This is an expanded version of a report originally published in September 2017. The report now includes data on mandatory arbitration by employer size, state, industry, gender, race, average employee wage, and typical employee education level.
In a trend driven by a series of Supreme Court decisions dating back to 1991, American employers are increasingly requiring their workers to sign mandatory arbitration agreements. Under such agreements, workers whose rights are violated—for example, through employment discrimination or sexual harassment—can’t pursue their claims in court but must submit to arbitration procedures that research shows overwhelmingly favor employers.
In reviewing the existing literature on the extent of this practice, I found that the share of workers subject to mandatory arbitration had clearly increased in the decade following the initial 1991 Court decision: by the early 2000s, the share of workers subject to mandatory arbitration had risen from just over 2 percent (in 1992) to almost a quarter of the workforce. However, more recent data were not available. In order to obtain current data for this study, I conducted a nationally representative survey of nonunion private-sector employers regarding their use of mandatory employment arbitration.
This study finds that since the early 2000s, the share of workers subject to mandatory arbitration has more than doubled and now exceeds 55 percent. This trend has weakened the position of workers whose rights are violated, barring access to the courts for all types of legal claims, including those based on Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Family and Medical Leave Act, and the Fair Labor Standards Act.
The Supreme Court is currently considering a case challenging the inclusion of class action waivers in arbitration agreements. Class action waivers bar employees from participating in class action lawsuits to address widespread violations of workers’ rights in a workplace. The Court will rule on whether class action waivers are a violation of the National Labor Relations Act; their decision could have wide-reaching implications for workers’ rights going forward.
Key findings of this report
Mandatory arbitration is a controversial practice in which a business requires employees or consumers to agree to arbitrate legal disputes with the business rather than going to court. Although seemingly voluntary in that the employee or consumer can choose whether or not to sign the arbitration agreement, in practice signing the agreement is required if the individual wants to get the job or to obtain the cellphone, credit card, or other consumer product the business is selling. Mandatory arbitration agreements are legally enforceable and effectively bar employees or consumers from going to court, instead diverting legal claims into an arbitration procedure that is established by the agreement drafted by the company and required as a condition of employment or of doing business with it.1
Much attention has focused on the use of mandatory arbitration agreements in consumer contracts, such as consumer financial contracts, cellphone contracts, and nursing home resident contracts and the implications of such agreements for consumer rights.2 There is less awareness of the use of mandatory arbitration agreements in employment contracts, but it is no less of a concern for those workers affected by it. These mandatory employment arbitration agreements bar access to the courts for all types of legal claims, including employment discrimination and sexual harassment claims based on Title VII of the Civil Rights Act, protections for employees with disabilities under the Americans with Disabilities Act, rights to maternity and medical leaves based on the Family and Medical Leave Act, and entitlements to minimum wages and overtime under the Fair Labor Standards Act. If an employment right protected by a federal or state statute has been violated and the affected worker has signed a mandatory arbitration agreement, that worker does not have access to the courts and instead must handle the claim through the arbitration procedure designated in the agreement.
Mandatory employment arbitration is very different from the labor arbitration system used to resolve disputes between unions and management in unionized workplaces. Labor arbitration is a bilateral system jointly run by unions and management, while mandatory employment arbitration procedures are unilaterally developed and forced on employees by employers. Whereas labor arbitration deals with the enforcement of a contract privately negotiated between a union and an employer, mandatory employment arbitration concerns employment laws established in statutes. Research has found that employees are less likely to win arbitration cases and they recover lower damages in mandatory employment arbitration than in the courts. Indeed, employers have a significant advantage in the process given that they are the ones who define the mandatory arbitration procedures and select the arbitration providers.3
A crucial 1991 Supreme Court decision, Gilmer v. Interstate/Johnson Lane,4 upheld the enforceability of mandatory employment arbitration agreements, meaning that such agreements now had the potential to substantially change how the employment rights of American workers are protected. But the practical impact of mandatory employment arbitration depends on whether or not American businesses decide to require that their employees sign these agreements as a term and condition of employment. Research from the 1990s and 2000s found that mandatory employment arbitration was expanding and, by the early 2000s, nearly one-quarter of the workforce was subject to mandatory arbitration. However, there was a lack of subsequent research tracking whether this growth trend had continued beyond the early 2000s and describing the current extent of mandatory employment arbitration (see literature review, next section below).
The lack of basic data on the extent of mandatory arbitration is especially concerning given that recent years have seen a series of court decisions upholding the use of mandatory arbitration in employment. These decisions have likely encouraged employers to require these agreements, expanding the use of mandatory arbitration. In two key decisions, AT&T Mobility LLC v. Concepcion (2011) and American Express Co. v. Italian Colors Restaurant (2013),5 the Supreme Court held that class action waivers in mandatory arbitration agreements were broadly enforceable. This meant that businesses could not only use mandatory arbitration agreements to bar access to the courts for individual claims, they could also shield themselves from class action claims. This gave businesses an additional incentive to include mandatory arbitration agreements in employment and other contracts.
