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Stop Calling It an Arbitration Agreement—Employers Are Forcing Workers to Give Up Their Rights

Thursday, May 24th, 2018

Trump-appointee Justice Neil Gorsuch begins his decision for the majority in Epic Systems v. Lewis, the landmark arbitration case decided Monday at the Supreme Court, with a simple set of questions: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” Justice Gorsuch and the rest of the five-Justice conservative majority answered the first question in the affirmative and the second question in the negative. In so doing, the Supreme Court has ushered in a future where almost all non-union private sector workers—nearly 94 percent of the private sector workforce—will be barred from joining together to litigate most workplace issues, including wage theft, sexual harassment and discrimination.

The decision incorrectly holds that because the Federal Arbitration Act requires courts to treat arbitration agreements on equal footing with other contracts, the National Labor Relations Act, which explicitly protects workers who engage in concerted activity for mutual aid or benefit, does not protect workers’ rights to litigate claims at work. But the problem with the ruling goes much further: The entire decision is premised upon a massive fiction: that these arbitration agreements, wherein the worker loses all access to court to bring a collective action with her fellow workers, are the result of an agreement between the workers and the employer. In reality, arbitration agreements are mandatory rules imposed unilaterally by the employer—not two-sided agreements.

On April 2, 2014, Jacob Lewis, who was a technical writer for Epic Systems, received an email from his employer with a document titled “Mutual Arbitration Agreement Regarding Wages and Hours.” The document stated that the employee and the employer waive their rights to go to court and instead agreed to take all wage and hour claims to arbitration. Furthermore, unlike in court, the employee agreed that any arbitration would be one-on-one. This “agreement” did not provide any opportunity to negotiate, and it had no place to sign or refuse to sign. Instead, it stated, “I understand that if I continue to work at Epic, I will be deemed to have accepted this Agreement.” The workers had two choices: immediately quit or accept the agreement. This is not the hallmark of an agreement; it is the hallmark of a mandatory rule that is unilaterally imposed.

When Lewis tried to take Epic Systems to court for misclassifying him and his fellow workers as independent contractors and depriving them of overtime pay, he realized that by opening the email and continuing to work, he waved his right to bring a collective action or go to court. It is estimated that approximately 60 million Americans have already been forced to sign such individual arbitration agreements, and with Monday’s decision, they are certain to spread rapidly.

From the opening questions of the decision to the subsequent analysis, Justice Gorsuch and the conservative majority completely paper over the forced nature of these “agreements.” Gorsuch describes the facts of this case thusly: “The parties before us contracted for arbitration. They proceeded to specify the rules that would govern their arbitrations, indicating their intention to use individualized rather than class or collective action procedures.” In addressing why it is necessary to honor the waiver of class or collective action, he writes, “Not only did Congress require courts to respect and enforce agreements to arbitrate; it also specifically directed them to respect and enforce the parties’ chosen arbitration procedures.”

But the workers in this case had no meaningful input or opportunity to negotiate the issue of arbitration. Describing the worker’s decision to open an email and not quit his job immediately in this manner is at best delusional and at worst deceitful.

The entire structure of the Supreme Court’s modern jurisprudence on arbitration agreements and class-action waivers is built on the idea that it is proper, appropriate and preferred for those in power to force others to waive their rights. But it wasn’t always this way. In 1925, Congress passed the Federal Arbitration Act (FAA), which sought to address the animosity some judges had towards arbitration, by requiring judges to treat arbitration agreements like other contracts. A 2015 Economic Policy Institute report describes the FAA as something that was  originally intended to be applied “to a narrow set of cases—commercial cases involving federal law that were brought in federal courts on an independent federal ground.” In essence, the FAA was designed so that businesses that negotiate contracts with each other can choose have their claims heard by an arbitrator of their choosing. “But,” the report explains, “in the 1980s, the U.S. Supreme Court turned the FAA upside-down through a series of surprising decisions. These decisions set in motion a major overhaul of the civil justice system. It is no exaggeration to call the Supreme Court’s arbitration decisions in the 1980s the hidden revolution of the Reagan Court.”

The modern case that opened the door to the flood of arbitration agreements was a 2011 Supreme Court case involving a couple that wanted to bring a consumer class action against AT&T to challenge a practice where cell phone companies offered “free” phones, but then charged customers the sales tax on the full value of the phones. Justice Scalia, writing for the five-Justice majority, treated the cell phone contract as something negotiated by the parties. He extolls the virtues of allowing these types of agreements because “affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute.” Scalia finds no issue with the fact that only one party here had power, and that it can be said with certainty that in the history of the world, no one has ever negotiated a cell phone contract with a carrier.

Now, to engage in most activities, from signing on to social media to buying a phone or airline ticket to putting a relative in a nursing home, one is provided a forced contract with an individual arbitration clause hiding inside. After Monday’s decision, it will be unlikely that many will be able to accept or remain at their jobs in the private sector without similarly waiving their right to go to court or act collectively to redress their rights.

This piece was originally published at In These Times on May 23, 2018. Reprinted with permission.

About the Author: Moshe Z. Marvit is an attorney and fellow with The Century Foundation and the co-author (with Richard Kahlenberg) of the book Why Labor Organizing Should be a Civil Right.

The sinister history underlying Neil Gorsuch’s decision lashing out at American workers

Wednesday, May 23rd, 2018

The ink was barely dry on Neil Gorsuch’s opinion in Epic Systems v. Morris before Ogletree Deakins — a management-side employment law firm that earned nearly three-quarters of a million dollars in profits per equity partner last year — started hawking an “innovative new product” that would enable employers to enrich themselves at the expense of their most vulnerable workers.

Epic Systems held that employers may force their employees, under pain of termination, to sign away their right to bring a class action lawsuit against their employers. It is an invitation — if not an incentive — for wage theft, as class actions are often the only recourse available to someone robbed of a few hundred, or even a few thousand, dollars by their boss.

Employment lawyers have known this decision was coming for months. And many of them are going to cash in.

