2019 Winter Member Op-Ed

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

By David Nahmias

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. When people band together to assert their rights, they can unearth larger patterns of inequality and prejudice and secure widespread, systemic change. Low-wage workers, women, people of color, and people with disabilities have led historic civil rights class actions that have molded our society today.

The recent proliferation of forced arbitration and class action waivers curtails the ability of all people to fully enforce their statutory rights, including those intended to guarantee fair and nondiscriminatory employment. Some 60.1 million private sector, nonunion 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. Forced arbitration clauses especially impact the most vulnerable, binding the majority of all workers who earn less than $13 an hour.

Arbitration was originally designed as an effective and efficient means of dispute resolution but, in recent years, corporations have weaponized it to keep employment discrimination and other civil rights suits out of court. They do so simply because they have a greater advantage in arbitration: arbitrators who obtain fees from adjudicating disputes have an institutional bias favoring repeat players, proceedings and judgments are often confidential and cannot set legal precedent, and plaintiffs forced to waive class claims lose statutory and procedural rights available to them in state and federal courts.

Americans have grown more aware of the proliferation and limitations of mandatory arbitration. Recently, public pressure led some high-profile tech companies to voluntarily drop forced arbitration of sexual harassment cases. These internal policy changes, however, apply only to individual suits, not the class actions that corporations particularly fear. As long as arbitration agreements continue to prohibit collective action, large-scale civil rights abuses will continue unabated. With practical enforcement of our civil rights regime jeopardized, its promise to afford equal opportunity becomes increasingly illusory.

Class Actions Are Critical to Enforcing Civil Rights

Since the passage of the 1964 Civil Rights Act, many of the most significant and lauded employment discrimination cases under Title VII have been class actions. The employees in these cases successfully challenged systemic workplace rules and practices, and the decisions established groundbreaking protections for women, older workers, and workers of color, among others. Lawmakers intended for enforcement of these key workplace rights to be collective, recognizing that “Title VII actions are by their very nature class complaints.” The drafters of the 1966 amendments to Rule 23, which established the modern framework for class actions, also stressed the importance of injunctive-relief classes for enforcing anti-discrimination laws.  The same is true for other statutes governing the workplace. By directly incorporating collective action procedures in the New Deal-era Fair Labor Standards Act, Congress evinced its intent that “plaintiffs should have the opportunity to proceed collectively” when enforcing their right to a fair wage.

Class and collective action is important to the enforcement of civil rights for many reasons. It empowers those that share the same experiences—and same fears—to stand together and vindicate their rights as a group. Group action buffers against threats of employer retaliation that frequently deter victims of discrimination and wage theft. It can also allow groups of plaintiffs to share the burden of costly litigation.

Class cases are also critical to achieving systemic change. Discrimination is rarely overt; more often, it is invidiously hidden beneath facially neutral practices and policies. Class actions unlock access to legal concepts like disparate impact or pattern-or-practice theories that allow plaintiffs to demonstrate widespread discrimination through statistical and anecdotal evidence. Finally, class actions can obtain systemic injunctive relief. A showing of pervasive discrimination permits courts to order wide-ranging programmatic changes, which attack the root causes rather than simply compensating individual victims for past injuries.

Civil Rights Class Actions Amid an Expansive Arbitration Jurisprudence

Class action waivers in mandatory arbitration agreements can erase all of the opportunities and benefits of collective action. Often hidden among an arbitration agreement’s boilerplate terms, class action waivers prohibit employees from joining together in any manner to vindicate their rights to fair and nondiscriminatory workplaces and other core statutory rights. Instead, employees can only pursue their claims through individual arbitration. Confidentiality provisions in arbitration agreements also defeat multiple plaintiffs’ ability to show discriminatory practices through similar claims, thereby thwarting another benefit of collective action.

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. Indeed, an expansive interpretation of the Federal Arbitration Act is one of deceased Justice Antonin Scalia’s chief legacies. Coupled with a concerted offensive against class actions by pro-corporate interests like the U.S. Chamber of Commerce, arbitration advocates have zeroed in on class action waivers as a key instrument in their campaign to restrict workers from enforcing their rights.

The floodgates opened with the Court’s decision in AT&T Mobility LLC v. Concepcion (2011), which allowed class action waivers in consumer contracts to stand over state common law contract defenses. Then, in American Express Co. v. Italian Colors Restaurant (2013), the Court largely eviscerated the effective vindication doctrine, which previously held that courts could not enforce arbitration clauses if a plaintiff would have to forgo a substantive statutory right in arbitration. In Italian Colors, the Court enforced a class action waiver, holding that it only limited how the plaintiffs could pursue their remedy—through arbitration—and did not “eliminate th[e] parties’ rights to pursue their statutory remedy.” That individual enforcement of civil rights laws could be cost-prohibitive to plaintiffs was of no interest to the Court. Decisions like Concepcion and Italian Colors largely licensed corporations to force arbitration and foreclose collective actions, thus imperiling a crucial mechanism for plaintiffs to join together and vindicate their rights. Although civil rights class actions have so far defied some doomsday predictions, their future has seemed bleaker than ever.

