The Supreme Court on Monday ruled that companies can use arbitration clauses in employment contracts to prohibit workers from banding together to take legal action over workplace issues.
The vote was 5 to 4, with the court’s more conservative justices in the majority. The court’s decision could affect some 25 million employment contracts.
Writing for the majority, Justice Neil M. Gorsuch said the court’s conclusion was dictated by a federal law favoring arbitration and the court’s precedents. If workers were allowed to band together to press their claims, he wrote, “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.”
Justice Ruth Bader Ginsburg read her dissent from the bench, a sign of profound disagreement. In her written dissent, she called the majority opinion “egregiously wrong.” In her oral statement, she said the upshot of the decision “will be huge under-enforcement of federal and state statutes designed to advance the well being of vulnerable workers.”
Justice Ginsburg called on Congress to address the matter.
Brian T. Fitzpatrick, a law professor at Vanderbilt University who studies arbitrations and class actions, said the ruling was unsurprising in light of earlier Supreme Court decisions. Justice Gorsuch, he added, “appears to have put his cards on the table as firmly in favor of allowing class actions to be stamped out through arbitration agreements.”
As a result, Professor Fitzpatrick said “it is only a matter of time until the most powerful device to hold corporations accountable for their misdeeds is lost altogether.”
But Gregory F. Jacob, a lawyer with O’Melveny & Myers in Washington, said the decision would have a limited impact, as many employers already use the contested arbitration clauses. “This decision thus will not see a huge increase in the use of such provisions,” he said, “but it does protect employers’ settled expectations and avoids placing our nation’s job providers under the threat of additional burdensome litigation drain.”
I am ashamed to say that until recently I was part of the majority: I am the chief executive of a company that gave different benefits to different groups of employees.
Like so many companies before us, my company, Rent the Runway, had two tiers of workers. Our salaried employees — who typically came from relatively privileged, educated backgrounds — were given generous parental leave, paid sick leave and the flexibility to work from home, or even abroad. Our hourly employees, working in Rent the Runway’s warehouse, on the customer service team and in our retail stores, had to face life events like caring for a newborn, grieving after the death of a family member or taking care of a critically ill loved one without this same level of benefits.
I had inadvertently created classes of employees — and by doing so, had done my part to contribute to America’s inequality problem.
When you’re founding a business, you take your cues on corporate culture from larger, already successful organizations. In America, some of the biggest companies have decided to handle the dual pressures of keeping costs down while retaining “corporate talent” by ramping up benefits packages. Companies like Starbucks and Walgreens compete for top-tier candidates by offering cushy policies in areas like parental leave or vacation.
But the best benefits are reserved for corporate talent, for whom the competition is considered steepest; employees who work at hourly rates are an afterthought (and that doesn’t begin to factor in companies like Uber that opt to consider the people they work with “contractors”). When I started Rent the Runway, I simply followed suit.
But over the years, I began to reflect on how the system that I and others had constructed may have been perpetuating deep-seated social problems. Last month, I equalized benefits for all of our employees at Rent the Runway. Our warehouse, customer service and store employees now have the same bereavement, parental leave, family sick leave and sabbatical packages that corporate employees have.
Of course, chief executives and their leadership teams have outsize salaries as well as outsize benefits. C.E.O.s at the 350 largest companies make 271 times the earnings of the typical worker. The people with the most means have the most flexibility in their lives, not only because they have the ability to throw money at their problems but also because their companies grant them this flexibility to keep them happy.
Imagine a work culture in which team members can connect, regardless of where, when and how they work. The traditional workspace is rapidly changing, and today’s businesses need to modernize and evolve if they want to attract — and keep — the most talented among today’s workers.
At Dell Technologies, where I lead HR, we long ago recognized the need for a connected workforce. Dell’s vision for the future is founded in enabling its team members to be their best and do their best work, through a flexible approach to their work.
Results from early research we conducted show that more than 60% of employees work before or after standard business hours. Furthermore, roughly two-thirds of workers globally conduct at least some business from home on a regular basis, and the average employee spends at least two hours per week working from public places. In fact, research shows that more than 80% of millennials say workspace technology will influence the jobs they take. This aligns to research published by GlobalWorkplaceAnalytics.com, which shows that more than 80% of the U.S. workforce say they would like to telework at least part-time.
Additionally, the firm’s report shows that many Fortune 1000 companies around the globe are entirely revamping their spaces around the fact that employees are already mobile. The report’s findings share that studies have repeatedly shown that employees are not at their desk more than half of the time.