The Supreme Court is currently considering the enforceability of class action waivers in mandatory employment arbitration agreements in National Labor Relations Board v. Murphy Oil USA, Inc.6 In this case, the Court will decide whether requiring workers to waive their right to use collective action to address employment law violations is a violation of the protections of the right to engage in concerted action contained in Section 7 of the National Labor Relations Act (NLRA). If the Supreme Court accepts the argument that such waivers are in violation of the NLRA, the Court’s decision would effectively put an end to the use of class action waivers in mandatory employment arbitration agreements. However, if the Court sides with the employers’ arguments in these cases, this will signal to businesses that the last potential barrier to their ability to opt out of class actions has been removed. This would likely encourage businesses to adopt mandatory employment arbitration and class action waivers even more widely.
Despite growing attention to the issue of mandatory employment arbitration, there is a lack of good data on how widespread it has become. A 1992 academic study of conflict resolution procedures used by corporations in nonunion workplaces found that 2.1 percent of the companies surveyed included arbitration in their procedures (Feuille and Chachere 1995, 31). The one major governmental effort to investigate the extent of mandatory arbitration was a 1995 GAO survey, which found that 7.6 percent of establishments had adopted mandatory employment arbitration (GAO 1995).7
Colvin’s 2003 survey of conflict resolution procedures used in the telecommunications industry found that 14.1 percent of establishments in that industry had adopted mandatory arbitration and that these procedures applied to 22.7 percent of the nonunion workforce in the industry (since larger establishments were more likely to have adopted mandatory arbitration) (Colvin 2008).
The overall picture is one of mandatory employment arbitration expanding through the 1990s and early 2000s to nearly a quarter of the workforce. This study seeks to determine whether this expansion has continued beyond 2003 and how widespread mandatory employment arbitration is currently.
To investigate the extent of mandatory employment arbitration, I conducted a national survey of private-sector American business establishments, focusing on the use of mandatory arbitration for nonunion employees. The survey was conducted from March 2017 to July 2017 and had a sample size of 627, yielding a margin of error at 95 percent confidence of plus or minus 3.9 percentage points.
On the central question of whether employees were required to sign a mandatory “agreement or provision for arbitration of legal disputes with the company,” 50.4 percent of responding establishments indicated that employees in their establishment were required to enter into this type of agreement.
Although mandatory employment arbitration is usually established by having employees sign an arbitration agreement, typically at the time of hiring, in some instances businesses adopt arbitration procedures simply by announcing that these procedures have been incorporated into the organization’s employment policies. An additional 3.5 percent of establishments had adopted mandatory arbitration using this second mechanism. Combined with the 50.4 percent of employers who require employees to sign an agreement, this means that a total of 53.9 percent of all establishments in the survey had adopted mandatory employment arbitration through one of these two mechanisms.
The establishments that have adopted mandatory arbitration tend to be those with larger workforces. Adjusting for workforce size, overall 56.2 percent of employees in the establishments surveyed were subject to mandatory arbitration procedures. Extrapolating to the overall private-sector nonunion workforce, this corresponds to 60.1 million American workers who are now subject to mandatory employment arbitration procedures and no longer have the right to go to court to challenge violations of their employment rights.8
For employers who have adopted mandatory arbitration, the survey asked them how recently they had adopted this policy. Among the employers with mandatory employment arbitration, I find that 39.5 percent of them had adopted their policies within the last five years, i.e., from 2012 to 2017, whereas 60.5 percent had adopted their policies more than five years ago. This cut-off date is important because it was in 2011 that the Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, ruling that class action waivers in the mandatory arbitration agreements were broadly enforceable. This means there was a substantial growth in the adoption of mandatory employment arbitration during this five-year period following the Supreme Court giving a green light to the use of mandatory arbitration clauses to bar class actions. Some of this growth was driven by newer, recently established companies deciding to adopt mandatory arbitration for their employees. But even among larger employers, most of whom have been around for longer periods of time, we find that many of these employers only adopted mandatory arbitration in the last five years. Census data indicate that only 10 percent of establishments with over 100 employees are less than five years old,9 but the survey data indicate that 45.3 percent of these larger establishments adopted mandatory arbitration within the last five years, indicating that there has been a surge in adoption of mandatory arbitration even among larger, older companies.
As mentioned above, the likelihood that an employer will adopt mandatory employment arbitration varies with the size of the employer. Whereas 53.9 percent of all establishments had mandatory arbitration, among establishments that were part of companies with 1,000 or more employees, 65.1 percent had mandatory arbitration, which is a statistically significant difference (at the p < 0.05 level) from the 50.5 percent of establishments with fewer than 1,000 workers that had mandatory arbitration. Breaking down employer size further in Table 1, we see that it is the very largest employers who have the highest rates of adopting mandatory arbitration.