Juneteenth ° Texas ° Tesla ° Mandatory Arbitration
On Juneteenth, we commemorate an important step towards the formal abolition of slavery under federal law. On 19 June 1865, Major General Gordon Granger entered an order decreeing Black people in Texas were free. Until that time, Texas was an insurrectionist state that flouted the Emancipation Proclamation.
In December 2021, Elon Musk packed up Tesla’s headquarters and moved to Texas. The reported reasons are varied. California is too expensive. California’s taxes are too high. California’s COVID-19 regulations were too restrictive. California has too much traffic. California is too “liberal”. And my personal favorite: A “liberal” California politician “cursed him on Twitter.”
Among all the possible reasons, the most likely reason is rarely mentioned: Diaz v. Tesla, Inc. That litigation revealed racial abuse at the Tesla factory in Fremont, California that shocks the conscience. Only two months before Tesla moved to Texas, a federal jury awarded Mr. Diaz $6.9 million in emotional distress and $130 million in punitive damages, perhaps the largest verdict for racial harassment and violence in U.S. history.
The verdict was not unreasonable when one considers Mr. Diaz’s experience as an Elevator Operator at the Fremont factory from June 2015 to March 2016.
A co-worker repeatedly called Mr. Diaz a “porch monkey” and “n****r”, in both Spanish and English. Mr. Diaz complained to a supervisor, who confirmed that the co-worker used the slurs. But Tesla took no action, so at least eight of Mr. Diaz’ co-workers joined in the racial abuse, calling him “n****r” regularly without repercussion.
In October 2015, one of the Tesla supervisors cornered Mr. Diaz inside a freight elevator and screamed “[n****rs] aren’t shit!”, bringing his fists to Mr. Diaz’ face. Mr. Diaz pointed to a video camera in the elevator, so the supervisor backed down. Mr. Diaz reported the incident to management, but Tesla did not investigate and did not preserve the camera footage.
Beginning in August 2015, another Tesla Supervisor called Mr. Diaz “n****r” and “boy” more than 30 times, adding “You n****rs are lazy.” The Tesla supervisor harassed Mr. Diaz until he quit, unable to endure the racially hostile work environment.
At trial, it was revealed that many Black workers at Tesla experienced racial harassment on a daily basis. Three supervisors testified to routinely witnessing workers using “n****r” casually throughout the Fremont factory. Racist graffiti was regularly splashed across bathroom walls and stalls, including threats of violence.
There can be no doubt that this unsavory case is straight from the Jim Crow Era.
But the bigger issue is a uniquely 21st century one. Mr. Diaz was only able to bring suit against Tesla because he was NOT a Tesla employee. Instead, Mr. Diaz worked at the Fremont Plant as an employee of a third-party staffing agency. Therefore, he could bring litigation under the joint employment doctrine.
If Mr. Diaz was a Tesla employee, he would have been subject to a mandatory arbitration restriction that would have led to completely different results. Of the nearly 90 employment complaints that Tesla employees filed from 2016 to March 2021, the company lost only one arbitration. The other cases were settled, abandoned, withdrawn or dismissed without a hearing. The lopsided results surely eliminated any motivation that Tesla may have had to remedy an environment that condoned outright racial hatred and violence.
In 2022, Congress passed the Ending Forced Arbitration of Sexual Harassment Act, which limited the ability of employers to coerce employees to adjudicate sexual harassment claims in secret arbitration proceedings. But when it comes to racial discrimination, Congress has not taken legislative action and is unlikely to do so for the foreseeable future. California passed a law barring mandatory arbitration agreements as a condition for employment but, in 2024, a federal district court in Sacramento entered a permanent injunction against its enforcement.
What this all means depends on who you are.
Corporate Management: There are a few companies that do the right thing. Google is a prominent example. In 2019, it rescinded the policy that forced employees to resolve claims in secretive arbitration proceedings where the fix was in. Since then, other employers have limited the scope to exclude sexual harassment claims. In light of federal law, this is not much of a concession. It is, however, a step in the right direction.
Just because it is legal doesn’t mean you should do it. Do you think you can recruit and retain the best when you adopt the same employment policies as Elon Musk? Treat your employees right. Adopt a zero-tolerance policy for racial harassment at your company. And if you fail to fulfill those promises, take your lumps at a judicial or administrative proceeding and try harder.
Employees: Know what you are getting yourself into from the go-get. Although you may be amped to start a new position at a great company with a well-appointed break room, read the fine print. Ask about mandatory arbitration. And if you are in any position to negotiate the terms of your employment, ask that the mandatory arbitration provision be eliminated. If that’s not an option, just know that, if things get ugly. your recovery will be limited and there is not much you can do about it.
If you are already at a company with mandatory arbitration restrictions, try collective action. It worked at Google. Of course, the world has changed a lot since 2019. But never underestimate the power of organized and thoughtful efforts by a group of motivated employees.
The Feds: Congress or the United States Supreme Court could take steps to narrow the ever-widening scope of the Federal Arbitration Act. Don’t hold your breath.
State Agencies: Now is the time for state attorney generals to step in and enforce antidiscrimination laws in the private sector. Mandatory arbitration provisions do not restrict state agencies from taking action against unscrupulous employers. Private attorney general statutes cannot ensure enforcement of civil rights in the increasing number workplaces where mandatory arbitration provisions prevent employees from exercising their rights. Like Obi-Wan, state attorney generals are our only hope.
Consumers: In the U.S., everyone is a consumer. A decision to NOT buy a product can have an impact on corporate policies. Ask Target.
Talk up good companies and educate others about unscrupulous businesses. Over the years, I spoke to several friends who were considering a Tesla purchase. I described, in detail, the facts about Tesla’s management and the shocking evidence revealed in the Diaz litigation. I only know of one person that bought a Tesla after our talk. The others did not. As for the latter group, the decision not to purchase a Tesla means they don’t have to rebadge their car or put on stickers denying prior knowledge that Elon Musk cheats at videogames and is overtly racist.