. Millions of workers who used to be able to enforce their rights independently no longer can, due to forced arbitration. Their only recourse is a state agency, which was likely underfunded even before the current forced arbitration crisis. States will take bold action to ensure that employers respect workplace protections. California was the first state to do this with the Private Attorneys General Act (PAGA), but it will not be the last. Today we explore a number of state bills are now shifting the focus to public enforcement actions rather than private lawsuits — and how they share one or more of these common characteristics:

  • Allow workers to bring suits against lawbreaking employers to collect penalties on behalf of the state
  • Allow state agencies to retain 60–80% of penalties recovered, with the remainder going to workers
  • Allow workers who fear retaliation to designate legal aid or community organizations to bring the case on their behalf
  • Ensure state oversight of public enforcement actions (ex: review cases before filing, review settlements, disqualify lawyers, etc)
  • Push for greater transparency by arbitration firms by publishing data / reports about proceedings
  • Ensure that public enforcement suits can be brought for violations of wage & hour law (ex: wage theft), health & safety protections, and all civil rights offenses (ex: discrimination)

Let’s take a deeper look at each state.

California — The Private Attorneys General Act was the first of its kind, coming into effect in 2004. PAGA allows employees to act on behalf of California’s Labor and Workforce Development Agency, bringing cases themselves. If found in violation, companies may be fined based on the permitted civil penalties provided for in the civil code. The state and the employee split the penalties imposed upon any company, 75% to the state and 25% to the employees affected by the violation. These fines are based on the total number of aggrieved employees, not just those who brought action.

Since its introduction, PAGA has protected workers from a range of abuse, including direct wage theft, the underpaying of women, unacceptable work conditions and wrongful termination. However, employees who initiate complaints must put their name to the action, leaving themselves open to recriminations later. PAGA provides no mechanism to allow workers to deputize a nonprofit or legal organization to engage in action on their behalf. And PAGA provides fewer opportunities for state officials to control the action once it’s filed in court. If multiple individuals all make use of PAGA, employers may be able to choose the settlement that gives them the most favorable terms, rather than the one that promotes compliance going forward.

PAGA aims to create a culture of compliance with workplace laws by putting employers on notice that they can face stiff penalties if they cheat workers. However, the law isn’t set up to compensate employees for the damage done during the period where the employer was flouting the law. And, perhaps more critically, PAGA only applies to violations of workers’ rights that are also violations of labor law — other employer violations (ex: discrimination) aren’t covered.

In the last six years to date, California has received over $127M in penalties. The money funds a variety of enforcement programs, including 13 staff devoted to addressing misclassification of employees as independent contractors; a bilingual media campaign about workers’ rights under California’s Heat Illness Prevention regulations; enforcing farmworkers’ rights to organize; and disbarring employers that violate state prevailing wage laws from bidding on public contracts.

Source: Data provided by Mark Janatpour, Deputy Labor Commissioner, California, by email of February 20, 2019, to Michael Rubin, Altshuler Berzon, in response to Public Records Act request. Available upon request.

Washington — In Washington, Representative Drew Hansen has championed HB 1965, a proposal to allow whistleblowers to bring actions on behalf of the state. Building on the lessons learned from PAGA, the law is motivated by the reality that, while most employers pay their workers wages in a timely orderly fashion, some do not — or worse. Predatory employers often attempt to hide their wage theft behind misleading pay stubs, complex calculations, and informal verbal “arrangements”. Prosecuting these cases is a logistical burden upon the state and happens only in the most egregious and well-documented cases. These dynamics embolden bad actors to shave corners and keep workers from the fruits of their labor.

This proposed law increases access to the judiciary system by adding an option that’s more accessible than the upfront costs of hiring private attorneys and the overworked Department of Labor and Industries, state human rights commission and Department of Health. (The WA Human Rights Commission reported investigators looking into alleged discrimination “have caseloads of about 40 cases at any given time. There is currently a backlog of cases that are not currently assigned to an investigator due to staffing levels.”) Under the law, whistleblowers could bring suit for violations of fifteen existing laws on minimum wage, payment of wages, wage rebates, gender equal pay opportunities, and discrimination.