Yet, while this Epic Systems decision became inevitable the minute Gorsuch claimed ownership of a Supreme Court seat that Senate Republicans held open more than a year until Donald Trump could fill it, the Court’s decision would shock the lawmakers who actually enacted the laws at issue in this case.

Gorsuch’s opinion is a mix of willful historical ignorance, ideological blindness, and a smug insistence that he has a special window into the law that many of his more experienced colleagues lack. Now, it threatens to revive one of the Supreme Court’s most disgraceful chapters.

The new Lochnerism

The conceit of Gorsuch’s Epic Systems opinion is that workers and their bosses sit down like equal bargaining partners to hash out their terms of employment. “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?” Gorsuch begins his opinion with a question framed as if it could only have one answer. “Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?”

In reality, the facts of Epic Systems bear little resemblance to the civilized negotiation presented by Gorsuch. Workers at one of the companies at issue in this case received an email one day informing them that they must give up their right to bring class actions. Employees who “continue[d] to work at Epic,” according to the email, would “be deemed to have accepted” this agreement. A similar email was sent to the employees of one of the other companies that prevailed in Epic Systems.

These employees, in other words, only “agreed” to the terms proposed by their bosses in the same sense that a person accosted by a gunman in a dark alley “agrees” to give up their wallet. Their choice was to give up their rights or to immediately lose their jobs.

This is not the first time the Supreme Court ignored the fairly basic fact that employers typically have far more bargaining power than their workers — and can use this greater share of power to exploit their employees.

In its anti-canonical decision in Lochner v. New York, the Supreme Court struck down a late nineteenth century law prohibiting bakeries from overworking their bakers. Such a law, Justice Rufus Peckham wrote for the Court, “interferes with the right of contract between the employer and employes [sic],” adding that “there is no contention that” bakery workers were unable “to assert their rights and care for themselves without the protecting arm of the State.”

In reality, bakers faced horrific working environments before the “protecting arm of the State” intervened to improve these conditions.

At the time, the overwhelming majority of New York City bakeries were basement operations located in the same tenements in which their customers lived. “’Filth, cobwebs and vermin’ filled these basements,” according to a city inspector’s report. Sewer pipes ran through many such bakeries, leaking their raw contents onto the workers, their workplaces, and the dough. In one such bakery, “’the water closet walls were literally black’ with roaches from floor to ceiling.”

Bakeries often had no windows and little ventilation, filling the air with irritating flour dust and fumes. Ovens heated the workplaces into infernos. Low ceilings required many workers to crouch, and the floors were typically either dirt or rotten wood filled with rat holes.

The average bakery worker labored at least 13 hours a day in these conditions, though some worked as much as 126-hours a week. Workers, moreover, were often required to sleep on the very same tables where they prepared the dough, and the cost of these makeshift beds were then deducted from their wages.

These were the sorts of conditions that the free market offered workers who, without the law to protect them, were forced to bargain alone with their employers. Perhaps, in some narrow sense, these workers “agreed” to work countless hours among the roaches, the heat, and the raw sewage. But only a judge blinded by their own ideology could conclude that these workers had any real choice in the matter.

“Concerted activities”

By the mid 1930s, Congress understood what men like Peckham and Gorsuch refused to see. As Justice Ruth Bader Ginsburg explains in her Epic Systemsdissenting opinion, Congress enacted the National Labor Relations Act (NLRA) on the premise that “employees must have the capacity to act collectively in order to match their employers’ clout in setting terms and conditions of employment.”

The law may not have the power to equalize bargaining power between workers and their bosses, but, by enabling those workers to join together, it could give them a fighting chance.

One provision of the NLRA — a provision that Gorsuch refused to honor in his Epic Systems opinion — provides that “employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Class actions are precisely this — a form of “concerted activity” that workers may use for their own “mutual aid or protection.”

The idea behind a class action is that multiple workers with the same legal claim against their employer can join together under a single lawsuit. Such concerted activity is necessary for the simple reason that litigation is often prohibitively expensive. As Ginsburg notes in her dissent, employers at one of the companies at issue in Epic Systems “would likely have to spend $200,000 to recover only $1,867.02 in overtime pay and an equivalent amount in liquidated damages.”

Only a truly fanatical worker — and one with very deep pockets — might be willing to spend such an exorbitant sum for such a small amount of money. The only real hope for such a worker is to join a class action lawsuit with colleagues who were also cheated out of their fair pay.

Except that workers will soon be unable to seek this remedy. An estimated “23.1% of nonunionized employees are now subject to express class-action waivers in mandatory arbitration agreements,” according to Ginsburg’s dissent. Now that the Supreme Court has endorsed such illegal agreements, this number will skyrocket. Law firms are already lining up to show employers how to draft such agreements, and workers throughout the country will soon be left powerless against wage theft.

Twisted commerce

Gorsuch concludes his Epic Systems opinion with a flourish. “The policy may be debatable but the law is clear,” Trump’s Supreme Court nominee claims. “Congress has instructed that arbitration agreements like those before us must be enforced as written.”

As it turns out, Gorsuch is half correct. The law is, indeed, clear. It just doesn’t say what he wants it to say.

The contracts at issue in Epic Systems are “forced arbitration” contracts, meaning that they not only strip employees of their right to bring a class action, they also require employment disputes to be resolved in a privatized arbitration system that tends to favor employers more than real courts of law. Though a law known as the Federal Arbitration Act protects arbitration agreements in certain contexts, that very same law explicitly exempts employment contracts.

Nevertheless, in its 2001 decision in Circuit City v. Adams, the Supreme Court wrote this safeguard for workers out of the law.

Circuit City turned on two interlocking provisions of the Federal Arbitration Act. The first provides that “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable” except under limited circumstances. The second exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

To understand the scope of these two provisions, it’s important to understand some of the history surrounding the Federal Arbitration Act, which was enacted in 1925.

