Ban Corporations from Opting Out of Worker Protections

An arbitration clause is part of a contract that forbids either of the parties from litigating a claim—i.e., bringing a lawsuit against the other in court. Instead, they “agree” to bring disputes to a private arbitration process, overseen by an arbitrator.

Most employers also include class-action waivers with their arbitration provisions, which prohibit workers from bringing any claims against their employer on a class or collective basis. If an underpaid worker wants to join with their coworkers to sue their employer for wage theft, for example, they cannot. Those claims must be brought on an individual basis and cannot go to court.

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If a worker suffers a violation of workplace rights—such as racial discrimination, sexual harassment, or wage theft—they generally have the right to go to court to resolve their claims. However, if their employment contract contained an arbitration clause, the worker likely waived that right, and the employer may compel arbitration and dismiss the lawsuit.

An arbitrator’s judgment is generally treated as final and binding, meaning workers cannot appeal the judgment to a state or federal court. The award is also private. Unlike judicial decisions, arbitration awards are not published and do not create any binding rules for future courts or arbitrators to follow. These clauses keep workplace abuse out of the public eye, closing the courthouse doors and eliminating the power of juries or judges to stop, and to publicly rectify, violations of workers’ rights.

No. Workers tend to recover less when they are forced into arbitration than when they litigate their claims in court. The potential to present claims to a jury, along with well-established rules of procedure, generally make the courtroom a better forum for workers.

One study found workers are almost twice as likely to prevail in federal court than in arbitration, and that workers who won took home a cash judgment 15 times greater in court than in arbitration. In federal court, plaintiff employees won 36.4 percent of the time with an average award of $336,291. In arbitration, they won only 18.9 percent of the time with an average award of $21,871. Another study of claims brought by misclassified janitors against their employer found that those forced to arbitrate recovered only a few thousand dollars, in comparison to those able to proceed in court, who recovered upwards of $20,000.

Many workplace claims are for relatively small individual dollar amounts, and they may result from systemic employer policies that affect the entire workforce, like an illegal hiring policy or independent contractor misclassification. Such claims are best suited for class or collective actions. However, employers that mandate arbitration often include class-action waivers in their employment contracts. This prevents workers from litigating their cases jointly, and instead requires them each to proceed with their relatively small individual claims through arbitration.

Workers who have been wronged cannot join together to bring their claims, and for most, that means they cannot afford to bring their claims at all. The cost to workplace enforcement is stark—by one estimate, under 2 percent of workers with employment claims that would otherwise be litigated in court are ever brought to an arbitrator.

No, mandatory arbitration allows employers to keep on breaking the law. Successful arbitration may result in an award of backpay or damages for an individual worker, but arbitrators cannot award injunctive relief—i.e., they cannot order the employer to change their practices going forward.

Because arbitration awards are private and arbitrators lack power to order ongoing compliance, they cannot produce lasting solutions that force employers to change their behavior. As a result, illegal employer practices, like independent contractor misclassification, continue unabated until a court—not an arbitrator—rules them to be illegal.

Mandatory arbitration in the workplace is relatively new and has never been more widespread than it is right now. The share of workers subject to mandatory arbitration rose from just over 2 percent in 1992 to almost a quarter in the early 2000s, and has since more than doubled to over 55 percent.

The Federal Arbitration Act (FAA) is the main federal law that governs arbitration agreements. For many years after the Act’s passage in 1925, arbitration was a procedure limited to contractual disputes between large corporate actors. Employers then began inserting these clauses in employment contracts to cut compliance costs and avoid class-action lawsuits. In a series of decisions beginning in the 1980s, the U.S. Supreme Court expanded the reach of the FAA, requiring enforcement of arbitration agreements to statutory claims, including in employment contracts. Now, even when the provisions are part of take-it-or-leave-it employment contracts between parties with different levels of bargaining power, like a large corporate employer and an individual worker, they are consistently upheld.

