Two Minutes for Discriminating: The Newest Penalty for Federally-Contracted Companies

August 15, 2014

Consumers and workers rejoice while large corporations wallow. Just two weeks ago, President Barack Obama signed an executive order that not only tackles labor law-breaking companies, but also prohibits mandatory arbitration to settle workplace discrimination and civil rights grievances.

The order, titled “Fair Pay and Safe Workplaces,” has two main parts: (1) it requires companies bidding for federal contracts worth more than $500,000 to make previous violations of labor laws public, and (2) it stops companies with federal contracts worth more than $1 million from keeping employees out of court with mandatory arbitration clauses for workplace discrimination.

The first part aims at incentivizing companies to resolve labor disputes and avoid future labor law violations through what some have called a “shaming device.” If a company wants to bid for a federal contract worth more than half a million dollars, it will have to disclose all labor law violations within the last three years to the public. Whether based on amount or severity, federal agencies will receive more guidance on how these disclosed labor violations will factor into their decision-making in awarding lucrative contracts to corporations.

The order’s resolution seems like a “face-palm” type of simplicity. After all, why should a major corporation receive thousands of government dollars to continue in a process more concerned with the bottom-line dollar than the employees that help procure those profits? And how? The answer is: money and easily. For most corporations, labor law violations are rarely a hurdle to obtaining a federal contract. Most of these labor violations are “resolved,” or at least concealed, through a corporation’s mandatory arbitration clause. That brings us to the order’s second component.

The second element has received the most buzz (although well-contained within the legal and corporate sphere), because it essentially road-blocks a dispute-resolution mechanism that prevents employees from getting their day in court and from joining class action suits for worker grievances. These mandatory arbitration clauses, often in fine-print and a compulsory condition of employment, have the ability to prevent employees from appearing in front of a judge to argue workplace discrimination claims. Instead, the employees are forced to submit labor disputes to binding arbitration. The new executive order covers these claims ranging from fair wages and overtime pay, minimum wage, and child labor, to dangerous workplace hazards, equal employment, and sexual harassment.

Arbitration clauses have long been a favorite of companies and courts alike because it saves money, court resources, and time. As several courts in Illinois have stated, “there is a strong public policy in favor of enforcing arbitration agreements.”[1] But instead of being the cost-effective process arbitration was intended to be, many large corporations have used it as a quick and dirty means to keep the employee out of court and the corporation name out of headlines. Additionally, it is more likely that the employee will lose his or her case or settle for less in private, forced arbitration than the employee would in the courtroom setting.

One study at Cornell University found that employees complaining of workplace discrimination in court, rather than work-mandated arbitration, won up to three times as often and with damage awards that were five times higher, on average. For those who want protection in the workplace, it is important to weigh-in heavily in support of the United States, whether that be through litigation or public debate. The world of class action and labor and employment litigation may have grown two sizes that day in order to accompany future employees who will face the option of either private arbitration or litigation to settle workplace discrimination claims. Undoubtedly, this executive order is a huge blow against forced arbitration.

Of course, the order does have its limitations. Despite the 24,000 companies that contract with the government[7], the order will only apply to prospective contracts, and only those above a certain dollar amount, leaving a relatively small impact on the already-established corporate world. The effect of the new executive order is more staggering if one could imagine it being applied retroactively. Some of the top big-name, federally-contracted companies include Lockheed Martin, AT&T, Dell, Deloitte, and Motorola[9]. Applied retroactively, these companies would have to publicly disclose any past labor violations in last three years (if any).

The caveat in all of this is that the executive order may not last. Like any executive order, it can be reversed or challenged in court, without the same weight as a law enacted by Congress. However, the order does finally recognize forced arbitration as a central civil rights issue, and forces future companies to play by the rules, while publicly-shaming those who chose to break the rules behind closed, steel corporate doors. Moreover, government money will be properly allocated to those companies that have followed the rules in the game of market competition. Perhaps, now, it will also enlighten the public as to which companies put a higher value on labor laws and its treatment of employees.

When rule-breaking in the workplace is rooted in an individual’s sex, race, ethnicity, or religion, I think most employees and consumers would agree that ignorance is not always bliss. In an executive victory with moral undertones, the pro-labor have won this round in the seemingly endless battle against the pro-business.



[1] See Tortoriello v. Gerald Nissan of N. Aurora, Inc., 882 N.E.2d 157, 170 (Ill. App. Ct. 2008); Kinkel v. Cingular Wireless, LLC, 857 N.E.2d 250, 277-78 (Ill. 2006).



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