In the late nineteenth and early twentieth century — the same period when the Court handed down Lochner — the Supreme Court also imposed strict limits on Congress’ constitutionally granted power to “regulate commerce with foreign nations, and among the several states.” During this period, the Court defined the word “commerce” narrowly, to encompass little more than the transit of goods across state lines. Manufacture of goods to be sold, mining of raw materials, and the farming of commodities were all deemed to be beyond Congress’ power to regulate.

Among other things, the Court relied on this stingy definition of the word “commerce” to strike down a federal law banning the interstate sale of goods manufactured by child labor.

In the 1930s, a little more than a decade after the Federal Arbitration Act became law, the Supreme Court abandoned this narrow understanding of Congress’ power to regulate commerce. Under modern precedents, Congress’ power over “commerce” now includes broad authority to regulate economic matters of nearly all kinds.

Which brings us back to the text of the Federal Arbitration Act. When Congress wrote this law, it understood phrases like “a transaction involving commerce” or “any other class of workers engaged in foreign or interstate commerce” to use the narrow, pre-New Deal understanding of the word “commerce.” As the law was originally understood, it only protected arbitration agreements involving the transit of goods for sale.

Contracts involving manufacture, mining, or agriculture were beyond the scope of Congress’ authority, according to the Supreme Court at the time, and therefore beyond the scope of the Arbitration Act. Similarly, when the Act exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” Congress sought to exempt all employment contracts that it believed that it had the power to regulate at the time.

Of course, the Arbitration Act could also be read anachronistically. If the modern definition of the word “commerce” is inserted into the law, that would mean that nearly all contracts are governed by the law, but all employment contracts are exempt. Thus, under either plausible reading of the statute, contracts between workers and their employers are exempt.

Circuit City, however, read the statute a third way. It reads the phrase “a transaction involving commerce” using the modern definition, while reading the phrase “any other class of workers engaged in foreign or interstate commerce” using the 1925 definition. Thus, the policy favoring forced arbitration is given the broadest scope, while the exemption favoring workers is read exceedingly narrowly.

It’s a sick double-standard — the kind that should make anyone who reads the Court’s Circuit City opinion doubt the good faith of the justices in the majority.

Without Circuit City, there could not be a decision like Epic Systems. Gorsuch’s opinion builds upon Circuit City‘s holding that the word “commerce” can mean one thing in one provision of the law and something completely different in another provision of the same law. Circuit City is one of the Supreme Court’s greatest sins against the English language, and the text of the law itself is entirely at odds with Gorsuch’s claim in Epic Systems that “Congress has instructed that arbitration agreements like those before us must be enforced as written.”

So the law, as Gorsuch condescendingly asserts, is indeed clear. The Federal Arbitration Act exempts all employment contracts, and any claim to the contrary requires the Court to turn a blind eye to history.

Which, of course, is exactly what Gorsuch did in Epic Systems. He ignored the way the law was originally understood, ignored the text of the National Labor Relations Act, ignored the law’s hard-won understanding that employees and employers do not have equal bargaining power, and ignored Congress’ explicit efforts to strike a different balance of power between workers and their bosses.

It is a great day for law firms that profit off the exploitation of workers. And it is an even greater day for their clients.

The rest of us can either sign away our rights or lose our jobs.

About the Author: Ian Millhiser is the Justice Editor for ThinkProgress, and the author of Injustices: The Supreme Court’s History of Comforting the Comfortable and Afflicting the Afflicted.

This article was originally published at ThinkProgress on May 23, 2018. Reprinted with permission.

The Supreme Court’s Latest Anti-Worker Decision Deals a Major Blow to the #MeToo Movement

Tuesday, May 22nd, 2018

After months of sustained public pressure targeting sexual harassment in workplaces across the United States, the U.S. Supreme Court on Monday significantly undermined the power of workers to collectively challenge discrimination and abuse at the hands of their employers. In a 5-4 decision on the Epic Systems Corp. v. Lewis casethe Court ruled that private-sector employees do not have the right to enter into class-action lawsuits to challenge violations of federal labor laws.

“[T]he Supreme Court has taken away a powerful tool for women to fight discrimination at work,” said Fatima Goss Graves, president and CEO of the National Women’s Law Center, in a press statement. “Instead of banding together with coworkers to push back against sexual harassment, pay discrimination, pregnancy discrimination, racial discrimination, wage theft and more, employees may now be forced behind closed doors into an individual, costly—and often secret—arbitration process. This will stack the deck in favor of the employer.”

The case concerns tens of thousands of employees at three companies—Epic Systems Corp., Ernst & Young LLP and Murphy Oil USA Inc.—who were forced to sign away their right to join class-action lawsuits against their employers as a precondition to being hired.

The workers argued that their right to file class-action lawsuits over alleged wage and hours violations is protected by the National Labor Relations Act (NLRA), which was passed in 1935 to offer employees greater leverage to collectively challenge unjust treatment on the job. But, echoing the employers’ arguments, Justice Neil Gorsuch—who was appointed by Trump—wrote in the majority opinion that the 1925 Federal Arbitration Act supersedes the NLRA.

The ruling means that workers do not have the right to take bosses to court over alleged violations of federal labor laws. It also means bosses can force workers to arbitrate complaints individually instead of collectively, which overwhelmingly slants in favor of employers. This ruling is poised to impact a large swath of the U.S. workforce, where 41 percent of private-sector employees have already signed away their right to class-action legislation.

These workers include those who are pushing against wage and hour violations, as well as fighting patterns of racism, sexism and other forms of harassment in the workplace. Workers’ rights advocates say they are concerned that the ruling could potentially be detrimental to the #MeToo movement, which has relied on power in numbers to confront sexual assault in workplaces from Hollywood to tomato fields. Some warn that, for those facing sexual harassment in the workplace, the choice between employer-controlled arbitration or continuing on in silence is a choice between two bad options.

“#MeToo has shown us that the abuse of power is not one ‘rotten apple in a barrel’: It is widespread and systemic, especially in low-wage industries,” Palak Shah, social innovations director for the National Domestic Workers Alliance, told In These Times. “We need checks on power—like collective action—to counter abuses of power when they happen. While unchecked power imbalances exist between employers and workers, we can be sure abuses like sexual harassment will continue.”