Class action lawsuits allow individuals to band together and send a clear message that the penalties for injustice, harm, and exploitation scale with the number of people wronged. So too does this law, allowing for a potential suit to be brought for violations “affected all employees aggrieved by the same employer”. This gives more power to workers who have traditionally had fewer practical paths to justice than their employers. The bill has passed through labor and appropriations committees, with the hope of a floor vote as soon as possible. To learn more about this law or or get involved, contact the Fair Work Center (https://www.fairworkcenter.org) or Working Washington (http://www.workingwa.org).

New York — Right now, the New York State legislature is considering the EMPIRE Worker Protection Act, S1848/A2265. Introduced by State Senator Brad Hoylman and Assemblymember Latoya Joyner, this law would establish a mechanism similar to PAGA in California. The New York Department of Labor would allow workers to enforce state labor laws against an employer on behalf of the state. The act would also allow representative organizations to file claims on behalf of aggrieved employees and whistleblowers. To learn more about this act or get involved, contact Make the Road NY (https://maketheroadny.org/).

Massachusetts — The Massachusetts legislature is once again considering An Act to Prevent Wage Theft, Promote Employer Accountability, and Enhance Public Enforcement, which like other whistleblower-enforcement bills, is designed to expand the capacity of the Attorney General’s office by allowing employees to bring civil cases on the AG’s behalf. While the Massachusetts bill narrowly focuses on wage theft rather than a broader set of employee rights, it includes additional enforcement provisions. First, it holds “lead contractors” responsible for wage theft by subcontractors, removing the ability for larger companies to use ignorance as a shield. Second, the Attorney General’s office may issue a “stop work order” until wage theft violations are corrected. Stop work orders have long been used to combat safety violations in the construction industry. This bill would extend that power to wage theft cases. The unique qualities of the Massachusetts bill reflect the coalition of support behind it. Under the heading the Massachusetts Coalition to Stop Wage Theft, a coalition of community-based organizations, unions, and legal services groups including Greater Boston Legal Services, the Massachusetts AFL-CIO and the Massachusetts Coalition for Occupational Safety & Health are hoping for a hearing soon to advance this bill.

Vermont — State Senator Alison Clarkson and State Representative Selene Colburn introduced the Vermont Private Attorneys General Act (VT PAGA) this session. The law would permit employees, representative organizations and whistleblowers to bring civil actions on behalf of the Vermont Commissioner of Labor. The bill currently sits in the Committee on Economic Development, Housing and General Affairs. To learn more about this law or get involved, contact Rights & Democracy VT (http://www.radvt.org/).

Oregon — Last year, State Senator Kathleen Taylor and State Representatives Jennifer Williamson and Andrea Salinas introduced the Oregon Corporate Accountability Act (OCAA). The law allows citizens to act as agents of the labor department, known in Oregon as BOLI (Bureau of Labor and Industries), and bring lawsuits for violations of or labor protections against employers. The act also allows representative organizations to file claims on behalf of aggrieved persons. The bill could receive a hearing as soon as next week. Organizations such as PCUN have named OCAA a legislative priority in 2019.

New Jersey — Governor Phil Murphy recently signed Senate Bill 121 into law, which states that “a provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment would be deemed against public policy and unenforceable.” The law also bars any confidentiality agreements that an arbitration agreement may impose. Experts are skeptical that state laws like this would allow employees to bring suits in court if they’ve signed an arbitration clause. The federal courts’ interpretation of the Federal Arbitration Act is rather broad and only an act of Congress can effectively change it.

Aside from these above seven states, we would be remiss if we didn’t also mention a state bill that double-downs on forced arbitration. In Kentucky, the state Supreme Court decision in Northern Kentucky Area Development District v. Danielle Snyder directly bucked the U.S. Supreme Court ruling that the FAA pre-empted all state laws. Eager to restore status quo, members of the Kentucky state Assembly and Senate rallied around Senate Bill 7 to allow employers to require workers to agree to arbitration as a condition of employment. The bill passed both the House and Senate, and was signed into law by Governor Matt Bevin on March 25th.

But bottom line? Forced arbitration will end one way or another. We urge citizens in each state to get involved on both a state and federal level to protect workers rights and end forced arbitration.

Signed,

Tanuja Gupta (NY), Emanuel Schorsch (CA), Seth Troisi (WA), Matthew Garrett (CA), Vicki Tardif (MA), Pierre Georgel (CA)