Workers Shouldn’t Have to Sign Away Their Rights to Class Action Lawsuits

June 5, 2018 David Weil

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BRENDAN SMIALOWSKI/Getty Images

In his classic book, Exit, Voice, and Loyalty, the political scientist A.O Hirschman argued that dissatisfaction with a product, service, relationship, or other outcome can give rise to two broad options: one can walk away (exit) or try to change the outcome by engagement (voice). In the labor market, exit and voice takes the form of either quitting a job or using channels — unions, internal dispute resolution, rights granted by government — to seek changes in conditions at work.

There are many benefits if workers have the ability to exercise voice rather than being forced to exit by quitting. From the perspective of businesses, worker voice can identify bad managers or personnel practices, as well as problems in production processes or service delivery that can be improved. Workers themselves can also improve conditions for themselves and for their colleagues by exercising voice. In particular, collective bargaining creates formal and protected mechanisms to exercise voice through the presence of unions as a third-party representative of workers. Studies have shown this can reduce turnover, which is very costly for employers, particularly when workers have gained job specific skills and knowledge.

Worker voice is also an intrinsic part of the way we achieve public policy objectives in the workplace. Most of our major workplace laws are premised on people being willing to step forward and complain about bad conditions — that is, exercising voice through the use of rights created by laws whether through government agency action or through private litigation. Given that most state and federal agencies are woefully underfunded in terms of investigation resources, these rights can critically impact adherence to the law, including by acting as a credible deterrent to noncompliance.

A May 2018 Supreme Court decision in Epic Systems Corp. v. Lewis poses a grave threat to worker voice by allowing businesses to require that workers, as a term of their employment, surrender their right to participate in class action lawsuits. That means that a person who believes they have suffered discrimination or sexual harassment at the workplace cannot join with others who believe they have been similarly harmed to seek legal remedies.

This ruling has significant implications. But before discussing those specifically, it’s important to take a step back and consider where Epic Systems Corp. v. Lewis fits in the context of how the law handles worker voice.

The Problems with Our Labor Laws

Most state and federal laws around workplace protections provide workers with basic rights that are key to achieving public policy objectives. The Fair Labor Standards Act governing federal minimum wages, overtime, and child labor requirements (and similar laws at the state level) gives workers the right to complain about violations of standards, thereby triggering agency investigations, and the right to litigate claims through the plaintiff bar. Similarly, the Civil Rights Act of 1964, protecting against discrimination on the basis of race, gender, ethnicity, disability, and other protected classes, provides the right to take claims to court or through administrative agencies in the face of violations.

Those laws are largely framed around individual exercise of rights. The problem is that you have to know about a right to exercise it. And many people don’t. Survey evidence suggests workers often think they have more rights than they do in some areas (such as being fired) but have limited knowledge of rights in others (such as the right to ask for and participate in workplace health and safety inspections). As a result, people exercise their rights differentially, based on their education, backgrounds, knowledge, and the severity of violations they experience.

In research I conducted with Amanda Diab, we found that some industries with relatively low levels of health and safety risk or violations of workplace wage and hour laws sometimes have very high rates of complaints because of worker knowledge of the law. In other cases, especially in dangerous industries or those with high levels of wage theft, there are relatively low levels of worker complaints given their limited knowledge about rights.

Another critical obstacle towards exercising rights is a fear of retaliation. If a worker believes that their employer will put them on less desirable shifts, reduce their future pay, or curtail their promotion opportunities, they will become less likely to act on a belief their rights are violated. Even worse, if they believe they might lose their job, or in the case of workers with immigration status issues, be threatened with deportation, they may choose silence even in the face of significant acts of discrimination, sexual harassment, health and safety risk, or wage theft. In my former role as the U.S. Department of Labor’s Wage and Hour Administrator in the Obama administration, I saw daily examples of how this fear led to wide-scale violations of our basic labor standards like minimum wage, overtime compensation, or even the simple proposition that people deserved to be paid for their work at all.

Unions and the Enforcement of Workplace Protections

These factors expose a contradiction in our approach to worker protection laws: Although they are built on the exercise of rights granted to individuals, those rights often require collective agents to succeed. A collective agent — think labor unions — can make information about rights more accessible through education or by directly acting on behalf of workers. Unions can also act as a buffer against retaliation, either by shielding the identity of workers or by protecting them through processes like grievance systems. There is abundant evidence that the exercise of rights across a wide variety of statutes is significantly higher in unions than in comparable nonunion environments.

This critical foundation of worker voice has been undermined by the decline of unions in the workplace. Although membership in unions in the U.S. peaked in 1954, its decline since 1983 has been particularly striking. In 1983, 20.1% of the workforce belonged to private and public sector unions. By 2017, that percentage had declined almost to half, standing at 10.7%. With a mere 6.5% of private sector workers currently in unions, the mechanism that amplifies employee voice in the workplace is dramatically undermined. An upcoming Supreme Court ruling in Janus v. AFSCME may further weaken public sector unions financial viability by allowing workers who benefit from their representation to choose not to pay dues. Although new forms of collective agents have arisen in recent times — worker centers, immigrant rights groups — the reality is that in the vast majority of workplaces, workers are now on their own.

