Supreme Court Conservatives are Eroding Workers’ Rights, Democrats Need to Respond

Soon there could be no way for people to hold big employers accountable for their abuses.

(Photo: J. Scott Applewhite / AP)

As we head into the 2020 election season, it’s important not to forget how the Republican establishment is harming workers, many of whom they claim to represent, by undermining their rights and giving corporations disproportionate power over them. Often this is done in the shadows of obscure decisions by their appointees to the Supreme Court that no one other than experts is aware of, at least until it’s used against them.

About a month ago, conservatives on the Supreme Court continued their crusade to erode workers’ rights. In a 5–4 ruling, they declared that class-action arbitration should be banned unless it is explicitly allowed by the employment contract — the contract that the company, with an express financial interest against allowing said arbitration, is drafting. This is just the latest in a string of 5–4 judgments this decade in which the Roberts court has exempted corporations from true accountability by steadily carving out a secondary legal system through arbitration in which companies are protected against large losses stemming from consumer or employee lawsuits.

In this specific case, Lamps Plus Inc. v. Varela, the employment contract was ambiguously drafted by the company, and California law says that rulings on ambiguities should go against whoever wrote the contract (the company). Yet, as Justice Kagan pointed out in her dissent, the five conservatives ignored that. “Lamps Plus drafted the agreement,” she wrote. “It therefore had the opportunity to insert language expressly barring class arbitration if that was what it wanted. It did not do so.” The conservatives on the court disregarded the law in place to give corporations more control over their employees.

This is part of a troubling pattern. Worker rights are being chipped away at through rulings that are progressively making it harder and harder for them to take corporations that have wronged them to court, where they can get something resembling a fair trial. About 56% of nonunion private-sector employees in the U.S. — that’s 60 million workers — have mandatory arbitration provisions in their contracts. More than half of all nonunion private-sector employers put forced arbitration in employment contracts, of which about 40% were introduced between 2012 and 2017. In addition, 30% of employers use class action waivers, covering 41% of the workforce, or 25 million people.

People don’t understand what they’re signing

It is common for arbitration clauses and class action waivers to be buried in contracts, just one or two sentences amongst pages of legal-speak that the layman can’t possibly be expected to fully comprehend. Surveys have shown that most people don’t realize they’ve signed a mandatory arbitration agreement. One found that “the vast majority of participants mistakenly believed that they had never agreed to a binding arbitration clause.”

Even if they did know what they were agreeing to, behavioral economics has demonstrated that the typical person isn’t adequately able to assess the risk they’re opening themselves up to. Daniel Kahneman wrote about availability bias in his book Thinking Fast and Slow, explaining that people overestimate the likelihood of events that appear prominently in their memory and underestimate the likelihood of more common, but less covered and less sensationalized occurrences. Cases of specific arbitration procedures harming employees are not salient in most people’s minds, meaning it won’t occur to anyone while they’re signing a contract that these minute and boring provisions could come back to hurt them. Due to the lack of salience and awareness of arbitration clauses and class action waivers, companies also won’t feel pressured by market forces to drop those provisions, since individuals almost certainly won’t know which businesses have them and which don’t.

Advocates for arbitration agreements say they offer a faster and cheaper, but still fair, method for resolving conflicts. While this can sometimes be true, it ignores the fundamental reality of what’s occurring. The Federal Arbitration Act of 1925 was originally intended for conflicts between businesses. Those are two sophisticated parties who know what they’re agreeing to and have the resources to hire lawyers and the power to negotiate the terms. This is not at all the case when one side is a company and the other is an individual employee. A single person applying to a low or medium paying job can’t possibly be expected to have the time, knowledge, or resources to understand and negotiate employment contract provisions at the same level as practicing attorneys.

Power imbalances matter

Some economists believe that devotion to “free markets” should come above anything else, and any interference by the government makes us worse off. However, they fail to account for power imbalances, just as the conservatives on the Supreme Court do. There is no market that is completely perfectly competitive. Even with the internet, it would be impossible for workers to know enough about every employer on the market to make the perfect information assumption, which is vital to the competitive market model, true.

When it comes to the labor market, the Supreme Court justices assume that employers are empowered by the fact that they can always hire someone else to do the job, while employees are empowered by the fact that they can always quit and go work somewhere else. Only half of that assumption holds up to scrutiny outside of an overly simplistic economic model. Those justices clearly haven’t had to apply for jobs in quite a long time. They evince no knowledge of how getting hired and signing an employment contract works in practicality for the vast majority of Americans.