Arbitration is often kept secret and, employees frequently foot the bill for the arbitration process. Experts warn that this secrecy would protect employers responsible for harmful work environments by not allowing space for workers to collectively address widespread patterns of harassment.

“In the case of sexual harassment, say there was a group of employees who claimed that they’d been sexually harassed, they can’t proceed together. They’d have to go individually [to arbitration] and they can’t go to court,” Alexander Colvin, a labor relations scholar at Cornell University, told In These Times.

According to Graves, the stakes are “particularly high” for women who “often face discrimination that is difficult to detect, like pay discrimination, or suffer from sexual harassment and face retaliation for reporting it.”

Writing the dissenting opinion, Justice Ruth Bader Ginsburg argued that the 1925 law exemplified a different age for labor relations, and that employees should not be forced into “take-it-or-leave-it” agreements in order to find gainful employment.

The case is one of several currently being considered by the Supreme Court that could severely undermine workers’ rights. Much like the pending decision in Janus v. AFSCME, which could prevent unions from collecting union dues from non-union members, it furthers the ongoing anti-worker agenda pushed by the Trump administration.

“As mandatory arbitration is forced on growing numbers of employees as a condition of employment,” Graves added, “the Supreme Court should strengthen rather than undermine the rights of workers to challenge insidious and often widespread civil rights violations.”

 About the Authors: Rima Parikh is a summer 2018 editorial intern at In These Times and an incoming MSJ candidate at Northwestern University. Tanner Howard is a freelance journalist and In These Times editorial intern. They’re also a member of the Democratic Socialists of America.

18 states are suing Betsy DeVos for putting for-profit college fraudsters over student borrowers

Friday, July 7th, 2017

Betsy DeVos is making it harder for students to get loan forgiveness after being cheated by for-profit colleges, but Democratic attorneys general across the country are challenging her in court. DeVos has had the Education Department put a hold on new rules that were supposed to take effect on July 1 protecting student borrowers—protecting student borrowers is definitely not what Betsy DeVos is about, let’s be clear on that—and 18 states are going to court to get the rules put back in place.

An existing federal law allows borrowers to apply for loan forgiveness if they attended a school that misled them or broke state consumer protection laws. Once rarely used, the system was overwhelmed by applicants after the wave of for-profit failures. Corinthian’s collapse alone led to more than 15,000 loan discharges, with a balance of $247 million.

Taxpayers get stuck with those losses. The rules that Ms. DeVos froze would have shifted some of that risk back to the industry by requiring schools at risk of closing to put up financial collateral. They would also ban mandatory arbitration agreements, which have prevented many aggrieved students from suing schools that they believe have defrauded them.

DeVos really is stepping in in favor of fraudulent schools over defrauded students—and taxpayers—in other words.

“Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans,” said Maura Healey, the Massachusetts attorney general, who led the multistate coalition. “Her decision to cancel vital protections for students and taxpayers is a betrayal of her office’s responsibility and a violation of federal law.”

Two students left with debts after their school lied to them about their job prospects are also suing the Education Department over the same issues.

This blog was published at DailyKos on July 6, 2017.  Reprinted with permission. 

About the Author: Laura Clawson is labor editor at DailyKos.

The Trump administration is quietly making it easier to abuse seniors in nursing homes

Thursday, July 6th, 2017

The Trump administration is poised to undo rules issued by the Obama administration last year to protect seniors from a common tactic used by businesses to shield themselves from consequences for illegal conduct.

Under these rules, issued last September, Medicare and Medicaid would cut off payments to nursing homes that require new residents to sign forced arbitration agreements, a contract which strips individuals of their ability to sue in a real court and diverts the case to a privatized arbitration system.

But last month, the Trump administration published a proposed rule which will reinstate nursing homes’ ability to receive federal money even if they force seniors into arbitration agreements.

Forced arbitration can prevent even the most egregious cases from ever reaching a judge. According to the New York Times, a 94 year-old nursing home resident “who died from a head wound that had been left to fester, was ordered to go to arbitration.” In another case, the family of a woman who suffered “two spine fractures from serious falls, a large, infected ulcer on her heel that prevented her from walking, incontinence from not being able to get to the bathroom, receding gums from poor hygiene assistance, and a dramatic weigh loss from not being given her dentures,” was also sent to an arbitrator after they sued the woman’s nursing home alleging neglect.

Moreover, as law professor and health policy expert Nicholas Bagley notes, arbitration tends “to favor the repeat players who hire them—companies, not consumers.” Several studies have found that forced arbitration typically produces worse outcomes for consumers and workers. An Economic Policy Institute study of employment cases, for example, found that employees are less likely to prevail before an arbitrator, and that they typically receive less money if they do prevail.

The Obama-era rules were never allowed to take effect. Shortly after the regulations were announced, a George W. Bush-appointed judge in Mississippi issued a decision blocking the rule—although Judge Michael Mills did caveat his order by stating that “this case places this court in the undesirable position of preliminarily enjoining a Rule which it believes to be based upon sound public policy.”

Important parts of Mills’ opinion rely on dubious reasoning. At one point, for example, he cites a doctrine limiting the federal government’s power to use threats of lost funding against state governments in order to impose similar limits on federal efforts to encourage good behavior by private actors.

But let’s be honest. If the Trump administration wasn’t preparing to end the Obama-era rule, conservatives on the Supreme Court most likely would have done so themselves.

Prior to Justice Antonin Scalia’s death, the Supreme Court’s Republican majority took such a sweeping and expansive view of companies’ power to use forced arbitration that it is likely the Obama administration’s rules would have been struck down in a 5–4 decision. Now that Neil Gorsuch occupies Scalia’s seat, Republicans once again have the majority they need to shield arbitration agreements.

In the alternative universe where the winner of the popular vote in the 2016 presidential election was inaugurated last January, Justice Merrick Garland was likely to provide the fifth vote to uphold the Obama-era rule. But we do not live in that universe. And neither do the many elderly nursing home residents who will be worse off thanks to the Trump administration.

