Toothless Rights: How Forced Arbitration and Class Action Waivers Undermine Civil Rights at Work

David Nahmias - Law Fellow, The Impact Fund

Editor’s note: This post is an abridgment of a longer opinion editorial published on January 10th, 2019 in the American Bar Association’s Civil Rights and Social Justice section newsletter. 

Class and collective actions have long been critical for combatting discrimination and making the guarantees of equality and opportunity, enshrined in our civil rights laws, a reality. Low-wage workers, women, people of color, and people with disabilities have led many of the most significant civil rights class actions. But the recent proliferation of forced arbitration and class action waivers curtails the ability of all people to fully enforce their statutory rights, including those rights intended to guarantee fair and nondiscriminatory employment. More than sixty-million private sector, non-union workers have been forced to sign arbitration agreements with their employers, and almost half of these agreements include mandatory class action waivers that bar workers from filing claims as a group to enforce their rights. Forced arbitration clauses especially impact the most vulnerable, binding the majority of all workers who earn less than $13 an hour.

As we argued in an amicus brief last year before the U.S. Supreme Court, lawmakers intended for the enforcement of our civil rights laws to be collective. Class and collective action empowers those that share the same experiences and injuries to stand together and assert their rights as a group, and they are critical to achieving widespread, systemic change. Class action waivers in mandatory arbitration agreements can erase all of these benefits, requiring employees to pursue their claims through individual arbitration. 

In a class action, everyone’s a winner.

A series of Supreme Court decisions since the early 1980’s has largely sanctioned and accelerated the propagation of forced arbitration, including agreements that prohibit class litigation. Most recently, in Epic Systems v. Lewis (2018), the Court rejected arguments that the National Labor Relations Act (NLRA) bars enforcement of mandatory arbitration. Writing for the Court, Justice Gorsuch held that, “this Court has never read a right to class actions into the NLRA,” and that, “[t]he notion that Section 7 confers a right to class or collective actions seems pretty unlikely.” The upshot, as Justice Ginsburg wrote in her vigorous dissent, was the “underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” 

With class action waivers given credence, mandatory arbitration has generally circumscribed the practical enforcement of statutory civil rights. By barring potential class action plaintiffs from using one of the most effective tools to vindicate their rights, the substantive rights themselves are placed out of reach. Two recent pro-worker victories in state courts, however, signal that certain civil rights laws can still preserve plaintiffs’ right to litigate their claims. While both cases were individual actions, the laws on which the courts relied would also protect plaintiffs proceeding as a class, and their reasoning applies equally to prohibitions on collective civil rights enforcement actions.

First, in Northern Kentucky Area Development District v. Snyder (2018), the Kentucky Supreme Court refused to enforce an arbitration agreement that the employee was required to sign as a condition of her continued employment. A state law prohibited employers from conditioning employment on an existing or prospective employee’s agreement to “waive, arbitrate, or otherwise diminish” her claims or rights. The court declared that the law was itself an “anti-discrimination statute” and a “law of general applicability” that protects employees against being forced to surrender their rights in any forum. Beyond agreements to forced arbitration, the law would void any agreement to waive a whistleblower claim or limit damages recovery if imposed as a condition of employment. Filing such claims as a class likely would not alter the law’s protections either. The court said that a forced arbitration clause and the Federal Arbitration Act could not undermine the state law nor an employee’s ability to enforce her rights. In holding that the law “uniformly voids any agreement diminishing an employee’s rights against an employer,” including an arbitration agreement, the Kentucky high court affirmed that a substantive employment right can protect against waivers of other rights.

Unscrupulous and well-funded corporations prefer to meet workers, one-on-one, on the uneven playing field of arbitration.

Second, in Ramos v. Superior Court (2018), the California Court of Appeal refused to compel arbitration of state law sex discrimination and equal pay claims alleged by a law firm partner against her firm. In doing so, the court confirmed the continued validity of Armendariz v. Foundation Health Psychcare Services, Inc., an earlier California Supreme Court decision that prohibits arbitration of state-law employment discrimination claims in certain circumstances. Armendariz created a five-part test to ensure that arbitration agreements do not curtail workers’ rights to bring statutory discrimination claims under state law. Applying the test, the Ramos court found that the arbitration clause was invalid and unenforceable because the express language of the agreement limited the employee’s available remedies and required her to share the costs of arbitration. The decision reiterates that an asymmetrical power dynamic triggers greater scrutiny of forced arbitration, and that parties cannot waive their statutory civil rights. 

Despite these wins, it is high time for federal lawmakers to step up and curb the excessively broad interpretation that courts have taken toward the Federal Arbitration Act, which veers significantly from Congress’s intent in 1925 to enable arbitration of commercial disputes between merchants of roughly equal bargaining power. Several times since 2001, lawmakers have introduced versions of the Arbitration Fairness Act, the latest of which would amend federal law to prohibit mandatory arbitration of employment, civil rights, consumer, and antitrust disputes.

So far, the bill has failed to make it out of committee, but this year, under a Democratic House, civil rights advocates may have a better shot, and they are committed to invalidating class action waivers.

The 2019 Arbitration Fairness Act would prohibit pre-dispute arbitration agreements and agreements and practices that interfere with the right of individuals, workers, and small businesses to participate in group actions of future employment, consumer, antitrust, or civil rights disputes.

Remington A. Gregg, Counsel for Civil Justice and Consumer Rights at Public Citizen, says that, “forced arbitration has denied individuals access to justice for years. We are pleased that Members of Congress are taking greater notice of how forced arbitration clauses and class action bans stymie the rights of consumers and workers to access justice when harmed.” 

Class action waivers deprive victims of civil rights violations (by well-funded defendants) of the small leverage they held through access to class actions. But more than anything, advocates for the most vulnerable Americans must continue to work together to protect collective actions as a robust mechanism to preserve equal access to justice.