For most people starting a new job, the contract process is very simple, and entirely one-sided. They get the job offer. They’re sent a contract. They can sign that contract and start earning income from their new job. Or they can reject it and either go back to unemployment or their old job that they were trying to leave for a presumably justifiable reason. There isn’t much of a negotiation. Maybe over salary, but certainly not over minute clauses buried in the paragraphs and pages of a boring, complicated document.

Courts have ruled that, even when an employee refuses to sign an arbitration agreement and verbally rejects it, she can still be forced into arbitration instead of trial because merely continuing to work was considered consent. It’s as if these judges assume that anyone and everyone can go without a few paychecks and be fine, or else find an equally suitable job in a matter of days. Meanwhile, 40% of Americans can’t afford a $400 emergency. Companies, though, will likely be fine simply having someone else pick up the slack until they can hire someone new. In her dissent in the Varela case, Justice Ginsburg acerbically wrote, “Arbitration clauses, the court has decreed, may preclude judicial remedies even when submission to arbitration is made a take-it-or-leave-it condition of employment or is imposed on a consumer given no genuine choice in the matter.” This describes a court that is aware of and okay with perpetuating some pretty significant power imbalances, not one that is merely allowing a “free market” to foster.

These provisions are made by employers, for employers

Employees don’t draft employment contracts. That’s done exclusively by employers. Arbitration clauses can save companies millions by preventing most people from going to court where they are far more likely to win their case and are awarded much more money when they do. And as has been made clear, most people don’t realize they’re signing away their right to legal recourse, and wouldn’t really have a choice to opt out even if they did.

Labor unions are the exception. They can be considered a sophisticated party with negotiating power over employment contracts, and they will often jointly choose the arbitrator with the employers, making the process more fair for union members. Nowadays though, just 6.4% of private-sector employees — 7.6 million out of almost 120 million workers — are still in a union.

Businesses have insisted that arbitration is cheaper and easier for individuals as well. This has often been found to be untrue. Claimants are frequently forced to travel to inconvenient locations to attend the hearing, bearing the costs of that travel themselves. They also commonly have to pay a sizable fee just to start the arbitration process. And all of that might be over a relatively small amount of money that each individual is seeking to get back. If they can’t band together as a class, it suddenly becomes more expensive than it’s worth.

Arbitration has been shown to be biased in favor of corporations too, casting serious doubt on the claim that they are still fair. The Economic Policy Institute found that employment disputes handled in private arbitration resulted in a win for the employee just 21.4% of the time, compared to 36.4% in federal courts and 57% in state courts. The median and mean damages awarded in arbitration were also drastically lower than in the courts. Another study out of Cornell showed significantly different results in arbitration based solely on personal characteristics of the arbitrator and the structure of the process.

Forced arbitration appears even more unfair for claimants when you consider that the company almost always chooses and pays for the supposedly neutral arbitrator. There is a perverse incentive for an arbitrator to rule in favor of the company so they continue to get hired. Sure enough, worker success rate in arbitration decreases with the number of times the company uses that same arbitrator.

It doesn’t have to be this way

The Supreme Court’s recent decisions regarding mandatory arbitration clauses and class action waivers are leading us to a world in which companies are given carte blanche to abuse, cheat, discriminate, and generally act unlawfully toward their employees. The former chairwoman of the Equal Employment Opportunity Commission, Jenny Yang, explained that arbitration allows employment discrimination to continue indefinitely because it keeps the claims and proceedings secret from other workers. And banning class arbitration keeps the costs for each claim high enough to prevent most individuals from seeing their cases through.

While singular instances of businesses cheating their employees out of money typically come in small amounts, adding that up over thousands of people can bring the total damages to tens or hundreds of millions of dollars. Forced arbitration and class action bans can actually incentivize companies to cheat, as it will increase profits with little risk of resulting penalties. Justice Kagan put it well in a dissenting opinion of a similar case, Italian Colors v. American Express, writing “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”

The Supreme Court has not ruled on the constitutionality of arbitration clauses and class action bans, merely on what the law as written allows. Congress can and should pass a new law — an update to the Federal Arbitration Act — to clarify that no one can be coerced into arbitration and waiving class action. It should recognize that simply using a product or continuing to work are not consent and that clauses must be prominent in the contract in order to assume that a person has read, understood, and agreed to them. It should also do away with provisions that are take-it-or-leave-it conditions of employment by allowing anyone to opt out while still accepting the job and agreeing to the rest of the contract.

To anyone even remotely following politics these days, it’s clear that Republicans will be of no help on this matter. Democrats in the House should nonetheless pass a bill like this one to show they are still the party of workers and consumers, not giant corporations. And presidential hopefuls should speak out in support of these measures, pledging to enact them when they take office. This small step would represent a start in reversing the degradation of labor rights, making employment power distributions just a little less imbalanced.