Where Mandatory Arbitration Fits In

Enter a second pathway for workers: the plaintiff bar. If unions can’t help, workers still have the right to hire a lawyer and bring a suit to seek restitution for discrimination, harassment, or wage theft. Or at least they used to.

As unions declined, mandatory arbitration clauses blossomed. In 2017, an estimated 56% of nonunion employees (more than 60 million workers) were covered by them, compared to just 2% in 1992. These clauses pose the following trade-off to workers: If you want this job, then you must agree to take any discrimination, harassment, or a host of other workplace claims to an internal arbitration first as opposed to a government agency or private attorney. Those internal arbitration processes — which have been upheld as permissible by earlier Supreme Court decisions — are governed by the employer, usually with multiple steps culminating in final, binding arbitration.

Though there have been attempts to improve the neutrality of arbitrators serving in those positions, the reality is they are internal company processes and are viewed that way by employees. This can have two kinds of effects: studies show that a smaller percentage of workers prevail under mandatory arbitration than they would if they took their claims to court. And being required to take a claim to your employer can lead workers with valid complaints of wage violations, discrimination, or harassment to ask, “why even bother? Why risk retaliation for a process where you perceive little chance of prevailing?” 

The Role of Class Actions

But even given these restrictions, individuals could still join other workers as part of class actions. Class action suits have several critical features related to voice. First, they offer scale, making litigation an attractive option for lawyers. Since compensation for lawyers often come from the settlement arising from cases, lawyers are reluctant to take cases that have low payoffs, low probabilities of success, or overall expected payoffs. For that reason, low wage workers are unlikely to find counsel to take wage and hour claims forward on an individual basis.

By allowing the plaintiff bar to assemble a class of workers, however, the economics for plaintiff lawyers become more attractive. What is more, class actions imply that a company’s bad practices go beyond individual workers. These are precisely the kind of systemic problems that laws should prevent. By creating a larger voice through a collective class, these laws can have their intended impacts.

Except that an ever growing number of employers — about one-third of those with mandatory arbitration requirements — have added requirements to waive participation in class actions suits into their mandatory arbitration clauses. By doing so, yet another option for voice has been silenced. The Supreme Court decision in Epic Systems means that under existing law, those clauses are bound to grow further. That not only means restricting options for groups of workers to recover lost wages from employers who commit systemic forms of wage theft. The ruling could also largely close off collective legal action against a business where sexual harassment is common. 

Can’t Workers Just Quit? It’s Not That Simple

So if workers have lost their voice, can they at least entertain Hirschman’s second option: Exit? Hardly. Noncompete agreements, once used for a small number of jobs involving access to intellectual property have become pervasive — by one estimate covering 30 million workers — even popping up in employment agreements for delivery, restaurant, and cleaning workers. This astounding application removes the last card available to a worker facing low pay, poor treatment, or violation of their rights: their ability to quit a job at one employer to take one at a competing organization.

The ability of more and more major businesses to shed their responsibilities as employers and the wages, benefits, and social protections associated with them (something I have called the fissured workplace and written about for HBR) further diminishes worker leverage. You have no voice to exercise as an employee if you are not considered to be one — increasingly a common feature of the gig economy.

We Need a New Era of Employee Voice

All hope may not be lost. There is abundant evidence that the public is deeply troubled by this erosion. Concern over income inequality has grown in political discussions, from public debate over the ever expanding gap between the pay of top corporate officials and typical workers to the success of the Fight for $15 movement demanding higher pay for low wage, nonunion workers.

Equally, public outrage over sexual harassment in the #MeToo and Time’s Up movements show that such behavior, usually a direct outgrowth of deep power imbalances in the workplace, will no longer be tolerated by those who have long endured it. Recent collective action, like wide-scale walkouts by teachers protesting the continued erosion of their position in states like West Virginia and Oklahoma, also signal that we’re discounting the basic needs of once well-paid professionals.

So while Supreme Court’s decision in Epic Systems seems to have told workers to quiet down, many are doing the opposite. But more must be done. Restricting the use of mandatory arbitration and reestablishing the options for class action suits can happen through statutory change. Our public policies must be fundamentally rethought so that workers can seek voice through unions and other forms of collective action in the workplace. We should also revisit our presumption and reliance on individual exercise of rights and create more effective mechanisms for collective action at the workplace, like health and safety committee structures that are common in many other countries around the world.

But even before these legislative changes, we must have a coherent policy vision that recognizes that the workplace has become deeply imbalanced in terms of the bargaining power of working people. Extreme concentration of economic wealth and power in a small number of hands has left a large swath of people with few ways to exercise their rights. Seldom in our recent history have we faced a greater need to assure that we provide workers greater voice at work to assure a better balancing of power in our businesses and in our society.

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