Employers impose coercive dispute resolution terms on their employees more frequently, more broadly, and with greater legal success than ever before. Recent survey data indicates that mandatory employment arbitration provisions bind more than 60 million American workers—over half of the U.S. private-sector nonunion workforce. Employment class action waivers bind nearly 25 million American workers. In 2018, the Supreme Court held 5–4 that mandatory arbitration provisions and class action waivers imposed by employers on their employees do not violate the National Labor Relations Act. These terms prohibit employees from exposing employer wrongdoing in open court, bar employees with valid wage and hour claims from collectively—and thus cost-efficiently—asserting those claims, and prevent employees who have suffered workplace harassment from establishing or even knowing that similar claims have been made by other employees, thereby allowing patterns of harassment to continue. Yet the Supreme Court’s recent ruling means that millions more American workers are likely to become subject to these coercive employment dispute resolution terms. While harming more than 60 million American workers, coercive employment dispute resolution terms do something else—something that tax law enforcers historically and currently ignore. They enrich the employers who impose them. They give employers a new, valuable intangible asset that the employers did not have before. For the employers who impose them, coercive employment dispute resolution terms are an accession to wealth, clearly realized, and in the employer’s control. They are income to the employer, and they should be taxed as such.
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Rebecca N. Morrow, Taxing Employers for Imposing Mandatory Arbitration, Class Action Waiver, and Nondisclosure of Dispute Provisions, 74 SMU L. Rev. 59 (2021).