This article was originally published at ThinkProgress on July 6, 2017. Reprinted with permission.

About the Author: Ian Millhiser is a senior fellow at the Center for American Progress and the editor of ThinkProgress Justice. He received his JD from Duke University and clerked for Judge Eric L. Clay of the United States Court of Appeals for the Sixth Circuit. His writings have appeared in a diversity of publications, including the New York Times, the Guardian, the Nation, the American Prospect and the Yale Law & Policy Review.

The Trump Administration is About to Put Nursing Home Profits Ahead of Nursing Home Patients

Wednesday, May 10th, 2017

Some of the most heart-wrenching stories of abuse, mistreatment and neglect you’re likely to hear involve nursing homes. As America’s baby boomers age, and nursing home populations continue to grow, big corporations have, not surprisingly, started to take note. In fact, the vast majority of nursing homes in the United States – 70%, according to the Centers for Disease Control and Prevention – are run by for-profit corporations, and an increasing number of homes are being snapped up by Wall Street investment firms.

And that, in turn, can often mean that high quality care takes a backseat to high profits.

Increasingly, these giant corporations are using forced arbitration clauses — contract terms that say that people cannot sue them, no matter what laws they break, and instead people harmed by illegal acts can only bring cases before private arbitrators who are generally beholden to the corporations. These clauses make it far harder for the victims of mistreatment to hold a facility accountable where there’s abuse or serious negligence, and they minimize the incentive to provide the highest quality of care.  The secretive arbitration system also effectively lets homes sweep the facts about problems under the rug, so that the public and regulators never learn about widespread or egregious abuses.

That’s why, in 2016, the Centers for Medicare and Medicaid Services said nursing homes should no longer receive federal funding if they use arbitration clauses in their contracts. It was a commonsense proposal that would ensure families can hold nursing homes accountable for abuse and neglect. The government essentially said – and rightly so – that protecting desperately vulnerable people is more important than squeezing out an extra percentage of profit for hedge fund owners.

But that was 2016. Now, the Trump Administration appears to be gearing up to kill the proposal.

Senator Al Franken (D-MN), a fierce opponent of arbitration who has fought corporate lobbyists to protect Americans’ right to their day in court, said on Tuesday that “the Trump Administration is planning to lift the ban on nursing home arbitration clauses.”

So the White House, it appears, is ready to deliver another gift to hedge funds and banks – the corporate entities that increasingly control the nursing home industry – at the expense of the sick and elderly and their families.

It’s no wonder why corporate lobbyists working for the nursing home industry have made killing the CMS proposal a top priority: unlike the public court system (where trials are open to the public, press and regulators), nursing homes benefit enormously from the secretive system of arbitration, where the facts about abuses can be (and often are) buried. “Confidentiality” provisions – which really translate into gag orders – and non-transparent, non-public handling make it easier for systemic problems to stay hidden, and to continue.

If nursing homes are permitted to continue opting out of the civil justice system, we can expect to see lower levels of care, and higher numbers of preventable injuries and deaths. If they succeed in keeping families out of court, the potential savings to their bottom line are enormous when you consider that abuse is very widespread (according to the government’s own study).  Public Justice, our national public interest law firm and advocacy organization, set forth an extensive factual and legal case in support of the CMS proposal, where a great deal more background is available.

Consider just a handful of the plaintiffs who were able to successfully challenge nursing homes in court:

  • A 90-year-old woman allowed to languish with a festering pressure sore, acute appendicitis, and a urinary tract infection so severe it has entered her blood.
  • A diabetic patient injected with the incorrect dose of insulin, sending them into hypoglycemic shock and causing brain damage.
  • An 81-year-old man who was viciously beaten by a roommate who’d been involved in 30 assaults prior to moving in with the victim.
  • An 87-year-old woman whose calls for help were ignored after she fell and broke her hip.

Had any of those patients been subject to an arbitration clause – as no doubt many future cases would be if the Administration folds to pressure from for-profit homes – they likely would have never had a chance to have their case heard by a jury.

Nursing homes have complete control over some of the most vulnerable and fragile people in the entire country: people who are gravely ill, who are often cognitively impaired in ways that make it hard for them to protect themselves, are completely at the mercy of these institutions.

Now, rather than working to give those patients some small measure of protection and security, the Trump Administration is poised to give them the shaft. It’s unconscionable back-pedaling that would leave millions with little recourse when they, or their loved ones, are mistreated or abused.

This blog originally appeared at DailyKos.com on May 3, 2017. Reprinted with permission.

About the Author: Paul Bland, Jr., Executive Director, has been a senior attorney at Public Justice since 1997. As Executive Director, Paul manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy. Follow him on Twitter: .

 

Ahead of CFPB Rule, Congress Prepares for a Showdown over the Future of Forced Arbitration and Consumer Class Actions

Tuesday, March 21st, 2017

Last week, lawmakers laid the groundwork for a battle over consumer rights and forced arbitration that likely will play out through the spring.

First, congressional Democrats introduced several bills to restore consumers’ right to hold corporations accountable in court for wrongdoing. Led by U.S. Sen. Al Franken (D-Minn.), lawmakers on March 7 introduced a slate of bills aimed at ending the use of forced arbitration in various sectors. Forced arbitration provisions, also known as “ripoff clauses,” block consumers from challenging illegal corporate behavior.

Lawmakers were joined at a packed press conference by people who had been harmed by forced arbitration: a veteran illegally fired from his job while serving in the military and blocked from suing his employer; a victim of Wells Fargo fraud whose class action was kicked out of court; and former news anchor Gretchen Carlson, barred from speaking out about sexual harassment she had suffered at Fox News.

Among the bills introduced were Franken’s Arbitration Fairness Act, which would prohibit forced arbitration in consumer, employment, civil rights, and antitrust cases and Sen. Sherrod Brown’s (D-Ohio) Justice for Victims of Fraud Act, which would close the “Wells Fargo loophole” by restoring consumers’ right to sue when banks open fraudulent accounts without their knowledge.

