H.B. No. 5381 An Act Concerning Public Enforcement Actions and Forced Arbitration Agreements

Thank you to Committee Co-Chairs Robyn Porter & Julie Kushner for the opportunity to testify today. My name is Hugh Baran, and I am a Staff Attorney and Skadden Fellow at the National Employment Law Project (NELP). NELP is a non-profit, non-partisan research and advocacy organization specializing in a wide range of employment policy issues. We are based in New York with offices across the country.

NELP testifies today in support of H.B. 5381, which would allow workers to file civil actions in the name of the state to enforce their existing rights under Connecticut’s wage-and-hour, anti-discrimination, and sexual harassment laws.

Last year, NELP testified before this Committee in support of a $15 minimum wage in Connecticut. We were excited to see that legislation pass the General Assembly in May, and to see Governor Lamont sign it into law—putting Connecticut at the forefront of a national movement to lift millions of black and brown workers in low-wage industries out of poverty.

But without robust public and private enforcement of Connecticut’s wage-and-hour laws, the $15 minimum wage will be a wage floor in name only for workers in low-wage jobs across this great state.

My testimony today will cover three topics: (1) how the rise of forced arbitration and class/collective action waivers has curbed workers’ ability to privately enforce their rights before judges and juries; (2) how forced arbitration has enabled Connecticut employers to steal $133 million in wages from workers in low-wage jobs subject to forced arbitration; and (3) why public agencies lack the capacity to address the enforcement gap created by forced arbitration and class/collective action waivers. 

How Forced Arbitration Enables Wage Theft in Connecticut

By imposing forced arbitration, Connecticut employers prevented workers earning less than $13 per hour from recovering $133 million in stolen wages in 2019.

The Critical Role of Private Enforcement in Combating Wage Theft

In the eight decades since Congress enacted the Fair Labor Standards Act, private litigation has been critical in establishing a national minimum wage floor to protect employees.[i] The same has been true since Connecticut enacted its own minimum wage and overtime laws.[ii]

Private enforcement has only become more important in recent decades due to the growing problem of wage theft as the United States transitioned into a service-based economy. A 2008 study by NELP found that 68% of 4,387 workers in low-wage industries in Chicago, Los Angeles, and New York City had experienced at least one pay-related violation in the prior week.[iii] A 2014 report by the Economic Policy Institute (EPI) estimated that U.S. workers lose over $50 billion annually due to wage theft.[iv] A 2017 EPI study found that workers in the 10 most-populous states lose $8 billion annually due to minimum wage violations alone.[v]

Connecticut legislators, recognizing the growing epidemic of wage theft in this state,[vi] have taken important steps to strengthen the state’s private enforcement mechanisms. In 2015, legislators enacted Senate Bill 914, requiring that courts award double damages for violations of Connecticut’s minimum wage and overtime laws. And in 2019, recognizing that the minimum wage must be at least enough to allow workers to support their families, Connecticut became the seventh state in the nation to adopt a $15 per hour minimum wage.

But the growing use of forced arbitration requirements and class/collective action waivers has jeopardized Connecticut workers’ ability to enforce these new laws.

The Rise of Forced Arbitration Requirements

Few workers are aware that they have lost the important right to bring claims before a judge and jury. But 55% of private-sector non-union employees are now subject to forced arbitration, including 64.5% of workers earning less than $13 per hour.^[vii] These requirements deny workers the right to go before a judge and jury when their employer breaks the law, such as by failing to pay the legally required minimum wage and overtime.

Forced arbitration requirements are increasingly imposed on workers as a condition of employment. That means an employer generally can fire you for refusing to be subject to a forced arbitration requirement.

59.1% of Black workers and 57.6% of women workers are subject to forced arbitration, making Black workers and women workers the most likely groups to be subject to forced arbitration.^[viii] Moreover, 54.3% of Hispanic workers are subject to forced arbitration, as are 55.6% of white workers and 53.5% of men.^[ix]

Forced Arbitration Is Stacked Against Employees

Forced arbitration heavily favors employers in several significant ways:

• Repeat Player Bias: Unlike judges, arbitrators are in business, and they want to earn repeat business. Employers such as Darden Restaurants (the parent company for Olive Garden) are their most likely source of repeat business, whereas an individual employee is very unlikely to need the services of an arbitrator again. Because employers generally must sign off on who serves as the arbitrator in a worker’s case, they can effectively veto arbitrators who are perceived as too fair-minded or pro-employee.[x]

• Employer-Selected Procedural Rules: In court, employees and employers are equally bound by the same procedural rules. In forced arbitration, employers get to select the rules that apply when they draft the arbitration requirement. Employers can pick the arbitration provider with the rules that seem most desirable to them, and they can also impose additional procedural hurdles of their own design. Arbitration rules can, for example, sharply limit workers’ right to collect necessary evidence through discovery.

These rules can even limit a workers’ ability to proceed with a claim at all. In a recent case, DoorDash attempted to impose a new arbitration requirement on thousands of workers seeking to arbitrate their wage theft claims against the company. The procedural rules DoorDash sought would have allowed only ten cases to be heard, leaving thousands of workers without any path to justice.[xi]

• No Right to Appeal Secret Decisions: Even if an arbitrator’s findings of fact or conclusions of law are flatly wrong, their decisions are virtually impossible to appeal. That means there is nobody who can review or reverse their decisions. Arbitrators aren’t even required to issue a written decision that explains how they arrived at their conclusions. And because arbitration awards are typically strictly confidential, workers cannot even shine sunlight on arbitrators’ mistakes.