As leading organizations evolve to meet the new cultural requirements of today’s workforce, what exactly are business leaders to do?
From NYT “Business Day” August 31, 2014 by Steven Greenhouse:
Week after week, Guadalupe Rangel worked seven days straight, sometimes 11 hours a day, unloading dining room sets, trampolines, television stands and other imports from Asia that would soon be shipped to Walmart stores.
Even though he often clocked 70 hours a week at the Schneider warehouse here, he was never paid time-and-a-half overtime, he said. And now, having joined a lawsuit involving hundreds of warehouse workers, Mr. Rangel stands to receive more than $20,000 in back pay as part of a recent $21 million legal settlement with Schneider, a national trucking company.
“Sometimes I’d work 60, even 90 days in a row,” said Mr. Rangel, a soft-spoken immigrant from Mexico. “They never paid overtime.”
The lawsuit is part of a flood of recent cases — brought in California and across the nation — that accuse employers of violating minimum wage and overtime laws, erasing work hours and wrongfully taking employees’ tips. Worker advocates call these practices “wage theft,” insisting it has become far too prevalent.
Some federal and state officials agree. They assert that more companies are violating wage laws than ever before, pointing to the record number of enforcement actions they have pursued. They complain that more employers — perhaps motivated by fierce competition or a desire for higher profits — are flouting wage laws.
Many business groups counter that government officials have drummed up a flurry of wage enforcement actions, largely to score points with union allies. If anything, employers have become more scrupulous in complying with wage laws, the groups say, in response to the much publicized lawsuits about so-called off-the-clock work that were filed against Walmart and other large companies a decade ago.
Here in California, a federal appeals court ruled last week that FedEx had in effect committed wage theft by insisting that its drivers were independent contractors rather than employees. FedEx orders many drivers to work 10 hours a day, but does not pay them overtime, which is required only for employees. FedEx said it planned to appeal.
Julie Su, the state labor commissioner, recently ordered a janitorial company in Fremont to pay $332,675 in back pay and penalties to 41 workers who cleaned 17 supermarkets. She found that the company forced employees to sign blank time sheets, which it then used to record inaccurate, minimal hours of work.
David Weil, the director of the federal Labor Department’s wage and hour division, says wage theft is surging because of underlying changes in the nation’s business structure. The increased use of franchise operators, subcontractors and temp agencies leads to more employers being squeezed on costs and more cutting corners, he said. A result, he added, is that the companies on top can deny any knowledge of wage violations.
“We have a change in the structure of work that is then compounded by a falling level of what is viewed as acceptable in the workplace in terms of how you treat people and how you regard the law,” Mr. Weil said.
His agency has uncovered nearly $1 billion in illegally unpaid wages since 2010. He noted that the victimized workers were disproportionately immigrants.
Guadalupe Salazar, a cashier at a McDonald’s in Oakland, complained that her paychecks repeatedly missed a few hours of work time and overtime pay. Frustrated about this, she has joined one of seven lawsuits against McDonald’s and several of its franchise operators, asserting that workers were cheated out of overtime, had hours erased from timecards and had to work off the clock.
“Basically every time that I worked overtime, it didn’t show up in my paycheck,” Ms. Salazar said. “This is time that I would rather be with my family, and they just take it away.”
Business advocates see a hidden agenda in these lawsuits. For example, the lawsuit against Schneider — which owns a gigantic warehouse here that serves Walmart exclusively — coincides with unions pressuring Walmart to raise wages. The lawyers and labor groups behind the lawsuit have sought to hold Walmart jointly liable in the case.
Walmart says that it seeks to ensure that its contractors comply with all laws, and that it was not responsible for Schneider’s employment practices. Schneider said it “manages its operations with integrity,” noting that it had hired various subcontractors to oversee the loading and unloading crews.
Business groups note that the lawsuits against McDonald’s have been coordinated with the fast-food workers’ movement demanding a $15 wage. “This is a classic special-interest campaign by labor unions,” said Stephen J. Caldeira, president of the International Franchise Association. In legal papers, McDonald’s denied any liability in Ms. Salazar’s case, and the Oakland franchisee insisted that Ms. Salazar had failed to establish illegal actions by the restaurant.
Michael Rubin, one of the lawyers who sued Schneider, disagreed, saying there are many sound wage claims. “The reason there is so much wage theft is many employers think there is little chance of getting caught,” he said.
