Labor Department Sets Arbitration Clauses as Enforcement Target

The US Department of Labor is heightening efforts to prosecute employers that use mandatory arbitrary clauses in employment contracts as an offensive maneuver to interfere with workers’ rights under the Fair Labor Standards Act, the agency’s solicitor said.

The DOL plans to pursue more cases where companies are subjecting workers to arbitration of workplace disputes in an apparent effort to side-step federal laws, Solicitor of Labor Seema Nanda said Wednesday at a conference hosted by New York University.

This employer tactic “violates the systematic redress that’s needed” and particularly prevents workers in low-wage industries whose rights are regularly and “systematically” violated from getting meaningful legal recourse to resolve their claims, she added.

“We’re concerned that this type of use of mandatory arbitration as a sword could have real chill” on workers, Nanda said.

Mandatory arbitration clauses allow employers to force workers to individually resolve their claims privately and to give up their right to bring class and collective actions in court. As a result, cases sent to arbitration produce varied results.

The solicitor general highlighted a lawsuit her office lodged in March against health-care staffing provider Advanced Care Staffing seeking to stop the Brooklyn, N.Y., company from requiring employees to sign contracts that would force them to repay earned wages if they don’t work there for three years.

This contract term specifically requires employees who left before serving three years to arbitrate any claims, and also demands that they pay ACS’s future profits, including attorneys’ fees and arbitration costs, according to the lawsuit filed in the US District Court for the Eastern District of New York.

These demands would cause ACS workers to be paid less than the federal minimum wage, the agency said. The DOL is seeking an injunction invalidating the company’s policy, as well as back wages and liquidated damages for affected employees.

The solicitor general’s office is stepping up efforts to crack down on illegal mandatory arbitration clauses, Nanda said Wednesday. “It’s something we’re taking a closer look at,” and rethinking the agency’s enforcement priorities, Nanda added.