Trump Labor Officials Are Secretly Using Forced Arbitration to Get Corporations Off the Hook

Trump signing a paper with a pen.
President Donald Trump signs an executive order during a meeting with members of Congress and American manufacturers in the Oval Office on Jan. 31. Mark Wilson/Getty Images

With a history-making showdown over the Mueller report looming between the White House and Congress, it can be easy to forget about the Trump administration’s other attacks on the rule of law. One of the most overlooked but consequential is the administration’s attack on federal regulation. As Trump likes to boast, his administration has systematically dismantled federal regulations enacted to protect consumers, retirement savers, and the environment. At the same time, Trump and his appointees have sabotaged agencies responsible for enforcing federal regulatory programs.

Behind closed doors, Trump’s agencies are engaged in a quieter form of deregulation that is as hard to detect as it is insidious. We call it the “arbitration shell game,” and it works like this: First, a corporation pushes its employees or customers into arbitration, limiting their ability to sue. Then, federal agencies refuse to exercise their own enforcement authority because employees or customers “agreed” to arbitrate. The result is that corporations operate free of accountability, even when their actions affect thousands of people.

The game gets going when a corporation adds an arbitration clause to contracts governing its consumers and employees. Thanks to the Supreme Court, these clauses are enforceable—and dramatically restrict individuals’ ability to enforce the law. Just ask employees of Lamps Plus, a California lighting company. In 2016, a hacker posing as a company official stole the tax filings of about 1,300 workers. Last month, the Supreme Court held that the workers could not come together to seek compensation for their employer’s slipshod security practices. When it comes to enforcing their rights, victims of data breaches, wage theft, and sexual harassment are forced to go it alone in secret—which usually means not going forward at all.

Next, a federal agency treats arbitration as if it were the only way to enforce the law. Traditionally, federal agencies exercised their own authority to bring lawsuits that an individual could not file because he was required to arbitrate. For example, in a 2002 case that went all the way to the Supreme Court, the Equal Employment Opportunity Commission filed a lawsuit seeking unpaid wages on behalf of a Waffle House cook who was fired after suffering seizures on the job. It made no difference that the cook himself would have been compelled to arbitrate his claim; the government had its own authority to sue for Waffle House employees.

But now, Trump’s agency heads are apparently declining cases like these. Last year, for example, Solicitor of Labor Kate O’Scannlain issued a memorandum to attorneys at the Department of Labor that instructed them to notify her office if they wanted to bring a case where the employee was subject to arbitration. The message is clear: An employee who has been forced to arbitrate should not expect any help from the department. Indeed, O’Scannlain has suggested that she intends to quash such suits.

Because the arbitration shell game is being played behind closed doors, it is hard to know precisely how many agencies are playing it. The Labor Department stonewalled a Freedom of Information Act request we submitted in January to determine how it had implemented O’Scannlain’s memorandum, and other agencies claimed it would be too expensive to tell us whether they are following Labor’s lead. This secrecy is particularly alarming because—in contrast to regulatory repeals—enforcement decisions are usually exempt from judicial review under the Administrative Procedure Act. So while the Trump administration’s regulatory repeals have been stopped by courts, a judge could not simply force an agency to bring a case it has not filed.

Instead, the response must come from Congress. In particular, because the Senate is unlikely to support proposed federal legislation regulating arbitration, the House oversight committees must step up. Each of the agencies that can sue on behalf of people who are subject to arbitration is subject to the jurisdiction of a House oversight committee. Those committees should demand—via subpoena, if necessary—to know whether agencies have a policy of declining to bring cases on behalf of individuals subject to arbitration provisions. The committees should also demand statistics about the agency’s enforcement docket and about cases where an individual sought the agency’s assistance and the agency declined to investigate or file suit. We suspect that answers to these questions will be embarrassing and that agency heads will resist committees’ oversight demands. If so, House appropriators should respond with funding cuts targeted specifically at the agency heads. More substantively, if we cannot count on federal agencies to defend individual rights, Congress should consider other moves to facilitate private enforcement.

Agencies’ power to file suit on behalf of individuals who cannot sue for themselves is an important part of the complex system that Congress crafted over the past century to enforce federal law. Agency heads who “deregulate” by failing to exercise this authority should be held accountable to the public they serve.