Commissioner Su of California said wage theft harmed not just low-wage workers. “My agency has found more wages being stolen from workers in California than any time in history,” she said. “This has spread to multiple industries across many sectors. It’s affected not just minimum-wage workers, but also middle-class workers.”
Many other states are seeing wage-theft cases. New York’s attorney general, Eric T. Schneiderman, has recovered $17 million in wage claims over the past three years. “I’m amazed at how petty and abusive some of these practices are,” he said. “Cutting corners is increasingly seen as a sign of libertarianism rather than the theft that it really is.”
In Nashville last February, nine housekeepers protested outside a DoubleTree hotel because the subcontractor that employed them had failed to pay a month’s wages. “The contractor said they didn’t have the money, that the hotel hadn’t paid them,” said Natalia Polvadera, a housekeeper. “We went to the hotel manager — he showed receipts that they had paid the contractor.”
Nonetheless, the protests persuaded DoubleTree to pay the $12,000 in wages owed.
Mr. Weil said some executives had urged him to increase enforcement because they dislike being underbid by unscrupulous employers.
His agency has begun cracking down on retaliation against workers who complain, suing a Texas company that fired a janitor when he refused to sign a statement that falsely said he had already received back wages due him from a Labor Department investigation.
“This is just not acceptable,” Mr. Weil said. “You can’t threaten people to lose their jobs because they are asserting rights that go back 75 years.”
This last year was a record one for fines and financial settlements levied against corporations for breaking laws and wreaking havoc on the economy, especially banks and other financial institutions primarily responsible for creating the Great Recession.
The question is whether forcing corporations to pay changes their bad behavior.
Watch this New York Times video that reviews three examples of businesses behaving badly because they view such fines and settlements as the cost of doing business.
The question is whether more severe penalties, including jail time for executives who are responsible for the behavior of their corporations, can incentivize them to follow the law.
After all, corporations are citizens, and when citizens commit felonies, they often lose their rights. Perhaps we need legislation so that corporations that break the law lose their rights as well.
San Francisco tech start-up Buffer has been making waves with its transparency campaign, jump starting a national conversation about salaries and, by implication, the way businesses conduct their business in this country.
“We hope this might help other companies think about how to decide salaries, and will open us up to feedback from the community,” CEO Joel Gascoigne wrote in a blog post published on the company’s website Thursday. See the full post with published salaries here. By creating a transparent formula and paying above market rate, Gasciogne says he hopes to promote long-term commitment from employees. “In Silicon Valley, there’s a culture of people jumping from one place to the next. That’s why we focus on culture. Doing it this way means we can grow just as fast—if not faster—than doing it the ‘normal’ cutthroat way.”
The move is a radical departure from the normal but profoundly unjust practice of concealing salaries from other employees and the public in a country with a growing income inequality problem and a troubling trend of executive compensation that tops all other advanced industrialized countries. Despite the Great Recession and ongoing budget crises as a consequence of financial deregulation and corporate corruption, executive pay was 354 times greater than the average American worker’s salary.
In addition to regulatory reforms on the financial and banking industries the Dodd-Frank Wall Street Reform and Consumer Protection Act now requires companies to disclose their CEO-to-worker pay ratio. The SEC proposed the following rules to implement the law:
Section 951 requires advisory votes of shareholders about executive compensation and golden parachutes. This section also requires specific disclosure of golden parachutes in merger proxies. This section further requires institutional investment managers subject to Section 13(f) of the Securities Exchange Act to report at least annually how they voted on these advisory shareholder votes.
Section 952 requires disclosure about the role of, and potential conflicts involving, compensation consultants. This statute also requires the Commission to direct that the exchanges adopt listing standards that include certain enhanced independence requirements for members of issuers’ compensation committees. The Commission is also directed to establish competitively neutral independence factors for all who are retained to advise compensation committees.
Section 953 requires additional disclosure about certain compensation matters, including pay-for-performance and the ratio between the CEO’s total compensation and the median total compensation for all other company employees.
Section 954 requires the Commission to direct the exchanges to prohibit the listing of securities of issuers that have not developed and implemented compensation claw-back policies.
Section 955 requires additional disclosure about whether directors and employees are permitted to hedge any decrease in market value of the company’s stock.
Hopefully, the recent action taken by Buffer to make transparent the ratio between its executive pay and staff will help facilitate this national conversation about establishing appropriate limits to executive salaries and what to do about the more troubling question concerning the unsustainable growth of income inequality in this country.