Where two parties with similar bargaining power come to a negotiated agreement to arbitrate their disputes, arbitration can mean avoiding some of the legal fees that come with going to court. But for workplace disputes, the effect of arbitration is one-sided. Workers cannot take advantage of the cost-savings and efficiencies of litigating their claims as a class or collective and sharing the associated legal fees. They stand less chance of winning, win much less if they do win, and pay substantial fees to fund the arbitration process.

Change Federal Law: The FAA can be amended or repealed by Congress. In recent years, Democratic lawmakers have introduced legislation, including the FAIR Act, that would exempt most consumer and employment contracts from the FAA.

Change State Law: The U.S. Supreme Court has found most state efforts to circumvent the FAA to be “preempted,” but many states have laws similar to the FAA that pose an additional obstacle for workers. Repealing these harmful laws is a good first step. State laws can also create additional pathways to court for workers, such as third-party enforcement provisions, and “qui tam” statutes like California’s PAGA, and New York’s EMPIRE Act.

Reform the Supreme Court: The outsized importance of today’s FAA is the product of 35 years of anti-worker jurisprudence from the Supreme Court. But the meaning of the FAA continues to be litigated, and the Court’s decisions can be reversed.

Join a Union: Unionized workplaces are governed by collective bargaining agreements, not individual employment contracts, and workers who suffer legal violations can turn to their union for support.

Noncompete provisions are harmful to workers. Originally meant to protect a business’s trade secrets, noncompetes are increasingly being used by companies in low-paying industries to block workers from changing jobs—limiting workers’ economic opportunity and suppressing their incomes. Also, noncompetes are disproportionately harmful to women and people of color and have a history linked to racial injustice.

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Noncompete agreements are clauses in employment contracts that prevent workers from working for “competitor” companies during or after their current employment. These contracts typically restrict workers through time, industry, and/or geography.

More than 30 million workers—at least 18 percent of the U.S. workforce—are required to sign noncompetes as a condition of accepting a job. These include janitors, fast food franchise workers, and dog walkers. Employers often present noncompetes as a “take it or leave it” contract, forcing workers either to sign it or forego employment.

Noncompetes are only one type of clause that can restrict worker mobility. Other limiting clauses include coworker non-poaching agreements; customer non-solicitation agreements; customer non-dealing agreements; non-disclosure agreements; and non-disparaging clauses. Some even require a worker to be an “independent contractor” and have no workplace rights while still restricting the worker’s ability to make a living. Forced arbitration provisions bar workers from bringing claims for labor violations in state or federal courts and have reduced the amount of labor and employment litigation in courts.

They cover many underpaid workers: Almost 30 percent of noncompetes cover workers who make below $13 per hour.

They are difficult to challenge: Unless a state has restricted them, noncompetes are almost impossible for workers to challenge. And many workers simply don’t have the time, money, or access to legal help to challenge them.

They restrict job mobility: Noncompetes make it more difficult for workers to leave for higher-paying jobs.  By limiting where people can work, noncompetes decrease competition between industries and reduce overall wages.

They disproportionately affect women and people of color: Underpaid workers who are most affected by noncompetes are too often women and people of color. Noncompetes decrease entrepreneurship; reduce wage gains; and make it easier for employers to discriminate.

No, noncompetes harm employers and the economy. These clauses reduce the number of available workers, making it harder for businesses to grow. Job mobility helps to stimulate the economy because it encourages innovation when information is shared; entrepreneurship when workers leave their job to start new businesses; and regional industry development because companies can share workers with experience in the field.

No federal ban on noncompete agreements exists. However, on July 5, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy that encourages the Federal Trade Commission to ban or limit the use of noncompetes. In addition, the bipartisan Workforce Mobility Act and Freedom to Compete Act were introduced in 2021 to prevent the enforcement and creation of noncompetes.

There is also a growing movement to ban noncompetes on the state level. State laws that ban noncompetes generally fall into one of three categories: (1) laws to eliminate noncompetes for everyone; (2) laws to eliminate noncompetes for some, based on occupation or income level; and (3) laws to codify stricter requirements in enforcing them. Some examples of states that have passed meaningful bans on noncompetes include California, Connecticut, Illinois, Maine, Maryland, Massachusetts, New Hampshire, Oregon, and Washington.