June 7, 2018, Trial News
SCOTUS upholds forced arbitration clauses, class action waivers in employment contracts
Alyssa E. Lambert
Dealing a massive blow to more than 60 million private sector, non-union workers who have signed employment contracts containing forced arbitration clauses—and the nearly 25 million who have signed class action waivers—the U.S. Supreme Court ruled, 5-4, in three consolidated cases that the Federal Arbitration Act (FAA) mandates that contracts containing these provisions must be enforced as written. The Court ruled that neither Section 2 of the FAA (the savings clause that nullifies this requirement if an arbitration clause violates another federal law) nor the National Labor Relations Act (NLRA), which prohibits employers from interfering with workers’ right to “engage in concerted activities,” negates this mandate. (Epic Sys. Corp. v. Lewis, No. 16-285; Ernst & Young LLP v. Morris, No. 16-300; Nat’l Labor Relations Bd. v. Murphy Oil USA, Inc., No. 16-307 (U.S. May 21, 2018).)
In Epic Systems, Jacob Lewis alleged that a Wisconsin-based software company failed to pay him and other technical writers overtime in violation of the Fair Labor Standards Act. Epic Systems moved to compel arbitration based on an electronic arbitration agreement that required wage-and-hour claims to be brought through individual arbitration only and that prohibited any collective or class action proceeding. The contract did not contain an option to decline or opt out, stating that employees were “deemed to have accepted this [a]greement” if they “continue[d] to work at Epic.”
Lewis contended that the agreement violated Section 7 of the NLRA, which protects employees’ right to “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” and Section 8, which makes it “an unfair labor practice for an employer. . . to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed” under Section 7. The Seventh Circuit affirmed denial of Epic’s motion, noting that protected “other concerted activity” included collective and class actions, and it rejected the company’s argument that the FAA conflicts with and overrides the NLRA. (823 F.3d 1147 (7th Cir. May 26, 2016).)
In Ernst & Young, the Ninth Circuit reached the same conclusion as the Seventh. (834 F.3d 975 (9th Cir. Aug. 22, 2016).) But in Murphy Oil, the Fifth Circuit held that the FAA dictates enforcement of the relevant arbitration agreement. (808 F.3d 1013 (5th Cir. Oct. 26, 2015).)
All three cases were consolidated for joint argument before the Court. At oral arguments in October, it was clear that the justices were divided, as Trial News previously reported.
Justice Neil Gorsuch, writing for the majority, opened with the following questions: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” He answered both, issuing a broad proclamation. “The policy may be debatable, but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA—much less that it manifested a clear intention to displace the Arbitration Act.”
Justice Ruth Bader Ginsburg—joined by Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan—dissented: “Were the ‘agreements’ genuinely bilateral?. . . . Epic’s and Ernst & Young’s employees thus faced a Hobson’s choice: accept arbitration on their employer’s terms or give up their jobs.”
Calling the majority decision “egregiously wrong,” Ginsburg called on Congress to correct “the Court’s elevation of the FAA over workers’ rights to act in concert,” noting such action was “urgently in order.”
“The Supreme Court’s decision is a devastating blow to the fundamental rights of workers as more and more corporations move to silence harassed, abused, and mistreated employees by forcing them into arbitration. From employee handbooks to credit card and nursing home contracts, people across the country are having their constitutional rights taken away by powerful corporations,” said American Association for Justice (AAJ) CEO Linda Lipsen. “Congress needs to take action to restore the rights of all Americans to seek justice when corporations break the law, rather than continue to allow corporations to exploit workers and consumers by hiding behind secretive arbitration.”
“This decision should put to rest any doubt that a core mission of the current Court is to roll back important protections for workers and consumers. It also sends a clear message to companies that they can take aggressive steps to ignore federal and state law without being held accountable,” said Matt Wessler, of Washington, D.C., one of the attorneys who submitted an amicus brief on AAJ’s behalf in favor of the employees. “This case could have been decided narrowly, but it wasn’t. The conservative majority’s decision was written to sweep as broadly as possibly.”
Given the Court’s agenda, Wessler expects more dissents like the one Ginsburg penned. “You can read real frustration in Justice Ginsburg’s dissent. She called out the majority’s opinion for what it was: an outcome-driven decision that elevates a pro-corporate policy view over and above what the law requires,” he said.
San Francisco attorney Lori Andrus, who represents employees in equal pay and other workplace discrimination class actions, said the decision will impact low-wage employees the most. “Undoubtedly, corporations are furiously rewriting their contracts right now to include class action bans,” she said.
Andrus, like many employment attorneys, will be forced to proceed with some of her cases in arbitration. “We’re going to have to do the best we can on behalf of those individual clients, but it is really unfortunate—defendants are stripping us of a very effective tool to combat discrimination in the workplace,” she said.
New York City attorney Justin Swartz, who handles wage-and-hour and employment discrimination cases, noted that employers may regret the effect of the decision. “Arbitration is very expensive for companies, and when faced with hundreds of individual arbitrations, they might wish for the efficiency and finality that class actions can offer,” Swartz said. “We have already seen companies struggle to deal with mass-action arbitrations and, in some cases, simply refuse to pay for them. In reality, class action waivers in arbitration agreements end up helping arbitration providers more than they help employers.”
Wessler and Swartz offered some hope for workers trying to hold their employers accountable for violating federal law. “The decision does not alter a number of the core arguments and settle contract-law protections available to workers who are facing efforts to force their claims into secret arbitration, but it does mean that forced arbitration will become more prevalent in cases involving workers and their rights,” Wessler said.
“We will do what we have always done in the face of regressive and cynical judicial activism—fight back and think creatively. State-level legislation, like California’s Private Attorney Generals Act and the EMPIRE Act [employees can file lawsuits to recover civil penalties for state labor code violations], which worker-advocates are trying to pass in New York, will help enforce wage-and-hour laws,” Swartz said. “Social media will continue to connect workers to one another and allow them to act collectively to demand fairness. The public will refuse to spend money on companies that deny their workers the right to go to court. And believe it or not, some high-road, ethical companies will decide that it is better business to comply with employment laws than to continue to hide from them.”
For more information on the decision’s impact and how your practice might be affected, please register for AAJ Education’s webinar on June 20—“Epic” Failure: Dissecting the U.S. Supreme Court Decision in Epic Systems Corp. v. Lewis.