NEW Report Finds Forced Arbitration Hurts Workers and Small Businesses

May 26, 2021

A new report by the Main Street Alliance shows how small businesses suffer when large corporations take advantage of lax enforcement of labor laws and the use of forced arbitration to keep employees from asserting their rights. The report, titled Small Business, Common Sense Standards and Forced Arbitration, also recommends that states enact whistleblower protection laws.

Nearly 60 million Americans work for small businesses. And yet some politicians, while paying lip service to small business owners, have time and again enacted policies that erode enforcement for worker protections. This needs to change, for the health and safety of American workers, businesses and our economy. COVID showed us particularly how important strong health and safety standards are, not only for individual workers, but the entire economy.

The COVID-19 pandemic has highlighted how important small businesses are to our communities, our local economies, and the wellbeing of the country as a whole. However, with large corporations profiting from the pandemic while small businesses fight for survival, the playing field has become even more tilted in favor of big business. This is perhaps most evident in the growing market dominance of large retailers that have used their online advantage to crowd out smaller competitors. Yet there is another way large corporations and other unscrupulous actors have flexed their muscle to the disadvantage of responsible businesses — by flouting worker health, safety, and wage protections, according to the report.

"Now more than ever, small businesses need a foundation of public policy that recognizes the value of Main Street businesses to workers, families, and communities," said Main Street Alliance Executive Director Stephen Michael. "Policymakers have options at their disposal to ensure consistent application of workplace standards and protect small businesses and workers alike. 

At the state level, policymakers can adopt models, such as whistleblower enforcement in conjunction with state agencies, that prevent unscrupulous competitors from profiting from workplace violations. At the federal level, policymakers can ban forced arbitration and collective-action waivers to help level the playing field for responsible businesses. We need all the tools in our toolbox to support a resilient recovery.”

Many small businesses themselves have been subjected to forced arbitration clauses. These small businesses may turn to larger businesses as their suppliers or rely on large corporations to handle payment processing or other important services. In these cases, large corporations may embed forced arbitration clauses in contracts, denying their small business customers their day in court to challenge abusive practices just as employees are denied their rights.

“In my nearly 40 years as a small business owner I held numerous contracts, many with businesses far larger than mine. Small businesses like mine are severely disadvantaged in any contract disputes that are subject to forced arbitration by a much larger multinational corporation.,” said Main Street Alliance Board Member and founder of Hawthorne Auto in Portland, OR Jim Houser.

“This report shines a spotlight on what we in Maine's small business community already knew,” says Maine Small Business Coalition Director Selecca Bulgar-Medina, where Maine is looking at laws such as LD 1711, An Act To Enhance Enforcement of Employment Laws.  “Forced arbitration and lax enforcement allow big corporations to get away with illegal activity and puts law-abiding businesses at a competitive disadvantage. In addition to federal reforms, we also need our state policymakers to take action to ensure that breaking the law does not become the key to economic success.” 

Large corporations, which have the money and legal teams to exploit lax enforcement and legal loopholes, can get away with violating workers’ rights. This puts law-abiding small business owners who make up the majority of employers at an unfair disadvantage. What was true before the pandemic is even more true now: policymakers must take action to stop this race-to-the-bottom, instead supporting the Main Street businesses that support their communities, concludes the report.