However, in stark contrast to this push to strengthen rights and restore corporate accountability, GOP lawmakers began pressing to make it harder for consumers to band together when harmed and take corporations to court.

Two days after the Franken press conference, the House passed H.R. 985, the so-called “Fairness in Class Action Litigation Act” would effectively kill class actions by imposing insurmountable requirements to file group lawsuits. This would make it nearly impossible for consumers to hold corporations accountable for illegal and abusive behavior.

Among other onerous provisions, H.R. 985 would require that each harmed person suffer the “same type and scope of injury.” Under this absurd standard, a Wells Fargo customer with two fake accounts opened in his or her name could be barred from joining together with customers who had three fraudulent accounts. The bill also would build in costly and unnecessary delays and appeals, limit plaintiffs’ choice of counsel, and drastically restrict attorneys’ fees.

Joining together in a class action often is the only chance real people have to fight back against widespread harm, including corporate fraud and scams – particularly when claims involve small amounts of money, where it would be too costly for an individual to pursue a separate claim. Class actions have also been critical vehicles for overcoming race- and gender-based discrimination and have been instrumental in achieving victories as momentous as desegregation of our schools, as was the case in Brown v. Board of Education.

Beyond protecting the rights of the disadvantaged, class actions act as a crucial check on corporate misbehavior by returning money to harmed consumers and workers. Removing the threat of class liability would encourage systemic fraud, as banks and lenders that pad their bottom lines by committing fraud would have a competitive advantage in the marketplace.

In the financial sector, the proposed CFPB arbitration rule is a major target of financial industry lobbyists precisely because it would restore the right of consumers to join class action lawsuits. According to the CFPB’s arbitration study, class actions returned $2.2 billion in cash relief to 34 million consumers from 2008-2012, not including attorneys’ fees and litigation costs. While the CFPB rule is expected to be finalized this spring, it would be rendered largely ineffective should H.R. 985 become law.

You can watch our video against H.R. 985 here and follow developments on Twitter using the hashtag, #RipoffClause.

This article originally appeared at FairArbitrationNow.org on March 17, 2017. Reprinted with permission.

Amanda Werner is Arbitration Campaign Manager with Public Citizen and Americans for Financial Reform, where her work focuses on the Consumer Financial Protection Bureau (CFPB)’s arbitration rulemaking. She represents a broad coalition of consumer, civil rights, labor, and community groups as part of a robust public campaign in support of a strong final rule against the #RipoffClause.

If Uber Wants to Take Away Its Customers’ Rights, It Should Tell Them

Tuesday, December 13th, 2016

It’s bad enough that a ton of corporations require their customers and employees to submit all their legal claims to private arbitration, a secretive system that is rigged against the individual. But to compound the unfairness, a growing number of corporations are hiding their forced arbitration clauses to make them more and more obscure. As corporations become more secretive, and try harder to slip these by consumers so they won’t notice, it makes it less and less likely that people will actually read and agree to them (or choose not to). Here at Public Justice, we are fighting back against this trend: we have repeatedly argued to courts around the country that arbitration clauses should be held to the same standards as other types of contract terms – people should never be bound by these clauses unless they agree to them.

Recently, in the case of Meyer v. Uber, federal judge Jed Rakoff, who is both nationally prominent and widely respected, held that Uber had failed to form an enforceable agreement to arbitrate with customers through its mobile app. Judge Rakoff looked at the two things that a corporation must do to form a contract – it must conspicuously disclose the contract term, and it must ensure that individuals unambiguously agree – and found that Uber had failed to do either of these things. This was a puzzling error by Uber, which has been able to meet this basic standard in its arbitration clauses with both customers and workers in a number of other parts of its business.

Now the case is on appeal to the U.S. Court of Appeals for the Second Circuit. Uber is essentially arguing (with support from the U.S. Chamber of Commerce) that the normal rules of contract do not apply to apps. Uber’s position is that arbitration clauses don’t need to be conspicuously disclosed in this setting, and that we can just assume that any customer who uses Uber has “agreed” to arbitrate even if they haven’t taken any step to indicate that this is so. Public Justice filed an amicus brief in this case, explaining both (a) why Uber’s position violates core principles of contract law, and (b) how arbitration clauses are not exempt from these basic rules of law. Even if courts have favored enforcement of arbitration agreements, they still insist that there BE an actual agreement.

Both of the basic legal rules – conspicuous disclosure and unambiguous agreement – are essential. If Uber wins that it need not conspicuously disclose information, that would open the door to arguments that even if an arbitration clause is hidden in ways that no (or almost no) consumers would ever find it, they’re still enforceable. In other settings, we’ve already seen corporations try increasingly bizarre ways to slip arbitration clauses past people (e.g., one car manufacturer put an arbitration clause deep in the manual for a car, wrapped up in fake leather in the glove compartment, and argued that all consumers should be “deemed” to have read it), and it’s crucial that courts draw the line against such adventurous mistreatment of consumers.

Similarly, courts should insist on an unambiguous signal from a consumer that they’ve agreed (like a signature on a contract, or clicking “yes, I agree” to terms and conditions). Uber’s position is that if the consumer does the same thing they would have done if they’d never known about the terms and conditions (essentially inferring consent from silence by the consumer), that’s enough. But assuming that people agree to something when they’ve never said so is dangerous and wrong. The silliness of reading consent into a consumer’s silence was made clear in a famous episode of The Simpsons:

Homer Simpson talking to God: “Here’s the deal: you freeze everything as it is, and I won’t ask for anything more. If that is OK, please give me absolutely no sign.”

[No response]

“O.k., deal. In gratitude, I present you this offering of cookies and milk. If you want me to eat them for you, please give me no sign.”

[No response]

“This will be done.”

(This scene was actually cited in Jude Boyce Martin’s dissent in Seawright v. American General Financial Services, Inc. [6th Cir. 2007]).

