On Monday, the Supreme Court dealt a huge blow to American workers, ruling that employers are free to skip class action waivers in mandatory arbitration agreements. Thanks to the Court, millions of American workers will effectively lose their ability to sue their employers.
The case, Epic Systems Corp. v. Lewis, consolidated three disputes in which employees tried to bring wage and hour claims collectively in arbitration. The ruling, written by Justice Neil Gorsuch, is the latest sign that the conservative-leaning Court is intent on throwing the full weight of the law behind corporate interests.
Arbitration agreements began creeping into U.S. employment contracts in 1991, when the Supreme Court ruled that the practice was legal. Several rulings since then have further chipped away at worker rights; according to the Economic Policy Institute, the share of workers subject to mandatory arbitration provisions has more than doubled since the early aughts. The EPI estimates that about 56 percent of non-union private-sector employees are currently subject to mandatory arbitration agreements, meaning they are barred from suing their employers in public court.
Research shows that arbitration, which is not public and is paid for by employers, overwhelmingly favors employers over their employees. Unlike court, arbitration forums don’t have formal rules of evidence, judges, or juries. Many lawyers won’t even take cases in arbitration because they know the cards are stacked against the employee.
Over the years, many employers have even expanded arbitration requirements to include class action waivers, which bar employees from bringing class claims, even in an arbitration setting. The Supreme Court just signed off on that practice.
For low-wage workers, finding a lawyer to take on an individual case is next to impossible, a fact that corporate legal departments are keenly aware of. Class actions are one of the few remaining avenues workers have to enforce their employment rights. Plaintiffs’ attorneys are usually paid 20 to 35 percent of their client’s winnings if they succeed in court. For an attorney representing a single client who has been stiffed $100 per paycheck, the highest possible payout at the end of the case likely isn’t worth the effort. But if that worker is part of a class of 1,000 people, the calculus changes.
By slipping mandatory arbitration provisions with class action waivers into employment contracts, employers guarantee that any challenge they face will come from a single plaintiff in a court unfriendly to their claims.
Before the Supreme Court, the employees in the consolidated cases tried to argue that class action waivers violate the National Labor Relations Act, which guarantees workers the right to unionize and to “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
The NLRA was passed in 1935 in an attempt to level the playing field between individual workers and employers. When Congress passed the statute, it recognized that employees really only have power when they work together. This is true in a union context as much as it is in a courtroom.
Gorsuch argues that since class actions didn’t really exist at the time the NLRA was passed, the statute shouldn’t apply to class action waivers. But, of course, the practice of mandatory arbitration for employees wasn’t commonplace then either. Employers have found new ways to limit employee rights, and the way we interpret our laws should evolve to reflect that.
Instead, Gorsuch’s decision ignores all power imbalances between employers and employees. “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?” he writes. “Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?”
The problem with this argument is that it presumes these contracts are drafted up by two teams of lawyers representing parties of equal power, not legal documents created by corporate law departments and shoved under the noses of unwitting employees on their first day of work. Later on, Gorsuch writes of “the parties,” plural, who “proceeded to specify the rules that would govern their arbitrations,” as if every low-wage worker consults a contract lawyer before signing off on their HR paperwork.
“It’s a testament to the fact that the Court increasingly does not understand what the workplace looks like for the majority of workers,” Celine McNicholas, labor counsel at the Economic Policy Institute, told me.
Mandatory arbitration clauses have been getting prominent attention in recent months, thanks to stories of women who are forced into private arbitration by their employers to keep sexual harassment and discrimination claims out of court. The #MeToo movement has brought intense scrutiny of the practice, and companies like Microsoft and Uber have tried to get brownie points for eliminating arbitration in connection with sexual harassment claims. But Uber’s policy change didn’t touch its ban on class actions, nor did it eliminate arbitration across the board.
If Uber actually wanted to make a change, it would have banned mandatory arbitration altogether. But why would it? It’s incredibly easy for employers to add these provisions to employment contracts. There’s virtually no downside and all upside, as all the potential costs are shouldered by individual employees, who are rarely in a position to push back on any agreement their employer asks them to sign.
“Most of the time, the way this happens in today’s workforce, is the employer sends out an email to all the current employees, and they say they’ve modified the employee handbook to contain the following terms concerning arbitration, you have until Friday to reply accepting these terms or your employment will be terminated,” said Craig Becker, general counsel at the AFL-CIO.
Becker represented a group of Murphy Oil gas station attendants in one of the cases before the Supreme Court. The attendants, who were asked to sign their arbitration agreements as a condition of employment, allege they were denied overtime for field work they did checking competitor gas station rates.
When they sued their employer, they did so together “to be a stronger word heard,” one of the attendants, Sheila Hobson, said last fall.
“For workers striving to gain from their employers decent terms and conditions of employment, there is strength in numbers,” Justice Ruth Bader Ginsburg wrote in a lengthy dissent on Monday. Gorsuch’s majority opinion, she writes, “ignores the destructive consequences of diminishing the right of employees ‘to band together in confronting an employer.’”
The Roberts Supreme Court has consistently favored businesses over people, and this latest decision is just another step in a trend towards dismantling labor rights. Within hours of the decision, law firm Ogletree Deakins was already peddling its “DIY Arbitration Agreements” tool, which helps employers “quickly and conveniently generate arbitration agreements with class action waivers” to “take advantage of today’s Supreme Court ruling in an extremely cost-efficient manner.”
Without legislative interference, McNicholas estimates that, within six years, more than 80 percent of workplaces will have mandatory arbitration agreements with class action waivers.
“If we are forced to do everything as individuals, we as working people are going to be able to do very little,” she said.