U.S. employers relied heavily on arbitration in the first months of the pandemic, pushing a record number of complaints involving discrimination, harassment, wage theft and other grievances through a closed-door system largely weighted against consumers and workers, according to a report being released this week.
Companies closed nearly 14,000 arbitration cases in 2020, according to the American Association for Justice (AAJ), the industry group for trial lawyers. That’s 17% more filings year over year, in a system with no path for appeal.
And no company engaged in it more frequently than Family Dollar. The discount chain and its parent, Dollar Tree, arbitrated 1,135 cases in 2020 — nearly a third of all U.S. cases — compared with three the year before.
“We’ve outsourced our justice system, as far as workers and consumers are concerned,” said Julia Duncan, senior director of government affairs at AAJ. “Very few people go through the forced arbitration process because it’s so rigged, and the ones that do almost never get relief.”
Mandatory arbitration — which requires employees and consumers to mediate disputes with the business instead of a court — has become the norm in corporate America. Most nonunion U.S. companies require arbitration, leaving 60 million workers without legal recourse, according to a 2018 report from the Economic Policy Institute, a left-leaning think tank.
Critics say the system, in which cases are decided by private arbitrators, keeps employment disputes out of the public eye and fails to hold corporations accountable. But proponents say it saves money and time, making it an efficient alternative to the court system, where lawsuits can take months or years to play out.
“Arbitration is a fair, effective, and less expensive means of resolving disputes compared with going to court,” Neil Bradley, chief policy officer at the U.S. Chamber of Commerce said in a letter urging Congress to oppose proposed restrictions on arbitration.
Legal experts say a growing number of companies require that consumers opt-in to mandatory arbitration when signing up for routine products and services, including cable and credit cards. Such clauses also often prohibit consumers from joining class-action lawsuits.
The House Judiciary Committee this week is marking up the Forced Arbitration Injustice Repeal Act, which would prohibit forced arbitration in all forms. The measure previously passed the House in 2019 with bipartisan support but was not taken up by the Senate.
“You can’t get a cellphone or credit card or even a job nowadays unless you sign away your rights because that’s what every corporation requires,” Rep. Hank Johnson, D-Ga., said when reintroducing the bill in February. “Big businesses that already have all the power in the relationship regularly stack the deck to avoid the only thing out there that could hold them accountable — the United States justice system.”
The practice disproportionately affects low-wage workers and industries like retail with large numbers of female and Black employees, the Economic Policy Institute found. Its use has picked up since 1991, when the Supreme Court upheld the use of mandatory employee arbitration agreements.
In recent years, a number of corporations including Facebook, Google, Microsoft and Uber have begun rolling back forced-arbitration clauses, particularly for sexual harassment claims. Others, though, have doubled down on the practice: At least 240 companies have registered or updated mandatory arbitration clauses during the pandemic, according to the AAJ report.
Critics say arbitration overwhelmingly favors corporations while shielding them from accountability. Employees were awarded money in just 1.6% of arbitration cases in 2020, according to the AAJ report, which analyzed data reported by the nation’s two largest arbitration providers, the American Arbitration Association and JAMS. Decisions are final and cannot be appealed, as they can in court.
Even when workers and consumers do win, their payouts are significantly lower than they would be in court, according to a 2015 study by the Economic Policy Institute. Median damages in arbitration cases totaled $36,500, compared with $86,000 in state courts and $176,000 in federal court, the analysis found.
“Forced arbitration is a black hole that operates outside the bounds of any enforceable standards,” said Duncan, of AAJ.
And, she added, it can obscure severe employee grievances.
Ryshawn Thomas, for example, was working at a Family Dollar store in Ohio in late 2018 when three armed robbers rushed in, struck him in the head with a gun and demanded cash from the registers. The experience left him with post-traumatic stress disorder, anxiety and a lingering head injury, according to court documents.
But when he told his manager he wanted to file a workers’ compensation claim for his injuries, she told him he was not allowed. His offer letter for the $12.50-an-hour job had included a mandatory arbitration clause, according to court documents.
Thomas alleges his manager downplayed and dismissed his injuries, telling him to, “Get over it.” He was terminated shortly afterward when he arrived late to a shift, according to his affidavit.
A spokesperson for Family Dollar did not respond to multiple requests for comment.
Earlier this year, an Ohio court ruled that Thomas was not subject to mandatory arbitration because someone else — in this case, an onboarding manager who had grown impatient with Thomas’ slow pace — had clicked through and electronically signed his new-hire paperwork, court documents show. The case, which was eventually dismissed after the parties reached an agreement, provides a rare look into employee complaints at companies with mandatory arbitration policies.
“Forced arbitration allows companies to get away with bad behavior,” said Thomas’ attorney, Brian Spitz, managing partner of the Spitz Law Firm in Cleveland, who has represented multiple former employees in cases involving Family Dollar. “Employers should not get to secretly defend their conduct behind closed doors.”
Other former employees have sued Family Dollar in Tennessee and Missouri, alleging disability discrimination, pregnancy discrimination, retaliation and wrongful termination, court filings show.
California has moved to ban mandatory arbitration for employees. But on the whole, policies surrounding arbitration remain spotty. Just three states — Maryland, California and New Jersey — require arbitration companies to self-report some data, including the claim types and the prevailing party in each case. But lawyers and legal experts say much of the process and outcome of arbitration cases remains unknown, even as it’s become a cornerstone of employee and consumer contracts.
Some of the nation’s largest companies — including American Express, Tesla and Tinder — increased their reliance on mandatory arbitrations last year, according to AAJ. Retailers made up five of the 10 companies that closed the most employment-related arbitration cases last year, the report found.
Representatives for American Express and Match Group, which owns Tinder, declined to comment. Tesla did not respond to requests for comment.
TBC, which owns National Tire & Battery, Tire Kingdom and Midas, last year closed roughly 150 employment arbitration claims, up from fewer than 10 the year before, according to Brian Maciak, the company’s general counsel.
Most of the cases — 144 of them — were filed by one attorney, on behalf of employees seeking additional overtime pay, he said. The company settled 14 of those claims; the rest were dismissed. Such “group actions,” he said, have become more commonplace and result in companies closing dozens, sometimes hundreds, of cases at once.
TBC began requiring arbitration for workplace-related claims in 2014.
“Employees were a little freaked out at first, saying ‘What am I giving away?’ ” Maciak said. “But people tend to like it because it’s cheaper and quicker. It’s private, which benefits us, but it does provide a quicker resolution, which is beneficial for all.”