The Washington PostDemocracy Dies in Darkness

There’s a little-known employment contract provision enabling billions of dollars in wage theft each year

Forced arbitration costs low-paid workers $12.6 billion in 2019, an analysis by an employee advocacy group finds

An activist wears a “Fight For $15" T-shirt during a news conference last summer in Washington. New research shows that forced arbitration clauses cost low-earners billions of dollars in stolen wages. (Alex Wong/Getty Images)
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It’s no secret that the balance of power in America’s workplaces has shifted from employees to employers in recent decades. Among other things, business leaders and lawmakers have worked in tandem to weaken unions, concentrate hiring power among fewer employers and keep wages low.

But employers have put their thumbs on the scale in less obvious ways. A new brief from the National Employment Law Project, a legal and workers rights group, underscores one of them: forced arbitration, which requires workers to settle disputes with their employer in the office of a private mediator, rather than in a court of law. The NELP brief, by staff attorney Hugh Baran, estimates that forced arbitration clauses cost low-paid workers $12.6 billion in stolen wages in 2019.

“People look at this issue as kind of a procedural one,” Baran said in an interview. “But the reality is it’s a substantive economic issue.”

Baran’s brief concerns wage theft: when employers steal money from their workers by, for instance, not paying them overtime, requiring them to perform their duties off the clock, or not paying the minimum wage.

Traditionally, an employee with a wage theft claim would go to court and sue for what’s owed, either alone or as part of a class-action lawsuit. But starting in the 1980s, as Baran tells it, creative employers began arguing they could force their employees to waive their right to a trial as a condition of employment.

Rather than going to court, employees would have to resolve their disputes through mediation. But third-party mediators rely on repeat business from the companies they serve, creating a critical conflict of interest: If mediators want to maintain their business relationship with a given company, it’s in their interest to rule in that company’s favor.

“If the arbitrator rules too often in favor of employees, they’re not going to get picked” for repeat business, Baran said. “The structural incentives are entirely on the employer side.”

Beyond conflict of interest, companies often work to game the arbitration system in their favor. Facing wage theft claims from thousands of its workers, food service company DoorDash, for instance, refused to pay its share of arbitration fees and attempted to introduce new arbitration rules in the middle of the process.

The available data on forced arbitration, from Cornell University’s Alex Colvin and others, make clear why many employers prefer to go that route: Employees are much less likely to win their claim under arbitration (21.4 percent) than they are in federal (36.4 percent) or state (51 percent) courts. And even when they do win, they tend to recover much less money than they would in court: a median of $36,500 in damages under arbitration, compared to $176,000 in federal courts and $86,000 in state courts.

Applying published figures like those to instances of wage theft alone, Baran estimates that forced arbitration clauses are costing low wage workers — those who earn less than $13 an hour — about $12.6 billion in stolen wages a year. To put that figure in context, it’s of a similar order of magnitude to the total financial losses from all property crime in the United States in a given year, which stood at $16.4 billion in 2018.

Business groups like the U.S. Chamber of Commerce have vigorously promoted and defended the use of forced arbitration to settle workplace disputes. In a 2017 legal brief, the Chamber argued that mandatory arbitration agreements “provide for timely resolution of workplace disputes, which benefits employees and limits costly and needless class action litigation.” In recent years, however, some companies like Google, Inuit and Adobe have begun curbing the practice in response to pressure from their employees.

NELP estimates that roughly “55% of all private-sector non-union employees are currently subject to forced arbitration, including 64.5% of workers earning less than $13 per hour.” Baran expects that number to rise in coming years as more employers adopt the practice. If you work in the private sector in a non-union position, in other words, chances are good that you’re subject to a forced arbitration agreement, or will be in the coming years.

The practice has come under congressional scrutiny recently, in part because arbitration clauses have been used to shield workplace sexual misconduct allegations from public scrutiny. Last fall, the U.S. House passed the Forced Arbitration Injustice Repeal Act, which would effectively end the practice. All but two Democrats supported it with all but two Republicans opposed, giving some idea of the partisan split around the issue. A companion bill in the Senate has been languishing without action in the Judiciary Committee since February 2019.