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It’s starting to look like Republicans and Democrats in Congress may actually reach a deal on something.
Not on health care, or immigration, or any other topic dominating the headlines, but a deal on a wonky legal loophole that bars millions of Americans from getting their day in court.
Senate Republicans held a committee hearing Tuesday on corporate America’s alarming use of mandatory arbitration clauses, a common business practice that requires workers and customers to waive their right to sue the company. Millions of Americans have unknowingly signed or accepted these contract clauses, in which they agree to take legal disputes to private arbitration — a secretive legal forum with no judge, no jury, and practically zero government oversight.
In private arbitration, workers are less likely to win their cases, and when they do win, they tend to get much less money than they would in court.
Consumer advocates and labor groups have long opposed forced arbitration, but the #MeToo era has pushed this semi-obscure (though widespread) legal practice into the national spotlight, revealing its role in keeping sexual harassment complaints and illegal business practices hidden from the public for decades.
And while Democrats in Congress have introduced a slew of bills to ban or limit arbitration clauses, Republicans have stayed mostly silent. But there now appears to be some bipartisan agreement on the issue. Several Republican senators are showing new concern about the arbitration system, and seem willing to work with Democrats to fix it.
Sen. Lindsey Graham (R-SC), the chair of the House Judiciary Committee, is one of those arbitration skeptics. He said he scheduled Tuesday’s committee hearing on the topic to discuss the benefits and drawback of this private legal forum, so senators can “develop some solutions.”
“I believe arbitration has a place in society. I want to be pro-business, but everything that’s good for business may not be the best answer for society,” Graham said during his opening remarks. “In 2019, I want to look long and hard on how the system works; are there any changes we can make?”
A few Republican senators on the committee, who are also lawyers, shared similar concerns, suggesting that arbitration reform may be one of the rare issues in Congress that could lead to a bipartisan compromise.
Millions of workers can’t sue their employers, and they probably don’t know it
About 60 million American workers have given up their right to go to court just to earn a paycheck.
That’s because these employees signed mandatory arbitration agreements, which are often buried in a stack of hiring documents that managers require new employees to sign. They usually have a legalese-laden name, such as “Alternative Dispute Resolution Agreement.”
Chances are if you’re reading this article and you work for a private company, you signed one too. About half of non-unionized workers at US companies are subject to these agreements — more than double the share in the early 2000s. America’s most well-known companies, including Walmart, Starbucks, Macy’s, Uber, and McDonald’s, now require some or all of their workers to sign them.
The rise of mandatory arbitration has made it nearly impossible for workers to seek legal justice for wage theft, overtime violations, and job discrimination. This secretive system also has the potential to hamper the #MeToo movement.
Women are coming forward, often for the first time, with stories of widespread sexual harassment at work, only to discover that they’ve been shut out of the court system because they signed an arbitration agreement. The practice is particularly harmful to women and black employees, as they are more likely to be subjected to arbitration agreements because they make up a large share of workers in the industries that require arbitration the most: education and health care.
“What’s really happening is that our judicial system is getting privatized,” David Gottlieb, an employment attorney in New York who often represents workers in arbitration, told me last year. “It’s being privatized in a way that really only favors one side, the employer.”
But it’s not just hospitals and universities that have gone this route. Silicon Valley tech companies are also fans of mandatory arbitration clauses. And in the wake of a 2017 Supreme Court ruling that allows employers to prohibit class-action claims from workers in arbitration, companies have even more incentive to add arbitration clauses to their employment contracts.
The negative impact of this trend on workers and consumers was all too clear at Tuesday’s Senate hearing.
Witnesses described frustrations with the arbitration system
The guests invited to testify at Tuesday’s Senate hearing on arbitration included the usual suspects: lawyers aligned with big businesses, an academic expert, and consumer rights advocates. But the inclusion of two unexpected witnesses — a US Navy reservist and a restaurant owner — signals that GOP leaders want to show the impact of arbitration on two of their traditional constituencies: military service members and small business owners.
Kevin Ziober, the Navy reservist, said he had “no choice” but to sign an arbitration agreement when managers at a California company presented one to him after he was hired in 2010. Ziober didn’t want to lose his job, he said during the hearing, so he signed it. Then in 2012, the company fired him the day after he deployed to serve 12 months as a reservist in Afghanistan. He tried to file a lawsuit against the company for violating a federal law that requires employers to hold a job for reservists who are deployed. But because he had signed an arbitration clause, a federal judge ruled that he would have to resolve his complaint in private arbitration.
In taking his case to arbitration, Ziober said he felt completely disempowered:
I would have no access to a federal judge nominated by the President and confirmed by the Senate, I would lose my Seventh Amendment right to a jury trial, I would lose any meaningful right to an appeal, and I would lose my right to a public proceeding of any kind. Along with other servicemembers, I have fought to advance American ideals and values abroad, so it was particularly disheartening to lose these fundamental rights at home.
After hearing his testimony, Sen. Joni Ernst, a Republican from Iowa, seemed sympathetic.
