Among the cases that the U.S. Supreme Court is deciding this term are three consolidated wage-and-hour cases. In each case, an employer required its employees to enter into arbitration agreements and waive their right to bring class-action lawsuits against the employer. While these types of agreements are commonplace, it is widely thought that many more employers would use such waivers if the Supreme Court determines that they are legal.
A spokesperson for the Society for Human Resources Management (SHRM) commented that employers would be “foolish” not to use such waivers, pointing to the benefits that arbitration may offer to both sides. In an ideal situation, arbitration offers a neutral forum where disputes may be settled more quickly and at less cost than courtroom litigation.
Opponents of mandatory arbitration argue that most of the benefits of arbitration fall to the side with the deeper pockets. Class actions allow individuals with few resources to band together to hire a legal team equivalent to what a wealthier opponent can marshal. Employees who bring individual complaints in arbitration may also be subject to retaliation, whereas employers may find it more difficult to retaliate against an entire class of employees.
Moreover, arbitrators may not be strictly neutral when hearing a series of cases brought by individuals against the same large company. The larger company becomes, in effect, a lucrative repeat client for the arbitrator. Finally, the parties to an arbitration typically cannot appeal the decision, which could become important if similar claims are resolved differently in different arbitrations.
“Workers have a fundamental right to band together to pursue legal action against their employers and hold them accountable if they violate their employees’ rights and break the law,” said a spokesperson for the National Employment Law Center.
Those challenging the mandatory arbitration clauses before the high court argue that the National Labor Relations Act, passed in 1935, bars class-action waivers in employment contracts. According to the SHRM spokesperson, that is crucial because the Supreme Court has already ruled that the Federal Arbitration Act, passed in 1925, favors arbitration unless another applicable law clearly expresses congressional intent to the contrary.
Each of the three cases involves alleged violations of the Fair Labor Standards Act by employers. This should not come as a surprise, since wage-and-hour cases are one of the most frequent type of case brought as a class action. Such cases often involve claims of misclassification, such as when an employer wrongly classifies employees as exempt from the FLSA so that they are ineligible for overtime pay. In other cases, employees are misclassified as independent contractors, limiting their access to employment protections and benefits.
The high court heard oral arguments on the issue on Oct. 2. No date has been set for release of a final opinion.