Dangers of Tesla’s Coercive Arbitration Agreements Denounced by U.S. Senators, Courts

Dangers of Tesla’s Coercive Arbitration Agreements Denounced by U.S. Senators, Courts

Earlier this month, seven U.S. Senators wrote to Tesla CEO Elon Musk to detail harms caused by mandatory or coercive arbitration agreements that Tesla’s workers and purchasers regularly must sign.  The letter describes the ills of confidentiality in arbitration and provides an overview of the ways that “Tesla appears to have long used arbitration agreements to provide itself effective immunity against a vast array of claims, from racial and gender discrimination to workplace sexual harassment.”  It comes at a time when courts, too, are refusing to compel Tesla employees to arbitration.  At Bryan Schwartz Law, we know that such agreements are harmful for employees, consumers, and the public at large.  See, e.g., our posts here, here, here.

As the Senators’ letter observes, mandatory arbitration agreements for employees mean that it is harder for the public to learn about deplorable workplace conditions, or for workers victimized by their employer to find one another.  When the only remedy available to a worker is arbitration, the secrecy Tesla demands “significantly limit[s] the extent to which the details of discriminatory conditions at the company may come to light.”  This allows Tesla to propagate division among its workers without consequence.  It also forces workers to waive their right to bring suit on behalf of similarly situated workers.  Hiding behind arbitration agreements, Tesla has perpetuated rampant racial discrimination against Black workers for years, even as committed plaintiffs like Marcus Vaughn, Titus McCaleb, Monica Chatman, and Evie Hall fight for equal treatment at Tesla in a class action filed by California Civil Rights Law Group and Bryan Schwartz Law.  And though sexual assault and sexual harassment claims are exempt from mandatory arbitration under the End Forced Arbitration Act, which became law in March 2022, the Act doesn’t apply to sexual assault and sexual harassment that took place before its effective date.  Women at Tesla have reported widespread sexual harassment, saying they have been groped, spoken about in graphic terms, and propositioned in sexually explicit ways, and many may be forced into arbitration still.

At Bryan Schwartz Law, these concerns are central to our mission, and we fight against mandatory arbitration agreements that limit rights in the workplace. Employers’ mandatory arbitration agreements are not the only damaging form of arbitration agreement, though.  The Senators’ letter also addresses dangers present in consumer arbitration agreements, even where a consumer can opt out after purchase.  (For Tesla purchasers, this means sending a letter within 30 days of purchase to a designated P.O. Box.)  These consumer arbitration agreements may help corporations avoid taking responsibility for creating serious public safety hazards.

As the Senators’ letter observes, in this context, if a purchaser did not opt out, she might be driving a Tesla when the steering wheel falls off during operation—as has been reported at least twice. Information about the hazard might never become public, even if the driver sought damages in arbitration.  And, even if such a driver had opted out of arbitration after her purchase, she would not be able to assist similarly situated would-be plaintiffs if the victims did not know to send a letter within 30 days of their automatically-generated purchase agreement.  Like workers, consumers better protect their rights when they can do so together in a public forum.

That members of the United States Senate are paying attention to Tesla’s coercive arbitration agreements is a hopeful sign that lawmakers may curb widespread coerced arbitration that is misused to limit corporate accountability, as they started to with the End Forced Arbitration Act last year.

In the meantime, there are workers struggling at Tesla’s factories.  Some recent legal developments provide insight into the ways that workers can vindicate their rights, despite Tesla’s efforts to silence them.

An individual worker at Tesla may be able to bring a suit in court if that court finds Tesla’s arbitration agreement void under California contract law.  In California, a court can find a contract void if it is both (1) procedurally unconscionable and (2) substantively unconscionable.  A contract may be procedurally unconscionable if it is an adhesive contract, that is, if the contracting party has more bargaining power and presents the contract on a take-it-or-leave-it basis, as often happens with employment contracts.  As to the second part of the test, an arbitration may be substantively unconscionable if it is overly harsh or favors one side so much that it shocks the conscience.  Some courts have found that Tesla’s arbitration agreement does.

One Tesla employee who was subjected to nearly daily sexual harassment, including by supervisors and managers, sued Tesla for sexual harassment and related claims in fall 2021.  She argued that the arbitration agreement was procedurally unconscionable because it is a contract of adhesion, and Tesla offered her a job and asked her to quit her existing job before presenting her with the mandatory arbitration agreement.  Further, she argued, the agreement was substantively unconscionable because it was not fully mutual in terms of the compromises it required, and required the litigant to resolve her dispute by confidential arbitration, which limited her ability to gather evidence. The trial court agreed with the worker, and denied Tesla’s motion to compel.  Last month, in an unpublished opinion, the California Court of Appeal also agreed with the worker and affirmed the trial court’s finding that Tesla’s arbitration agreement was unconscionable as applied.

Where an employer’s abuses under anti-discrimination law are widespread, another remedy exists that is not subject to mandatory arbitration: a public injunction.  In January, following one of the attempts by Tesla to kill Marcus Vaughn’s class action with individual forced arbitration, the Court of Appeal held that employees who seek an injunction to stop discriminatory behavior like Tesla’s under California’s Fair Employment and Housing Act may do so on behalf of the public. The right to do so cannot be waived in an arbitration agreement.  In April, the California Supreme Court declined Tesla’s petition to review the decision.

Tesla and other companies find creative ways to keep their employees and customers out of court, because they know that the public will find their indifference to people’s well-being repugnant. Lawmakers and litigants must not stop opposing these efforts.

If you’re a worker facing discrimination in the workplace, or if you have questions about an arbitration agreement, please contact Bryan Schwartz Law, P.C.