The upshot, as we set out in our amicus brief, is that courts need to insist that corporations trying to impose arbitration on consumers at least follow basic rules of contract law.  Hiding arbitration clauses where no one will read them, and then assuming that consumers agreed if they just do nothing, is a recipe for enforcing a lot of fine print without any consent.

We are very grateful to the fantastic team of lawyers who wrote this amicus brief, spearheaded by Andrew Kaufman of Lieff Cabraser Heimann & Bernstein, along with Jonathan Selbin and Jason Lichtman also of Lieff Cabraser; and Jahan Sagafi, Nantiya Ruan, Paul Mollica, and Peter Romer-Friedman of Outten & Golden LLP.

This blog originally appeared on publicjustice.net on December 7, 2016. Reprinted with permission.

Paul Bland, Jr., Executive Director, has been a senior attorney at Public Justice since 1997. As Executive Director, Paul manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy. Follow him on Twitter: .

Why the Wells Fargo Scandal Shows the Need to End Forced Arbitration

Thursday, September 22nd, 2016

aaron_jordanAnother day, another scandal at the big banks.

Since the financial crisis, banks like Barclays and UBS have been caught manipulating interest rates; J.P. Morgan has reluctantly handed over billions for its association with Bernie Madoff, illegal hiring practices, and lax oversight of its own traders among its other misdeeds; while Goldman Sachs has been fined billions for selling toxic subprime mortgages to investors. This past week the Consumer Financial Protection Bureau (CFPB) fined Wells Fargo $185 million for creating fake accounts and assigning them to unwitting customers. While this outrage shows the need for tighter regulation, it also exposes the urgent need to end the anti-consumer practice of forced arbitration in financial service agreements. If consumers cannot access the courts, scandals will be harder to uncover and victims will find it nearly impossible to achieve justice.

OAKLAND, CA - OCTOBER 11: A sign is posted in front of a Wells Fargo bank on October 11, 2013 in Oakland, California. Wells Fargo reported a 13 percent increase in third-quarter profits with a net income of $5.6 billion, or 99 cents a share compared to $4.9 billion, or 88 cents a share one year ago. (Photo by Justin Sullivan/Getty Images)

(Photo by Justin Sullivan/Getty Images)

Over the last decade, Wells Fargo has pioneered a business strategy called “cross-selling.” The idea is to get customers to use other products sold by the bank. If you have a checking account, try out a credit card. If you like our investment services, why not get a mortgage? High level managers bullied subordinates into hitting impossible account-creation targets. The result was massive fraud: according to the CFPB, Wells Fargo opened 1,534,280 deposit accounts and 565,443 credit-card accounts “that may not have been authorized, by using consumers’ information without their knowledge or consent.” More than 100,000 of these accounts were charged fees: in other words, Wells Fargo customers paid late fees for accounts they never opened and never wanted.

The scope of the scandal is breathtaking. Wells Fargo has already fired more than 5,300 employees and the victims of its illegal scheme likely number in the hundreds of thousands. On its face, this would seem the perfect instance for a class action lawsuit (in which similarly situated plaintiffs come together to bring a lawsuit). Wells Fargo, however, has a notoriously stringent arbitration agreement. Instead of allowing those who have a “disagreement” with the company to bring a lawsuit, they force them into an out-of-court arbitration.

Arbitrators aren’t required to follow precedent, nor do they abide by encoded rules of procedure. They can make their decisions on a whim and without a hearing, and these rulings cannot be appealed. Their income depends on being rehired by the companies themselves.  Studies consistently show that arbitrators favor their corporate benefactors. This is unsurprising: corporations wouldn’t be rushing to write new forced arbitration agreements if this alternative system was more likely to favor the consumer.

Wells Fargo’s forced arbitration clause is particularly harsh and exceptionally broad. Paul Bland, an attorney at Public Justice, has called it “one of the most anti-consumer, egregious”clauses in the industry while attorney John Keating found it “startlingly unconscionable.” According to Wells Fargo’s 2016 business account agreement, all clients “irrevocably…waive the right to a trial by jury.”

Noting the stark language of the agreement, federal Judge Vincent Chhabria found that the agreement was broad enough to cover any dispute between the bank and its clients, thus denying defrauded clients access to the courts. Never mind that consumers can hardly agree to anything with regard to accounts they never opened or desired in the first place.

Federal agencies are taking steps to curb the use of forced arbitration. The CFPB has released a proposed rule that would prohibit class action bans in arbitration clauses, while the Department of Education is considering similar provisions in education contracts (for-profit colleges are infamous for their iron clad mandatory arbitration clauses). President Obama has signed an Executive Order granting the Labor Department authority to prohibit companies with federal contracts of more than $1 million from enforcing such clauses. The Department of Defense, having seen the unfairness of forced arbitration on our men and women in uniform, has prohibited forced arbitration in credit cards and auto loans to service members.

These steps, if finalized, will not only help ensure justice for those already wronged, but prevent future scandals. If wrongdoing is exposed before a public court of law instead of behind closed doors, corporations will be less likely to cheat their customers. And if companies must confront an impartial judge and jury, wronged consumers are much more likely to win relief.

Ending forced arbitration would not only help the victims of this Wells Fargo scandal, it may prevent the next one.

This blog originally appeared in afj.org on September 20, 2016. Reprinted with permission.

Aaron Jordan serves as a Dorot legal fellow at Alliance for Justice. As a member of the Justice program, he works on and writes about judicial nominations, the Supreme Court, and the civil justice system. Aaron received his B.A. in History from Davidson College and his J.D. from the University of Pennsylvania Law School. At Penn, Aaron was the Articles Editor for the Journal of International Law, a Project Coordinator for the International Human Rights Advocates, and a Teaching Assistant in Constitutional Law for Professor Rogers Smith. During law school, Aaron had internships for the organizations Voices on the Border and Human Rights First, and worked as a law clerk for Congressman Gregory Meeks (D-NY) and Senator Patrick Leahy (D-VT). After graduating from college, Aaron spent a year teaching in Honduras, where he started an ongoing scholarship to fund the education of deserving, underprivileged children.

