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SCOTUS: Courts will enforce employers’ arbitration agreements

by | May 25, 2018 | Wage And Hour/Overtime


The U.S. Supreme Court has issued a ruling that some observers expect will change the landscape of employment law enforcement. In a 5-4 vote, the Court ruled that employment contracts requiring workers to resolve all workplace disputes via individual arbitration, rather than going to court, are enforceable. Most of these agreements also bar employees from bringing class actions on behalf of themselves and their coworkers.

Today, approximately 54 percent of American workers with nonunion, private sector jobs have signed such agreements. The recent Supreme Court ruling is expected to make that number skyrocket.

Epic Systems Corp. v. Lewis involved three cases that were consolidated because of similar issues. In each case, workers complained about violations of federal wage and hour law, but were required to waive their class action rights as a condition of employment.

The workers argued that the 1935 National Labor Relations Act (NLRA) guaranteed employees the right to collective action. The companies countered that the 1925 Federal Arbitration Act entitled employers to ban collective action by contract.

The NLRA was passed after the Federal Arbitration Act, so direct conflicts between the laws would typically be resolved in favor of the NLRA. The majority of the court, however, found that there was no fundamental conflict between the laws.

Although the majority acknowledged that “the policy may be debatable,” it decided that the apparent conflict between the laws could be overcome. “Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies,” wrote Justice Neil Gorsuch.

Essentially, the majority agreed that the NLRA guarantees workers the right to collective action — unless they give away that right by signing a restrictive arbitration agreement.

The dissenters say this interpretation is “egregiously wrong” because of the stark imbalance of power between employers and job seekers, which prevents people from realistically being able to oppose unfavorable portions of their employment contracts. This imbalance was part of what motivated Congress to pass the NLRA.

The inevitable result of the majority’s ruling, warned Justice Ruth Bader Ginsburg, will be under enforcement of state and federal employment laws. Although this case involved wage and hour law, the ruling could easily apply to any workplace conflict, including discrimination and harassment.

One reason is that the cost of arbitration can easily outweigh the potential award. One of the lead plaintiffs in these cases argued that requiring her to arbitrate her claims individually would prevent her from effectively vindicating her rights, since it would require her to expend approximately $200,000 in legal fees even though her claim was only worth $1,800. In a class action, groups of employees who suffer the same types of harms band together and assert their claims collectively, which can substantially increase the amount of damages sought while only incurring slightly higher legal fees.

Individual arbitration may also be less effective at getting plaintiffs what many of them really want: policy change.

If you’re involved in an employment dispute, now it is even more important to involve an experienced attorney in the process as soon as possible.

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