Last year, the Court took another step toward decimating civil rights group actions by upholding class action waivers in contracts binding unionized workers. In Epic Systems Corporation v. Lewis (2018), the Court rejected arguments that the National Labor Relations Act (NLRA) bars enforcement of mandatory arbitration. The National Labor Relations Board had previously ruled that class action waivers in mandatory arbitration infringed on Section 7 of the Act, which guarantees workers “the right . . . to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” because class actions amounted to a concerted employee activity. 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.” After incorporating the rule from Concepcion that the Federal Arbitration Act preempted state law contract defenses (in this case, that class action waivers in employment contracts were illegal and unenforceable under the NLRA), the Court thoroughly rejected the notion that the NLRA displaced the Arbitration Act.  Ultimately, the Court ruled that “the law is clear,” that mandatory arbitration and class action waivers “must be enforced as written,” even if they force workers to go it alone.

In a vigorous dissent, Justice Ginsburg observed that the NRLA accounted for the long history of employees engaging in “concerted activities” like collective actions to secure better rights. She would have found class action waivers in employment contracts unlawful as interfering with workers’ rights, and she denounced the Court’s “exorbitant application” of the Federal Arbitration Act over the years.  The upshot of the Court’s “egregiously wrong” decision was “the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Indeed, given the “centrality of group action to the effective enforcement of antidiscrimination statutes,” the Epic Systems Court issued another blow to an already wounded body of civil rights laws in this country by undercutting plaintiffs’ ability to join together as a class.

Looking ahead, it is highly unlikely we will see an about-face by the Supreme Court on arbitration and civil rights jurisprudence.  Last October, the Court heard arguments in three arbitration cases. Its new unanimous decision in Henry Schein, Inc. v. Archer and White Sales, Inc. (2019) on who decides when to arbitrate, an arbitrator or the court, leaves little doubt that the Court is proceeding along the path it has trodden so far—privileging arbitration over genuine access to justice.

The Unwaivability of Statutory Rights: A View from State Courts

            With class action waivers on solid legal ground, 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 appear more out of reach. A few glimmers of hope, though, have recently come out of state courts. While the Federal Arbitration Act largely governs and preempts state law claims, states still can adopt rules that protect rights on a general basis, including those subject to arbitration. Two recent victories for workers decided after Epic Systems signal that certain civil rights laws can still preserve plaintiffs’ right to litigate their claims before Article III courts. While both cases were individual actions, the laws on which the courts relied would also protect plaintiffs proceeding as a class—they therefore stand as guideposts for future collective actions to enforce civil rights laws.    

            First, in Northern Kentucky Area Development District v. Snyder, 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. Without denying the “broad preemptive effect” of the Federal Arbitration Act, the Court “fail[ed] to see how a law . . . that does not actually attack, single out, or specifically discriminate against arbitration agreements must yield to the FAA.” 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—which was a general “anti-employment discrimination” statute, “not an anti-arbitration clause provision”—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.

            Second, in Ramos v. Superior Court, the California Court of Appeal reversed the trial court on a petition for review and 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.,[40] 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 her arbitration clause was invalid and unenforceable because the express language of the agreement limited her 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.

Neither Northern Kentucky Area Development District nor Ramos deal directly with class action waivers. Regardless, these decisions limit the seemingly boundless reach of arbitration provisions, and their reasoning applies equally to prohibitions on collective civil rights enforcement actions.

Legislating Actual Access to Justice

            Justices Gorsuch and Ginsburg’s dueling opinions in Epic Systems agreed that Congress is the ultimate authority on this matter. It is high time for lawmakers to step up. The expansive approach courts have taken toward the Federal Arbitration Act in recent decades 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 a bill that tries to revamp the playing field for arbitration and civil rights. Called the Arbitration Fairness Act, the latest version would amend the Federal Arbitration Act to prohibit mandatory arbitration of employment, civil rights, consumer, and antitrust disputes, but it has not yet made it out of committee.

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 a joint, class, or collective action 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, but the #MeToo movement has shined light more brightly than ever on the insidiousness of forced arbitration clauses. 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.” While the bill continues to face significant hurdles, advocates’ long-term vision is for a policy agenda that addresses the conflict between forced arbitration and vigorous civil rights enforcement.

            Forced arbitration and class action waivers barrel forward, leaving our civil rights laws under-enforced. Victims of civil rights violations by well-funded defendants are being deprived of the small leverage they held through access to class actions. Requiring them to surrender this power through forced arbitration and class action waivers silences their voices and thrusts their rights out of reach. By enforcing class action waivers, federal courts are quietly shutting their doors to low-income workers, women, people of color, and people with disabilities. For now, collective civil rights actions might still find hope in state courts. 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.  

David Nahmias is a Law Fellow with the Impact Fund, a non-profit legal foundation in Berkeley, California that promotes social justice through class action and impact litigation, innovative technical support and training, and grantmaking. David is a 2018 graduate of the U.C. Berkeley School of Law, where he was a Supervising Editor of the California Law Review and Editor-in-Chief of the Berkeley Journal of International Law. He previously worked at Ashoka, a non-profit organization supporting social innovation, and was a Fulbright Scholar in Mexico from 2010-2011.