Connect with us

The 50-100 Pay Gap

Forced Arbitration Is Making It Harder for Low-Wage Workers to Seek Justice

More than 60 million U.S. workers have been shut out of the court system by companies that mandate arbitration in the event of a dispute.




Photo: Sabthai

Quincy Reeves was working as a janitor in Connecticut in 2019 when he decided he’d had enough. His paychecks from cleaning services giant Coverall Inc. had been shrinking due to deductions for everything from administrative fees to finance payments. “There was a whole lot of stuff coming out of my check,” he told Capital & Main in an interview. “Something seemed funny to me.” 

Along with another janitor, he filed a class-action lawsuit against Coverall, saying it had misclassified its workers as contractors when they were actually employees. Tallying up the gas costs, cleaning supply bills and all the fees he was paying to get clients, he says that some weeks he wasn’t even making minimum wage. 

By late 2020, with many of his clients bailing in the throes of the pandemic, Reeves’ case looked doomed. He had signed a document agreeing to give up his right to fight in court, and Coverall had forced him into closed-door arbitration. When his lawyer called to tell Reeves that the American Arbitration Association had sent a $3,937.50 bill for arbitrator fees, Reeves had to give up the fight. He said he didn’t have the money — little surprise considering he’d been making between $1,700 and $1,800 a month. When AAA saw that it wasn’t going to get paid, it closed his case on Jan. 6, 2021.

“I think they put you through this stuff to deter you,” he said.

*   *   *

More than 60 million Americans in the nonunion private sector workforce have been shut out of the court system by companies that force them to arbitrate in the event of a dispute, according to a 2019 study by Professor Alexander J.S. Colvin of the ILR School at Cornell University. But given the costs, many of those same workers are shut out of arbitration, too. Employment lawyers are often reluctant to take arbitration cases at all because the hours required don’t always justify the potential reward, particularly when low wage workers are seeking justice.  

And the odds of winning are low. In a study of AAA cases decided between 2003 and 2013, Colvin counted cases in which employees won monetary and nonmonetary awards and calculated a win rate of 19.1%. The numbers were much worse in a more recent examination that counted a case as a win only if the employee got a monetary award: In 2020, the nation’s two biggest employee arbitration forums — the American Arbitration Association and JAMS — made final decisions on 5,250 workers’ cases, according to a 2021 study by the American Association for Justice.

Only 82 of those workers received a monetary award.


“Low-wage workers have the least bargaining power. Whatever the employer insists on, they are going to agree to.”

~ Joseph M. Sellers, Attorney

Women, minority and low wage workers are the most likely to be forced into arbitration, according to Colvin’s research. The biggest users of arbitration, at 62.1%, are the education and health industries, which traditionally have been female-dominated, while the lowest user is the male-dominated construction industry, at 37.7%. The study said that 59.1% of African-Americans were subject to mandatory arbitration compared to 55.6% percent of non-Hispanic whites . 

Among workers making less than $13 an hour, 64.5% were bound to arbitration agreements — higher than for any other pay level, according to Colvin. That number declined to 54.1% for employees making more than $22.50 an hour.

The high rates of forced arbitration of low wage workers makes it particularly difficult for them to proceed with a case at all, because arbitration, as Reeves found out, can turn out to be too expensive. And it isn’t as if workers of modest means have any choice but to agree when employers hand over documents to be signed on the first day of work, says Joseph M. Sellers, co-chair of the Civil Rights & Employment Practice Group at Cohen Milstein in Washington, D.C. “Low-wage workers have the least bargaining power,” he said. “Whatever the employer insists on, they are going to agree to.”  

In Colvin’s view, that makes arbitration a contributor to income inequality, because highly paid executives who can afford employment lawyers can negotiate their terms of employment while low wage workers simply accept the policies that companies demand. And corporations’ increasing use of policies that bar class action lawsuits hits low wage workers hardest of all. Class actions are the only economically feasible way for lawyers to proceed with wage theft cases, for example, which leaves  many low wage workers with no way to pursue their claims.

The biggest companies use arbitration most of all, according to Colvin: 65% percent of companies with 1,000 or more employees required arbitration. Still, nearly half of companies with fewer than 100 workers demand arbitration, too. “Mom and Pop companies oftentimes have the same employment counsel as the larger companies,” said Maine employment lawyer Jeffrey Neil Young. “And they have put the word out pretty much to all of their clients that they should require arbitration of any disputes.”


In 2019, more than 4.5 million workers who were subject to mandatory arbitration and making less than $13 an hour failed to bring wage theft claims worth an estimated $9.27 billion.


Forced arbitration can even be found in documents that farm workers are forced to sign, says Hugh Baran, a New York employment lawyer. “It is really spreading quite widely.” In 2019, the Center for Popular Democracy and the Economic Policy Institute estimated that, barring congressional action, company policies that both force arbitration and prohibit groups of employees from joining in court or in arbitration will block more than 80% of private sector, nonunion workers from court by 2024.

That’s a boon to companies looking to reduce damaging financial exposure: Based on research that estimates 98% of private sector, nonunion employees subject to arbitration will abandon their claims, a report by the National Employment Law Project calculated that, in 2019, more than 4.5 million workers who are subject to mandatory arbitration and making less than $13 an hour would fail to bring wage theft claims worth $9.27 billion.

*   *   *

As Reeves learned, fighting back can be a Kafkaesque challenge

After he filed his lawsuit in 2019, Reeves was shunted to arbitration and got to work fighting for relief from the high costs. First, he tried to persuade AAA that he should proceed under the forum’s low-cost employment arbitration rules. The AAA initially said it would do that, but Coverall objected and said that AAA’s commercial rules, which required Reeves to pay a $925 filing fee and half of the arbitrator’s fees, should apply. 

