By Lauren Weber
Companies are quietly eliminating a long-held employee
privilege: the right to band together to take the boss to
court.
As employers try to stem the costs of lawsuits, more companies
are requiring workers to bring serious complaints to arbitration
and forbidding employees from participating in class actions.
The percentage of companies using arbitration clauses to
preclude class-action claims from employees soared to 43% last year
from 16% in 2012, according a survey of nearly 350 companies
conducted by management-side law firm Carlton Fields Jorden Burt
LLP.
Fueling the trend is a 2011 Supreme Court ruling that upheld
such agreements. The result, say lawyers on both sides of the
issue, has been a notable decline in actions that accuse
corporations of wage theft, discrimination, and other systemic
violations of labor laws.
Employers prefer arbitration because it is usually less
expensive and faster than litigation.
Drug-store chain CVS Health Corp., which began an arbitration
program for employees last year, maintains that it is a faster and
better way to resolve issues.
"In general, arbitration is less formal, more efficient and less
time-consuming than the traditional court process," CVS spokesman
Michael DeAngelis said. "Employees who choose to participate in the
program have the ability to make the same claims and recover the
same remedies."
Employers also like it because it tends to go their way. A 2011
Cornell University study found that arbitrations favor employers
more often than litigation does, and result in lower awards for
employees.
Joseph Otis signed a contract containing an arbitration clause
and class-action waiver in 2012 when he enlisted with Arise Virtual
Solutions Inc. to become a remote customer-service agent for the
Miramar, Fla., company's corporate clients.
As an independent contractor, Mr. Otis, of Marietta, Ga., paid
about $1,500 for telephone and computer equipment, $239 for an
unpaid three-month class on resolving problems for AT&T Inc.
customers and even the $15 for Arise to conduct a background check
on him.
Over the course of a year, he started thinking the deck was
stacked against Arise agents. They were subject to extensive
control from the company, which recorded the calls and tracked
their length, but they rarely, if ever, got the hours they were
promised. In 2013, Mr. Otis and several other agents filed a
class-action lawsuit against Arise, seeking reimbursement for their
unpaid training time, among other things.
The company challenged the workers' right to bring the class
suit and won, forcing them to enter individual arbitrations. Arise
said it doesn't comment on litigation.
CVS Health Corp., Sears Holding Corp.'s Sears and Kmart units,
Nordstrom Inc., Uber Technologies Inc., and Halliburton Co. are
among the large employers that require workers to waive their right
to sue as a class.
Lawyers agree that a 2011 Supreme Court case, AT&T Mobility
v. Concepcion, gave employers confidence that courts would uphold
class-action waivers. In the Concepcion case, the court ruled 5-4,
with conservative justices prevailing, that customers trying to sue
the telecom over a sales-tax issue couldn't do so because they had
forfeited the right in the fine print of their service
contract.
While that case involved consumers, corporations and lower
courts have extended their interpretation of the ruling to cover
employees as well.
"This is a very live area right now," said Zachary Fasman, a
management-side attorney with Proskauer Rose LLP. "Avoiding class
actions is very attractive to the extent that employers can avoid
the cost of litigation, the complexities of federal or even state
litigation, to the extent they can avoid jury trials."
Class actions are complex, expensive and lengthy, but they serve
multiple purposes for enforcing labor laws, say plaintiffs'
attorneys. They afford anonymity to individual workers who might be
afraid to pursue a claim on their own. Damages can be significant,
so lawyers have more incentive to take on the cases and also front
the money for costly research and statistical studies. And they can
lead to orders for injunctive relief, forcing companies to make
broad changes to their labor practices rather than simply paying
damages to a single victim.
Arbitration claims can be brought on a class basis, though
arbitrators have less discretion than judges over certain aspects
of the process, such as calling witnesses. But when waivers leave
even that type of class action unavailable, workers frequently
abandon claims because individual damages are too small to interest
attorneys.
"If workers are forced to be atomized and alone, they won't be
able to find a lawyer to pursue the case, so the cases will just
disappear," said Paul Bland, director of Public Justice, an
organization that recently produced a documentary about binding
arbitration.
The Carlton Fields survey found that the percentage of
class-action lawsuits that address employment issues slipped to 23%
in 2014 from 28% in 2011. Class-action suits from workers cost
employers $462.8 million in 2014, down from $598.9 million in 2011,
according to the survey.
Prior to the Supreme Court's ruling, the vast majority of
employers didn't require employees to waive their right to join a
class action because lower courts routinely vacated such waivers.
Employers are now confident the waivers will stand up to legal
challenges, say lawyers for workers and companies.
The National Labor Relations Board has ruled that class-action
waivers violate the National Labor Relations Act. Recent decisions
in two NLRB cases--against gas station operator Murphy Oil USA Inc.
and homebuilder D.R. Horton Inc.--put it at odds with the Supreme
Court. But the NLRB's argument has been challenged in circuit
courts, which have ruled against it, upholding the Supreme Court's
direction.
Plaintiffs' lawyers are still arguing that the NLRB decision is
a precedent, but the Supreme Court has refused to take several
employment cases that might clear things up.
Craig Becker, a member of the NLRB's majority in the Horton case
and now general counsel at the AFL-CIO, says he sees no conflict
because the Concepcion case didn't explicitly consider labor
laws.
"It's a lot scarier and the consequences are very different"
than a consumer suing a product maker, he said. "Retaliation is
much more likely. Requiring people to proceed individually is a
much more serious threat to enforcement of the statutes."
Under employment arbitration, parties go before a single person,
usually a retired judge or attorney, who listens to evidence and
issues a decision. Several private organizations, including the
American Arbitration Association and JAMS, formerly known as
Judicial Arbitration and Mediation Services, offer the service.
Shannon Liss-Riordan, Mr. Otis's lawyer, is trying to wear down
Arise by bringing claim after claim from different contractors. An
arbitrator in Texas ruled in favor of one Arise worker in February,
awarding her full damages and requiring Arise to pay her legal
fees. Ms. Liss-Riordan hopes the company will decide facing dozens
of individual cases is no longer in its interests. Arise declined
to comment.
Lawyers also argue that the agreements and waivers exist on an
unequal playing field, with workers either having no choice but to
accept the clauses in order to work or having to embark on an
arduous process to opt out, such as mailing a certified letter to
company headquarters, usually within 30 days.
"There's a fiction that workers' entry into these agreements is
fully voluntary," said Joseph Sellers, a leading plaintiff-side
attorney and a partner with Cohen Milstein Sellers & Toll.
Mr. Sellers recently represented a Spanish-speaking janitor
named Jose Sanchez who signed an arbitration clause and
class-action waiver in order to become a small
franchisee--essentially, an independent contractor--with a
commercial cleaning business called CleanNet USA Inc. The clause
was part of a franchise agreement given to him only in English,
with a representative from CleanNet explaining elements of the
41-page agreement in Spanish, Mr. Sanchez alleged; he said he was
never told about the arbitration clause.
After he sued CleanNet arguing that he and others should have
been classified as employees, the company moved to compel him into
arbitration and to drop his class claims. In January, a federal
judge in Illinois sided with CleanNet.
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