Steal, Arbitrate, & Repeat: Addressing the Wage Theft Crisis in America
September 2022 | Floyd Velasquez, Staff Writer and Editor
In 2021, wage theft was the most expensive crime in America, costing more than all other larcenies combined. [1] What is wage theft? In a general sense, wage theft occurs when employers fail to pay employees the full wages that they are legally entitled to. This is primarily seen in the form of paying workers below minimum wage, failing to pay overtime premiums, denying meal breaks, or asking employees to work outside their designated hours – essentially the most common violations of the Fair Labor Standards Act passed in 1938. [2] Between 2017 and 2020, over $3 million in stolen wages were recovered for employees who were victims of wage theft. [3]While the amount sounds costly, it only represents a small percent of stolen wages nationwide. In the United States, billions of dollars are stolen from workers’ paychecks each year. [4] Who does this impact most? Low-wage employees, most of whom are people of color and immigrants. And which industry employs a large amount of low-wage workers? The fast food industry.
Fast Food and Arbitration
Fast food chains, like most other corporate entities, include mandatory legal safeguards within their initial paperwork to resolve workplace disputes, which has become a standard in corporate America. One common safeguard is referred to as “forced arbitration,” in which the employees must contractually acknowledge their employer’s condition to mediate disputes with a third party instead of pursuing legal action. [5] The right for corporate entities to utilize forced arbitration is protected by the Federal Arbitration Act of 1925, which is meant to ensure “validity and enforcement of arbitration agreements.” [6]
At first glance, forced arbitration allows for employees to spare themselves of time, fees, and emotional stress that accompany legal action, leaving situations to be sorted out in much more private and cost-effective circumstances. In cases that involve undocumented immigrants, seeking legal action can be a confusing process that could also risk deportation and prevent citizenship. However, many have come to realize that corporations utilize forced arbitration to keep disputes away from public perspective and provide them an escape from the appropriate economic accountability that a judicial proceeding might provide. In fact, in 2019, employers who committed wage theft avoided paying $9.27 billion in wages to employees, all thanks to forced arbitration. [7] In May of 2022, the Supreme Court of the United States was faced with the opportunity to address circumstances surrounding forced arbitration, where a former employee was involved in a class action lawsuit against Sundance, Inc. – better known to most fast-food aficionados as Taco Bell.
Morgan v. Sundance, Inc. (2022)
When Robyn Morgan applied to work for Taco Bell, she entered into an agreement with Sundance, Inc.'s forced arbitration clause while completing the initial hiring paperwork. Then, in September of 2018, Morgan sued Sundance, Inc. as part of a nationwide class action lawsuit for violating the Fair Labor Standards Act by failing to compensate her for working overtime. In response to Morgan’s suit, Sundance, without exercising their agreed upon right to arbitration, filed a motion to dismiss the case. The District Court then denied their motion, leaving Sundance to respond to Morgan’s complaint, again without reference to their arbitration clause – but they did not reach a solution. About eight months after Morgan filed suit, Sundance moved to compel arbitration, finally invoking this clause. Nonetheless, the District Court denied their motion, ruling in Morgan’s favor that Sundance waived their right to arbitration by participating in litigation. [8]
Sundance subsequently appealed to the U.S. Court of Appeals for the Eighth Circuit, who overturned the District Court’s decision to deny both motions. Both denials relied on precedent set within the Eighth Circuit, in which a party waives their right to arbitration if they “acted inconsistently with that right” and “prejudiced the other party by its inconsistent actions.” The latter part on prejudice–the crucial component of the precedent on which the rulings relied–simply states that a party waives their right to arbitration if their actions outside of arbitrating have hurt the other party’s chances in any way. This special rule is derived from the Federal Arbitration Act, which ironically has been regarded by the Supreme Court as national policy “favoring arbitration.” The District Court decided that Sundance fulfilled this requirement to waive their right, but the U.S. Court of Appeals reversed that decision. Morgan then appealed to the Supreme Court of the United States, who accepted the case to answer whether or not lower federal courts have the power to create rules that prefer arbitration as a procedure. [9]
Impact of Morgan and Existing Reform
In an opinion authored by Justice Elena Kagan, the Supreme Court of the United States unanimously ruled that the federal courts below do not hold the power to create rules that enable partiality towards arbitration. The Supreme Court mentioned that the prejudice component of the precedent, which the lower courts relied on, is special because it does not exist in other cases where waivers to contractual rights are decided. However, they focused on the actions of those who held the right, not the effect it had on the opposing party. While they agreed that the Federal Arbitration Act may favor arbitration, it still does not authorize federal courts to create changes in procedure that favor it. [10]
The opinion in Morgan is one of the more successful attempts at dismantling significant protections regarding forced arbitration, and it provides for forced arbitration provisions to be treated as they are in any other contractual context, not as any greater or worse. Morgan now allows for workplace disputes to not immediately dissolve into arbitration solely because it is favored, and this decision also provides for more opportunities for those disputes to be decided fairly in court – giving victims of wage theft a chance at due process.
