U.S. Supreme Court Rules in Favor of Binding, Forced Arbitration Agreements
Employers can preemptively ban workers from bringing class actions.
The National Labor Relations Act (NLRA) was passed way back in 1935 after decades of employer antagonism towards labor organizations. Workers and their families who sought decent pay and safe working conditions banded together to win hard-fought rights.
Section 7 of the NLRA says that employees have:
“the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
Epic Systems Allegedly Violates Overtime Rules on a Large Scale, Workers Collectively Challenge
Fast-forward to the present. Unions and workers are still fighting hard to maintain their rights in the workplace and balance out the great power held by employers.
In February 2015, Epic Systems employee Jacob Lewis sued Epic in federal court. He filed the suit on behalf of himself and other, similarly-situated Epic employees. This is known as a “collective action,” or a “class action.” The lawsuit claimed that Epic unlawfully denied employees overtime pay in violation of the Fair Labor Standards Act (FLSA). While each individual’s lost wages claim was relatively small, the fact that several joined as plaintiffs in presenting all their claims together raised the total dollar value of each case appreciably.
But here’s the catch. You know all that paperwork you have to sign when you start a new job? It seems the bigger the employer the more papers stack up. And the larger corporations don’t even print out those papers for the employee to read, much less take home and think about. The new hires simply “click here” to indicate their agreement. And, nowadays, one of these “agreements” they sign is that they give up their right to sue the employer in court, regardless of what happens. Often tucked away in these papers, like a pea underneath 100 mattresses, is a forced arbitration agreement.
If a mandatory arbitration clause was one of these papers the employee “agreed” to, the right to present the evidence in court to a jury of one’s peers is gone. Poof! There is essentially no right to appeal from whatever this private arbitrator decides.
Epic argued that the class- and collective action lawsuits could not continue because (a) the employees all signed forced arbitration agreements and (b) those agreements precluded them from engaging in collective actions. That would mean that each employee who wanted to present a wage theft claim had to go it alone.
Fighting back, the employees relied on section 7 of the NLRA. After all, are workers truly able to “engage in other concerted activities,” when they cannot bring collective actions against an employer?
The district court ruled in favor of Lewis and the workers. It decided that Epic’s agreements with its workers was unenforceable because it violated the NLRA right of employees to engage in “concerted activities.”
The U.S. Court of Appeals for the Seventh Circuit agreed, and also ruled in favor of the workers. The Seventh Circuit found that the agreements violated the NLRA, and that the agreements were also unenforceable under the Federal Arbitration Act (FAA). The FAA says that arbitration agreements are to be enforced unless there legal or equitable grounds that would render a contract unenforceable. Because the agreements did not pass muster under the NLRA, they could not pass muster under the FAA.
Epic appealed to the United States Supreme Court, and the Supreme Court agreed to hear the appeal. It combined the case with similar FLSA collective action cases brought by employees of Ernst & Young and Murphy Oil USA, Inc.
Supreme Court Rules for the Employers
The Supreme Court, in a 5-4 decision written by Trump appointee Justice Neil Gorsuch, ruled in favor of the employers. And that was because, the Court wrote, the FAA established “a liberal federal policy favoring arbitration agreements,” which trumped employees’ rights under the NLRA. The Court decided that the NLRA “does not mention class or collection action procedures” and thus cannot be read to displace the FAA.
Justice Ruth Bader Ginsburg put on her dissent collar and wrote a dissenting opinion. It’s a good read. She reminds readers of the history of labor relations, and likens the forced arbitration agreements at issue in this case to the old “yellow dog” contracts one U.S. Senator had described as “render[ing] the ‘laboringman . . . absolutely helpless’ by ‘waiv[ing] his right . . . to free association’ and by requiring that he ‘singly present any grievance he has.’
But, what does this mean?
Are employers really going to be better off if they all jump on this bandwagon? I think not.
Employer’s first face administrative costs.
First, all contracts, even the forced arbitration “agreements” that employers force on their employees require “assent” – and so an employee with a knee-jerk reaction that it must have the benefit of the Epic Systems ruling will have to establish some system to make sure that every single one of its current employees signs a new “agreement.” New agreements also require new “consideration,” which sometimes just means getting the job. Perhaps, in Texas, it will mean no more than not losing your job if you don’t sign. But, it could require more than that in other states.
Employers’ arbitration costs will increase – a lot.
Under the Rules of the American Arbitration Association for employment cases, the employee cannot be required to pay any more than $300 for the process. The employer pays for everything else, win, lose, or draw, It must, in addition to paying their own lawyers’ fees, pay for (1) the time spent by the arbitrator (hourly rates and time spent vary, of course, but a $20,000 invoice for the arbitrator’s services in a single-plaintiff case is not unusual); (2) various administrative fees the organization charges; and (3) even the room where the hearing will be held. If class- and collective actions are disallowed, that means the employer must pay for tens or even hundreds of arbitrators to hear all the claims that were previously heard by one arbitrator.
The cost of insurance could easily skyrocket as well.
I am no insurance lawyer, but I understand that most policies pay a certain amount per claim, and that deductibles are also based on a per claim basis. And, if employees are forced to bring their claims individually, there could now be tens or hundreds of claims instead of just one.
Take away. This is not a Court that is friendly to employee rights. But, employers who think they will automatically reap another economic advantage over their employees by adding a restriction against class- or collective actions to forced arbitration “agreements” should think twice. Or thrice.
Pending in Congress right now is The Arbitration Fairness Act (H.R. 1374, S. 2591), which would ban forced, pre-dispute arbitration clauses in consumer, employment, antitrust, and civil rights disputes. The National Employment Lawyers Association supports this bill and has as been a leader in opposing forced arbitration of employment claims since the inception of NELA in 1985.
Who knows what will happen to the make-up of Congress or the Court as time passes? Already, governmental entities have the right to forbid companies that want a government contract from imposing forced arbitration clauses on their employees – and many are taking advantage of that right. And state legislators are looking for other ways to protect the employees in their states. California has already started down that path with “Ending Forced Arbitration of Sexual Harassment Act of 2017” and another bill that would prohibit all arbitration clauses as a condition of employment, Assembly Bill 3080.
The underlying problem is not going away. Wage theft is a huge problem in this country. According to one study, low-wage workers are estimated to suffer $8 billion in wage theft each year. That’s an average of $3,300 per year for year-round workers – nearly a quarter of their earned wages. And, when employers fail to pay minimum wage, poverty is certain – and even people with full time jobs are forced to seek governmental assistance, and that means the taxpayers are making up for what employers are unlawfully failing and refusing to pay their workers.