“I am very sorry to hear about what happened to you. You went to serve our country and our country didn’t protect you,” said Ernst, who served in the Army National Guard. “If you had been allowed to litigate your claim in federal court, do you believe you would have been better protected?”
Ziober said that at the very least, public access to the court system would have allowed his case to raise awareness about the pitfalls of arbitration clauses.
“My voice will basically be silenced,” he said. “ Service members who could benefit from this will never learn from it.”
Alan Carlson, a restaurant owner in Oakland, California, told lawmakers he was “shocked” to find out that he had signed an arbitration agreement in his contract with American Express. The point of the contract was to let customers pay for their meals with the popular credit card, and American Express would charge the restaurant a small fee for each transaction. Carlson said he grew frustrated with American Express and tried to sue the company for its strict rules on business owners. But a lawyer told him it was not worth the cost to challenge a giant company like American Express.
“This cost-prohibitive system means that there is no way one small business can get justice done,” he said during the hearing. “I believe this is un-American.”
No Republicans on the committee questioned Carlson, and some GOP lawmakers insisted that the benefits of arbitration outweighed the costs. They said the private legal forum is necessary for businesses to quickly resolve legal disputes, which saves them money, and therefore saves their customers money too.
So it’s not like Republicans are ready to rip up arbitration clauses. But big banks and other corporations are still worried. Even a few Senate Republicans who oppose forced arbitration could be enough to ban the practice.
The renewed focus on arbitration is making big business uncomfortable
To understand how significant it is that Senate Republicans held a hearing on mandatory arbitration, all you really need to know is this: The last time the Senate Judiciary Committee discussed the legislation to regulate arbitration was in 2013, when Democrats controlled the Senate.
With Republicans in charge, few have shown any interest in overhauling the arbitration system. That likely has a lot to do with the fact that the GOP is closely aligned with business interests, and rarely opposes anything the US Chamber of Commerce supports. And the chamber really, really likes arbitration.
The influential business group had lobbied Congress in 2017 to oppose an Obama-era arbitration rule at the Consumer Financial Protection Bureau, which would have prohibited companies from banning class-action lawsuits in consumer arbitration clauses.
The Senate held a vote that year to overturn the arbitration rule, but it barely passed with a 51-to-50 vote. Graham and Sen. John Kennedy (R-LA) were the only two Republicans who voted against scrapping the rule, and Vice President Mike Pence ended up casting the tie-breaking vote. In November, President Donald Trump signed the joint resolution and the rule was revoked.
On Tuesday, a lawyer for the US Chamber of Commerce and an attorney who crafts arbitration clauses for Wall Street banks made the expected argument that arbitration benefits consumers, workers, and businesses, because the process is faster and less expensive than going to court.
Alan Kaplinsky, a consumer financial services attorney who played a central role in the rise of mandatory arbitration, warned senators Tuesday that it could cost companies up to $5 billion every five years if they can’t use private arbitration to resolve legal disputes with consumers.
“Somebody has to bear that cost. Does it all get passed on to the shareholders? Probably not. Does it get passed on in the form of higher prices for everybody or just some segments of the market, or segments of the market that are more risky to credit default?” Kaplinsky asked rhetorically. “Somebody ends up having to bear that cost; you don’t get a free lunch.”
It’s true that arbitration is faster and less expensive than going to court, and that some workers and consumers may prefer it. But Kaplinsky and others obscure the fact that no one is trying to outlaw the practice altogether.
Democrats in Congress want to make arbitration optional, not something forced upon consumers and workers. For example, if an employee believes a company owes her money, she can decide to take their claim to court, or in arbitration.
In October 2017, then-Rep. Beto O’Rourke (D-TX) introduced the Mandatory Arbitration Transparency Act, which prohibits businesses from including a confidentiality clause in their arbitration agreements related to discrimination claims. That December, a bipartisan group of senators and representatives introduced the Ending Forced Arbitration of Sexual Harassment Act, which exempts sexual harassment cases from required arbitration.
Then in March 2018, Sen. Richard Blumenthal (D-CT) and a group of Senate Democrats proposed an even better idea: Don’t let businesses force employees and consumers to take their claims to arbitration. Their bill, the Arbitration Fairness Act, would let workers and consumers decide where to pursue their legal claims.
The bill didn’t get support from Republicans, but the chance of passing the bill got a lot better after Democrats regained control of the House in January. They reintroduced the bill in February, which is now called Forced Arbitration Injustice Repeal Act. It has broad Democratic support, with 172 co-sponsors in the House and 34 in the Senate. But so far, Republicans have not signed on.
The fact that Lindsey Graham organized a committee hearing on the topic is promising and opens the door to possible negotiation. Graham didn’t say what policy changes he would support, but said he was determined to “find a solution.”
Ziober, the Navy reservist who testified on Tuesday, appealed to that sense of bipartisanship.
“Though I have been a registered Republican for the vast majority of my life, I want to see our elected leaders find common ground to protect the rights that make our lives better —like consumer protection, civil rights, and veterans’ rights,” he said.