The AAA caved to Coverall’s demand. Reeves managed to get a financial hardship waiver of the $925 fee from AAA. But when he tried to persuade the arbitrator that he couldn’t afford the rest of the charges, his effort failed. That’s when that $3,937.50 bill arrived, and Reeves had to bail. “I thought, all right, they’re robbing me, and there’s no recourse,” he said. 

Coverall didn’t respond to emails or phone messages left with its lawyers and its media relations staff. An AAA spokesperson said in an email that its policy is “not to comment on any arbitrations that may have been administered by the Association.”

That could have been the end of Reeves’ case, but his lawyer, Shannon Liss-Riordan, persuaded a federal judge to reopen the court case, which had been temporarily stopped pending the arbitration. Coverall, the judge said in March, had the option of fronting all of the arbitrator’s fees, but refused to. And there was no question that Reeves couldn’t afford to pay, the judge added. The $3,937.50 charge “would have drained approximately forty-four percent of Reeves’ $8,963 net worth,” she wrote. He could move forward with his court case.

Three weeks later, though, Coverall filed for an appeal.


Nearly a third of U.S. companies bar both individual court cases and collective actions.


Truck driver Martin Forero faced some of the same frustrations. He and other drivers for Strategic Delivery Solutions, a company that arranges medical deliveries to health care facilities, filed a class action lawsuit in 2015, saying that they, too, had been misclassified as independent contractors. Just as happened with Reeves, a federal judge said in 2016 that the drivers would have to have their grievances heard by arbitrators.  

Forero began the paperwork for the arbitration process. But when AAA sent him a bill for $11,900 in advance of the hearing, his lawyer told SDS and the arbitrator that Forero could not afford to proceed with the arbitration. Despite that, with neither Forero nor his lawyer present, SDS and the arbitrator went ahead with the hearing anyway. The  arbitrator ruled for SDS and told Forero to pay a $7,010 bill to reimburse SDS for half the fees it had fronted.

To collect arbitration awards, winners have to ask a court to confirm the arbitrator’s decision, so SDS filed that so it could collect its $7,010 from Forero. But a New York federal judge later overturned the award. There had been no need to proceed with the arbitration since Forero and his lawyer had been clear that they were walking away from the claim, the judge wrote: “There was simply nothing left for [the arbitrator] Judge Rosenblatt to decide.”

It was a win that Forero wasn’t stuck with a $7,010 bill, but he still spent years of his life in a frustrating legal battle that ended with no award. Baran, who represents five of the SDS drivers, called it “a real example of someone being bullied out of their rights.

New Jersey lawyer David F. Jasinski, who represents SDS, said in a phone interview that the SDS drivers were far from low wage workers, with many of the drivers making more than $50,000 a year. (Two made as little as $408 a week after paying for gas and parking, though). As for Forero, “From SDS’s perspective, the parties had agreed to go to arbitration, we had already selected an arbitrator, and the arbitrator is the one who went forward,” he said. Asked why SDS didn’t offer to pay the fee so that the hearing could go on with Forero’s participation, he said, “There is an argument to be made that it’s not fair and impartial” when the parties don’t split the costs.

*   *   *

When it comes to employee disputes, nothing is of more critical importance to corporations these days than avoiding situations in which workers can join collectively, whether before a court or an arbitrator. “The most effective weapon against employees today” is an arbitration policy that also bars class actions, said San Francisco lawyer Cliff Palefsky. Nearly a third of U.S. companies bar both individual court cases and collective actions, according to the Colvin study. 

Earlier this year, Joe Biden signed a bill into law outlawing forced arbitration of sexual assault and sexual harassment claims. It was a setback for corporate defendants, but didn’t threaten the arbitration benefits that mattered most to them. Corporate defense lawyers reminded clients they had much to be thankful for. “With respect to wage-hour claims — for many employers, the greatest hotbed of potential legal liability — arbitration agreements, including class/collective action waivers, remain alive and well,” wrote two lawyers at Seyfarth Shaw.

Some lawyers for workers have found ways to weaponize forced arbitration, filing thousands of arbitration demands at a time that can result in millions of dollars in fees charged to companies. But companies are fighting back, their defense lawyers advising them to amend their arbitration policies by ramping up costs for employees and adding rules that would favor firms when employees file en masse.


Embarrassing and public, collective actions hold lawbreakers accountable in a way that closed-door individual hearings never can.


With dwindling opportunities for multiple low wage workers to seek justice, employee advocates have taken solace that California has offered a workaround since 2014. Workers there have been able to act as private attorneys general, suing over labor law violations on behalf of the state. 

That strategy is under threat now, too. When a sales representative at Viking River Cruises, Inc,. filed a claim under the state’s Private Attorney Generals Act, Viking took her to court, saying she’d signed an arbitration agreement and couldn’t proceed. The sales rep, Angie Moriana, said Viking had failed to pay overtime at the required rate and wasn’t providing meal and rest periods. 

The California Supreme Court agreed that Moriana had the right to bring the action. But Viking took the case to the Supreme Court, which heard arguments on the matter on March 30. Labor advocates are nervous that the conservative-leaning court will side with management.

As corporate America closes more doors to the courts, larger consequences loom. Embarrassing and public, collective actions hold lawbreakers accountable in a way that closed-door individual hearings never can. As things stand, it is easy to break the law with impunity. 

What would the business world look like if mandatory arbitration and class action waivers became a thing of the past? “It would change business behavior in a real way and workers would have wages stolen less often,” said Baran. “But when they did have wages stolen, they would have real redress.”

Copyright 2022 Capital & Main

Continue Reading




Top Stories