Why would workers and their attorneys agree to settle potentially valuable misclassification claims for nominal sums? For many, the answer lies in individual arbitration agreements, which preclude workers from banding together to press their claims. For most workers, having to proceed individually will mean not proceeding at all, because the value of their individual claims are too low. Even when the corporate defendant must pick up most of the costs of holding the arbitration itself, hiring counsel to handle these fact-intensive cases will nearly always be prohibitively expensive for workers, and lawyers who work on a contingency basis will rarely be attracted to individual misclassification claims. Businesses count on this dynamic—ironically, if an employer actually faced the prospect of hundreds of thousands of simultaneous individual arbitration proceedings, it would likely ask to have them consolidated in the interest of efficiency.
A recent series of Supreme Court cases, many decided along familiar five-to-four, conservative-to-liberal lines, have held that arbitration agreements should be robustly enforced, even if they make it practically impossible for plaintiffs to protect their rights. Justice Scalia was not just a reliable vote for the majority on this issue—he also drafted the majority opinions in key pro-arbitration cases. In his characteristically to-the-point style, Justice Scalia wrote in 2013 that an individual arbitration clause in an American Express merchant contract was enforceable even though the low dollar-value of the plaintiff’s claim meant the plaintiff could not effectively vindicate his or her rights. And in a 2011 case, Justice Scalia rejected a California rule that protected consumers’ rights to arbitrate their claims as a class, writing that “class arbitration greatly increases risks to defendants.”
This means that the individual arbitration agreements that both gig and traditional economy workers are routinely asked to sign can pose a bigger barrier to prosecuting misclassification cases than the underlying uncertainty in employment law. That much was evident when attorneys for 150,000 California Lyft drivers attempted to settle a misclassification case for $12.25 million. The plaintiffs’ attorneys explained the low average per-driver award by observing that individual arbitration agreements that the drivers had signed made it “very difficult if not impossible, to pursue this case on a class basis.” Individual arbitration clauses also play a large role in the recent Uber settlement—while a federal trial court had invalidated the clauses on grounds particular to California law, the settlement avoids the significant risk that the Ninth Circuit would have reversed this ruling, disbanding the class in the process.
Even as the Supreme Court has been increasingly receptive to individual arbitration agreements and hostile to class actions, administrative agencies have begun to fight back. For example, the Consumer Financial Protection Bureau just proposed a rule that would ban financial companies from wielding individual arbitration agreements against consumers. More important for workers, the National Labor Relations Board has issued a series of decisions holding that employment contracts that prevent workers from pursuing their claims on a class basis in some forum—either arbitration or court—violate the National Labor Relations Act. As the Board put it, the “core objective of the National Labor Relations Act is the protection of workers’ ability to act in concert, in support of one another,” including through litigation. Accordingly, the very aspect of individual arbitration agreements that makes them so appealing to many employers—that they prevent workers from joining together—means they violate the NLRA’s 80-year-old protections for workers’ concerted action.