Mandatory Arbitration Won’t Stop Us from Enforcing the Law

This week, 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.

Today, over 60 million workers are now subject to mandatory arbitration. 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.

We vigorously prosecute violations at workplaces where workers are bound by mandatory arbitration.

Because mandatory arbitration is on the rise, there are more workplaces where the Labor Department’s Office of the Solicitor provides the only viable avenue for meaningful legal recourse – particularly where state and local laws are weak. As part of our focus on equity, we seek opportunities to enforce the rights of workers who often cannot do so themselves, including workers subject to mandatory arbitration agreements and class action waivers.

When an employer mistreats a set of workers in the same way – for example, by misclassifying employees as independent contractors, mishandling employee retirement accounts, or paying employees less because of their race or sex – our cases address those harms collectively, which helps change employers’ underlying unlawful practices and ensures all workers receive the wages and benefits they’re owed. Our cases also help other employers and workers know their obligations and their rights.

It’s important to know that workers always have a right to report illegal conduct to the Labor Department or participate in our investigations or litigation, whether or not they have signed arbitration agreements.

Here are some other highlights from our recent work:

In Secretary of Labor v. Arizona Logistics dba Diligent Delivery Systems, we obtained a consent judgment requiring the employer to pay $5.75 million in back wages, damages and penalties for violations of the Fair Labor Standards Act stemming from misclassifying their delivery drivers as independent contractors. The employer tried to force the Labor Department into arbitration because of the clauses they put into their workers’ contracts. But the District of Arizona and then the Court of Appeals for the Ninth Circuit affirmed our independent authority to recover unpaid wages and damages in court for employees who signed private arbitration agreements.

In Secretary of Labor v. CE Security LLC, we allege that the employer misclassified “spotholders” as independent contractors to evade the overtime and recordkeeping requirements of the Fair Labor Standards Act. The employer tried to force the Labor Department into arbitration based on the clauses they put into their workers’ contracts but the Eastern District of New York affirmed our independent authority to recover unpaid wages and damages in court for employees who signed private arbitration agreements.

The Solicitor’s Office also has an active amicus practice, and has filed “friend of the court” briefs to limit the harm of mandatory arbitration clauses in cases where the department is not a party:

In Harrison v. Envision Holding Management Inc. Board of Directors, et al., No. 22-1098, the United States Court of Appeals for the Tenth Circuit adopted the position asserted in our amicus brief that an arbitration agreement is unenforceable if it precludes participants in an employee benefits plan from pursuing plan-wide relief under Section 502(a) of the Employee Retirement Income Security Act. We asserted a similar position to the Court of Appeals for the Second Circuit in  Cedeno v. Argent Trust Company (case pending).

In Ralph’s Grocery Company, we filed an amicus brief asserting that mandatory arbitration agreements requiring confidentiality undermine the government’s ability to enforce worker protection laws. We argued that although such confidentiality agreements do not bar employees from cooperating with a government agency, they undermine workers’ participation in the department’s investigations as well as subvert workers’ freedom to exercise their rights and take collective action without fear.

View our press releases and brief bank to learn more about recent cases. Private litigants, advocates and other stakeholders may email us at AmicusReferrals@dol.gov to request amicus participation.

Seema Nanda is the Solicitor of Labor.