Uber Drivers Learn that Sometimes the Perfect is the Enemy of the Good

Tuesday, September 20th, 2016

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Courts have an important responsibility to approve class action settlements and ensure that the plaintiffs and their attorneys are not selling out the class by colluding with the defendants. Sometimes, though, in their zealous protection of the absent class members, courts wind up forgetting the old aphorism attributed to Confucius: “Better a diamond with a flaw than a pebble without.” Uber drivers may wind up with pebbles rather than somewhat flawed diamonds. Crushed pebbles may make concrete, but even flawed diamonds could help pay a lot more bills.rough-diamonds

When veteran wage-and-hour litigator Shannon Liss-Riordan sought court approval for a $100 million settlement on behalf of a class of 385,000 Uber drivers in California and Massachusetts, she was denounced by some objectors for the compromise she reached, even after she volunteered to cut her fee in half. Then Judge Edward Chen of the U.S. District Court for the Northern District of California last month denied approval of the proposed settlement of the drivers’ independent-contractor-misclassification claims, finding that the settlement was not “fair, adequate, and reasonable,” as required to grant preliminary approval.

Judge Chen is one of the most careful protectors of absent class members and one of the most thoughtful jurists when it comes to adjudicating wage protections. In denying preliminary approval for the proposed independent-contractor-misclassification settlement, Judge Chen expressly endorsed the view that district court review of class action settlements should not be too lax – and particularly that the court’s review at the preliminary (as opposed to the final) approval stage should be more searching.  But, in this case, his decision disapproving the settlement may have unintended consequences.

In disapproving the settlement, Judge Chen acknowledged the risk posed by Uber’s previously-rejected arbitration provisions, stating: “The most obvious risk to Plaintiffs is, of course, that the Ninth Circuit [which sits as the Northern District of California’s reviewing court] will uphold the validity of the arbitration provision contained in the 2013 and/or 2014 agreements, which this Court found was invalid as a matter of public policy.” This is exactly what happened.

Last week’s decision from the Ninth Circuit upholding Uber’s arbitration agreements (which contained class waivers) in another case may mean that the vast majority of those 385,000 drivers will get nothing. The Ninth Circuit ruled that Judge Chen had erred in previously declaring Uber’s arbitration agreements unenforceable, and that in doing so, he had “ignore[d]” circuit precedent.

Now, to get anything at all, each driver may need to bring an individual arbitration against Uber and win, showing that he or she was more like an Uber employee than an independent contractor. This will be a tough showing and, as Uber well knows, the vast majority of drivers will never step forward to assert the risky claims at all.

Denying approval for the $100 million settlement, Judge Chen found that the settlement reflected a 90% discount on the full value of the drivers claims, with the exception of the claim under the Private Attorneys General Act (PAGA), for which the Court indicated that the settlement was a mere 0.1% of their full value. In particular, Judge Chen expressed concern that the PAGA claim had recently been added to the lawsuit to induce Uber to settle. Furthermore, Judge Chen questioned the value of the nonmonetary relief in the settlement, such as the provision that would allow drivers to accept cash tips (as opposed to in-app tipping as with Lyft), suggesting that riders accustomed to a cashless experience are unlikely to reach for their wallets.

It is possible that each of these terms was a compromise that was less than ideal for the Uber driver class members. Of course, any settlement of a wage-and-hour class action (or more broadly, any settlement of any lawsuit) is going to consist of a mix of terms, both good and bad for both sides of the dispute. But surely getting some money in a settlement – even an imperfect settlement – would be much better for hundreds of thousands of Uber drivers than getting nothing at all.

These Uber disputes raise central questions about the level of scrutiny a district court should apply to a class settlement – particularly given Judge Chen’s criticism of “lax review” – and whether the Court or class counsel is in a better position to evaluate the risks of non-recovery. While the court is charged with preventing collusive settlements to protect absent class members, ultimately, seasoned and responsible class counsel and class members both tend to care most about the bottom line, in light of the risks. With the benefit of hindsight, Liss-Riordan appears to have been right about the risks of proceeding with the litigation, and the settlement’s objectors were misguided.

The case is not over. Liss-Riordan has been signing up Uber drivers to pursue individual arbitrations in California. The PAGA claims on behalf of California drivers may not be compelled to arbitration. Nonetheless, the likelihood of a recovery nearing $100 million, or getting money for all 385,000 Uber drivers, looks bleak.

When reviewing class action settlements that were negotiated at arm’s length by experienced class counsel, where class counsel is able to articulate the rationale for their position, courts should be hesitant to second-guess counsel’s risk assessment. The perfect is often the enemy of the good in these cases, where a court – with a single decision – can erase years of work to obtain a successful result, absent some kind of an agreement between the parties. Particularly in the employment context, where workers should be recovering more than nominal amounts in any class resolution, those who do not wish to participate can always opt-out of a deal and pursue their own claims if they are so inclined. For the rest, though, receiving flawed diamonds might be a whole lot better than the alternative – getting dirt.

This blog appeared on Bryan Schwartz Law on September 16, 2016. Reprinted with permission.

Logan Starr is an associate at Bryan Schwartz Law, focusing on employment discrimination, whistleblower, and wage-and-hour claims. Previously, Mr. Starr served two years as a law clerk to the Honorable L. Patrick Auld, United States Magistrate Judge for the Middle District of North Carolina.

 Bryan Schwartz Law is an Oakland, California-based law firm dedicated to helping employees protect their rights in the workplace. Mr. Schwartz and his firm have fought to prohibit discrimination, retaliation, and harassment obtained reasonable accommodation for disabled employees, vindicated whistleblowers’ rights and ensured that corporations pay workers all wages they are owed. Bryan Schwartz Law has successfully litigated individual and class action complaints nationwide, helping to recover millions of dollars for thousands of employees, forcing corporations and Government agencies to change their practices and punish wrongdoers. Bryan Schwartz Law is also one of the few Bay Area-based law firms with extensive experience representing Federal employees in their unique Merit Systems Protection Board and Equal Employment Opportunity Commission complaints.

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