While Morgan v. Sundance, Inc. is surely a notable win, there is still much more to be done to address the wage theft crisis. Even though there are many local laws in existence that impose double or even triple fines on employers, wage theft still occurs. The focus for activists instead must shift from harsh penalties to more rigorous enforcement. Most of the enforcement is done through complaints filed by workers. However, workers are likely to fail to report workplace violations due to their lack of information regarding their rights in the workplace. A better system is exemplified in targeted enforcement done by the Exploited Worker Task Force in New York, whose sole focus is to launch investigations into industries where wage theft may be highest. In this system, the burden of enforcement does not fall upon the shoulders of victims, but instead a dedicated team of individuals who are unfazed by the power dynamic between an employee and their employer. [11] This system resulted in 142 New York nail salons being ordered to pay $2 million in unpaid wages and damages. [12] Additionally, there must be stronger means of educating workers of their rights in order to curb wage theft from running rampant amongst workplaces. While the Fair Labor Standards Act requires employers to post a conspicuous notice regarding wage and hour laws, they are often posted out of plain view. [13] Moreover, those notices do not allow enough room to include everything an employee should know regarding their rights and the vast list of wage and hour laws. [14] Although Morgan makes a substantial stride in providing justice for the wage theft crisis within the realm of arbitration, it is important to note that there are still other areas that require attention from advocates in order for wage theft to be addressed with a more vigilant eye.
Sources
Alexa Liacko, “Wage Theft Is the Costliest Crime in America,” (Denver 7 Colorado News (KMGH), August, 2021).
David Cooper and Teresa Kroeger, “Employers Steal Billions from Workers' Paychecks Each Year: Survey Data Show Millions of Workers Are Paid Less than the Minimum Wage, at Significant Cost to Taxpayers and State Economies,” (Economic Policy Institute, May, 2017).
Ihna Mangundayao et al., “More than $3 Billion in Stolen Wages Recovered for Workers between 2017 and 2020,” (Economic Policy Institute, December 2021).
David Cooper and Teresa Kroeger, “Employers Steal Billions from Workers' Paychecks Each Year: Survey Data Show Millions of Workers Are Paid Less than the Minimum Wage, at Significant Cost to Taxpayers and State Economies,” (Economic Policy Institute, May 2017).
Alexander J.S. Colvin, “The Growing Use of Mandatory Arbitration: Access to the Courts Is Now Barred for More than 60 Million American Workers,” (Economic Policy Institute, April 6, 2018).
Congress.gov. "Text - S.2101 - 116th Congress (2019-2020): Wage Theft Prevention and Wage Recovery Act." July, 2019.
Baran, Hugh, and Elisabeth Campbell. “Forced Arbitration Helped Employers Who Committed Wage Theft Pocket $9.2 Billion in 2019 from Workers in Low-Paid Jobs.” National Employment Law Project, December 8, 2021.
Morgan v. Sundance, 596 U.S. 21-328 (2022)
Ibid.
Ibid.
Hallett, Nicole. "The Problem of Wage Theft." Yale L. & Pol'y Rev. 37 (2018): 93.
Ibid.
Ibid.
Ibid.