Making matters even worse, class/collective action waivers are routinely incorporated into forced arbitration requirements. These waivers prevent employees from banding together with their colleagues to challenge employer lawbreaking, whether in court or in arbitration. When you’re fighting by yourself, it can be extremely hard to challenge and prove the existence of systemic employer practices that result in wage theft and discrimination.

In 2018, the U.S. Supreme Court decided Epic Systems Corp. v. Lewis, blessing employers’ inclusion of class/collective action waivers in forced arbitration requirements.[xii] Justice Ruth Bader Ginsburg, in dissent, predicted that the “inevitable result” of the Court’s decision would be “the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” This is in part because the costs of pursuing individual claims in a stacked forum will typically outweigh any potential recovery, deterring workers and their attorneys from pursuing claims.

Faced with the reality of proceeding alone against their employer in a stacked forum, 98% of workers whose claims are subject to forced arbitration simply abandon their claims. This is the claim-suppressive effect of forced arbitration, which was detailed in Cynthia Estlund’s pathbreaking 2018 article, The Black Hole of Mandatory Arbitration. ^[xiii]

The few employees who do go to arbitration prevail in only 21% of cases—compared with 36% in federal court cases and 57% in state court cases.[xiv] And the very few who win recover significantly lower damages than they would if a judge and jury heard their case—16% of what they would recover for similar claims in federal court and 7% of what they would recover for similar claims in state court.[xv]

As a result, employers are now rushing to impose forced arbitration requirements on their employees. The Economic Policy Institute and the Center for Popular Democracy project that more than 80% of private-sector non-union workers will be subject to forced arbitration and class/collective action waivers by 2024.[xvi]

How Forced Arbitration Requirements Enable Wage Theft

Last month, NELP released a new data brief finding that, nationwide, $12.6 billion in wages was stolen from 6.13 million private-sector non-union workers earning less than $13 an hour who are subject to forced arbitration. A copy of that brief is attached to this testimony.

Relying on the same methodology, we find that in 2019 nearly $133 million in wages was stolen from private-sector non-union workers in Connecticut earning less than $13 an hour who are subject to forced arbitration:

• There are currently 393,700 private-sector nonunion workers earning less than $13 an hour in Connecticut. ^[xvii] Approximately 254,000 (64.5%) of these workers are subject to forced arbitration.[xviii]
• Based on available data and studies from the past 12 years, we estimate that at least 66,000 of these workers (26%) have experienced wage theft in the last year and would likely have a claim for wage theft under federal or state law.[xix]
• As discussed above, the claim-suppressive effect of forced arbitration leads 98% of workers to abandon their claims. We therefore estimate that approximately 64,700 of the private-sector nonunion workers earning less than $13 per hour who are subject to forced arbitration in Connecticut will not file wage theft claims in arbitration, effectively abandoning their claims and any potential recovery.
• Assuming that the average worker in this sample could recover the full average amount of unpaid wages, and an equal amount of liquidated damages, if they filed a wage theft claim ($2,050),[xx] we calculate that the 64,700 employees earning less than $13 an hour who are subject to forced arbitration, and do not file claims, are unable to recover nearly $133 million through private enforcement actions because of the claim-suppressive effect of forced arbitration.

Public Agencies Lack the Capacity to Recover These Stolen Wages

The U.S. Department of Labor (USDOL), the federal agency charged with enforcing the nation’s wage-and-hour laws to root out wage theft, is extremely under-resourced, as has been well documented. For example, USDOL in 2015 employed 894 wage-and-hour investigators to detect violations among a national workforce of 149 million workers, compared with 1,000 investigators for 23 million workers in 1948.^[xxi]

The Connecticut Department of Labor is similarly under-resourced and overburdened. Total agency staffing levels have declined from 864 full-time employees in 2015 to 623 full-time employees in 2019.[xxii] In 2019, the Department’s Wage and Workplace Standards Division employed fewer than 30 investigators to detect violations among a state workforce of 1.6 million workers, with over 97,000 employers.[xxiii]

The Connecticut Department of Labor and Attorney General reported recovering $7,269,404 in stolen wages in 2015 and $8,960,676 in 2016, according to the Economic Policy Institute. In FY 2018, the amount of wages recovered by the Connecticut Department of Labor was a mere $4,936,684.75.[xxiv] While the Legislature recently authorized the Department to hire three new investigators, the Department’s total capacity to recover wages is a mere drop in the bucket when compared to the $133 million in wages that were stolen from workers in low-wage jobs subject to forced arbitration.

Even if the state’s enforcement capacity was fully targeted at workers subject to forced arbitration, and that it was operating at its 2016 peak, this would represent less than 7% of all the wage theft enabled by forced arbitration.

There is also a serious information gap that must be overcome by any agency looking to target enforcement at employers using forced arbitration: the absence of a comprehensive public or private database tracking whether a given set of employees is subject to forced arbitration.^[xxv] Without such information, it would be difficult for the Connecticut Department of Labor to fully target enforcement efforts at employers that use forced arbitration.

For all these reasons, the state’s public agencies cannot be expected to replace the role that workers and their attorneys have historically played in private enforcement of wage-and-hour law.

Conclusion

Connecticut can act to address the state’s lack of public enforcement capacity by passing H.B. 5381, the proposed whistleblower enforcement law. Inspired by California’s Private Attorneys General Act (PAGA), H.B. 5381 would allow workers to stand in the shoes of the Connecticut Department of Labor and seek civil penalties for wage theft—as well as for other violations of the state’s employment laws.

HB 5381 will ensure that unscrupulous low-wage employers cannot steal wages from workers with impunity. H.B. 5381 would also generate millions in new revenue for the Connecticut Department of Labor, allowing the agency to increase staffing levels and expand its capacity to root out wage theft.

NELP is proud to support passage of H.B. 5381. We commend the Committee for its consideration of this important legislation.

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