Employee Class-Action Suits

Supreme Court upholds agreements that prevent employee class-action suits

BY LYDIA WHEELER

The Supreme Court’s decision Monday allowing employers to keep employees from joining together in wage and hour disputes could have a dramatic and lasting impact on the American workforce.

In a 5-4 ruling, the justices said arbitration agreements that bar employees from joining together in arbitration or a class-action lawsuit to settle labor disputes are enforceable under the Federal Arbitration Act.


“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,” wrote Justice Neil Gorsuch in the majority opinion.

Worker rights advocates denounced the decision, fearing it will make it harder for employees to sue their employers for lost wages.

They also warned the ruling will likely lead to more businesses placing “take it or leave it” clauses in their contracts, meaning people will have to waive their right to join a class-lawsuit before they can even get a job.

The National Employment Law Project (NELP) argues that arbitration agreements, which force employees to settle disputes individually with a third-party arbiter, hurt workers, particularly those who make low wages.

“Workers’ ability to band together is crucial to making legal protections real — and bosses know it,” Christine Owens, NELP’s executive director, said in a statement.

“Companies that use forced arbitration and ‘class waiver’ clauses know that individual workers face enormous barriers if they have to bring their claims alone.”

Owens said few workers can afford to spend thousands of dollars to pursue an individual case.

“Collective and class actions exist for this very reason, so that regular people can pool their claims and get a lawyer to pursue their case,” she said.

But attorneys who defend employers argue arbitration is more affordable for everyone involved.

Andrew Pincus, a partner at the law firm Mayer Brown, said arbitration provides a fair, efficient and less expensive way to resolve labor disputes out of court.

Though some hail class-action lawsuits as a crucial tool for workers, Pincus said those cases rarely result in big payoffs for the employees involved.

“I know the other side portrays this as a big change in the law, but all the court did was reaffirm what people thought the law was,” Pincus said.

In delivering the court’s opinion, Gorsuch rejected the argument that the National Labor Relations Act (NLRA), passed in 1935, makes the arbitration agreements unenforceable. Specifically, the challengers pointed to a provision in that law giving workers the right to organize "and engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection"

"The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum," Gorsuch wrote.

Justice Ruth Bader Ginsburg disagreed in a scathing dissent, calling the court’s decision “egregiously wrong.”

“The inevitable result of today’s ruling will be the under enforcement of federal and state statutes designed to advance the well-being of vulnerable workers,” she wrote.

The Economic Policy Institute (EPI), a liberal think tank, found in a study last year that 25 million workers are prohibited by arbitration agreements from joining class-action lawsuits.

EPI experts say it may only take six years for more than 80 percent of workplaces to adopt mandatory arbitration with class and collective action waivers.

University of Virginia law professor Daniel Ortiz, who represented one of the employees in a trio of cases the court consolidated, called Monday’s ruling a loss, but one he hopes Congress can correct in the not too distant future.

Rep. Bobby Scott (D-Va.), the House Education and the Workforce Committee’s ranking member, was quick to call for legislation.

"Today’s decision will have serious consequences for millions of workers," Scott said in a statement. "As part of our commitment to giving workers a better deal, Democrats will introduce legislation to correct this injustice and strengthen workers’ rights to collective action.”

In its decision, Scott said the Supreme Court ignored the plain text of the NLRA, which guarantees workers the right to collectively stand together to improve their wages and working conditions.

Any legislation barring arbitration agreements, however, is unlikely to go anywhere in the Republican-controlled Congress.

Republicans in October successfully repealed a rule from the Consumer Financial Protection Bureau that would have banned banks and credit card companies from adding arbitration agreements to consumer contracts.

The court’s decision Monday came in the cases Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA Inc.

The Obama administration had sided with the challengers, but the Trump administration reversed course and urged the court to uphold the arbitration agreements.

The Justice Department argued that Congress enacted the Federal Arbitration Act in 1925 to “overcome judicial resistance to arbitration.”