The National Consumers League (NCL) welcomes a lawsuit filed in federal court last month by the Department of Labor (DOL) challenging mandatory arbitration clauses that illegally require employees to repay earned wages if the employee does not work for the employers for specific periods of time.
The defendant in the suit is Advanced Care Staffing (ACS), a Brooklyn, New York healthcare staffing provider that required their employees to repay earned wages if they did not complete three years of employment.
“Today, over 60 million workers are now subject to mandatory arbitration,” said Lisa McCormick, the founder of Democrats for Change. “What was once a relatively rare employer practice that only affected about 2% of workers in the early 1990s has grown to include 56% of all non-union private sector employees and 65% of employees making less than $13 per hour.”
If employees tried to leave before the three years were up, ACS mandated employees enter private arbitration and compelled employees to pay for arbitration costs, attorney fees, and future ACS profits—in addition to repaying the wages they had earned.
This policy resulted in employees earning below the minimum wage.
“This situation is just one example of the harm caused by the rise of mandatory arbitration clauses. Many employers now insert—or rather, bury –these clauses in the paperwork that employees must accept if they want a job. They prohibit employees from bringing claims before a judge or jury for wage theft, discrimination and other violations of federal law,” said Seema Nanda, DOL’s Solicitor of Labor.
“For many years, NCL has condemned the rise of forced arbitration clauses to rob consumers and workers of access to justice. This is among the most egregious violations of employee rights we have ever seen. Workers’ right to seek alternative employment must not be compromised,” said Sally Greenberg, NCL’s executive director.
“Consumers and workers are often forced into an arbitration system where corporations write the rules, and those rules are not understood by consumers and employees,” said Greenberg. “There is no meaningful judicial review and no ability to appeal bad decisions by arbitrators who get things wrong. We can never permit consumers and workers to be stripped of their right to go to court, which is guaranteed by the U.S. Constitution.”
The U.S. Department of Labor’s Office of the Solicitor filed a lawsuit asking a federal court to stop Advanced Care Staffing – a Brooklyn, New York, healthcare staffing provider – from illegally requiring employees to repay earned wages if they do not work for the employer for three years.
The lawsuit asserts that ACS used terms it added to employees’ contracts to force employees who left before the three-year term into private arbitrations, and then demanded they not only repay earned wages, but also ACS’s future profits, plus attorneys’ fees and arbitration costs.
These demands would lead to employees being paid less than the federal minimum wage. We are seeking an injunction against this grossly illegal conduct, as well as back wages and liquidated damages for the affected employees.
This situation is just one example of the harm caused by the rise of mandatory arbitration clauses. Many employers now insert – or rather, bury – these clauses in the paperwork that employees must accept if they want a job.
They prohibit employees from bringing claims before a judge or jury for wage theft, discrimination and other violations of federal law. Instead, disputes must be resolved through a private arbitrator.
These arrangements typically require employees to give up their right to bring class and collective actions, which have historically complemented the Labor Department’s enforcement actions.
Most low-wage workers simply cannot afford the high cost of pursuing individual claims – especially when each employee’s expected recovery is less than the cost of litigation.
As a result, by one estimate, workers subject to mandatory arbitration bring 98% fewer claims under the Fair Labor Standards Act compared to those not subject to mandatory arbitration.
And because many mandatory arbitration provisions require confidentiality, if a worker does bring a claim, other workers – even at the same workplace – may never even learn that they also are be entitled to labor law protections.
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