Katherine V.W. Stone is Arjay and Frances Fearing Miller Distinguished Professor of Law at UCLA School of Law. She has written frequently about arbitration law, most recently in The Bold Ambition of Justice Scalia’s Arbitration Jurisprudence: Keeping Workers and Consumers Out of Court. She and other labor law professors joined an amicus brief in support of the employees in Epic Systems v. Lewis.
On May 21, in Epic Systems v. Lewis, the Supreme Court, by a 5-4-majority, held that an employer may lawfully require its employees to agree, as a condition of employment, to take all employment-related disputes to arbitration on an individual basis, and to waive their right to participate in a class action or class arbitration. In that case, the U.S. Court of Appeals for the 7th Circuit and the National Labor Relations Board had held, to the contrary, that to compel workers to forgo their right to litigate or arbitrate their statutory employment claims on a collective basis was unlawful because it contravened their right to engage in collective activity for mutual aid and protection under the National Labor Relations Act.
The decision was issued in three consolidated cases, all of which presented a similar fact pattern. In each one, a worker is presented with an arbitration clause that requires all employment disputes be submitted to arbitration on an individual basis. The worker is told that if he wants to continue in the job, he will be deemed to have assented to the clause. Subsequently the worker files a class action lawsuit on behalf of himself and other workers similarly situated, alleging that the employer has violated the federal minimum wage and hour law. The employer moves to dismiss the lawsuit on the ground that the worker is bound by the arbitration clause and therefore is precluded from bringing a class action in a judicial or arbitration tribunal.
Since 1991, when the Supreme Court held that employment disputes could be subject to a mandatory arbitration agreement, Gilmer v. Interstate/Johnson Lane Corp., employers have increasingly included mandatory arbitration in their employment terms. And since 2011, when the Supreme Court upheld an arbitration clause that included a class-action waiver in a consumer case, AT&T Mobility LLC v. Concepcion, employers have increasingly added group-action waivers to their arbitration clauses. Today over half of nonunion companies impose arbitration agreements on their workers, and nearly all include group-action waivers.
In the face of this trend, the NLRB decided in 2012, in the D.R. Horton case, that contracts of employment that require workers to forgo the ability to collectively assert their legal rights contravene the NLRA, which protects workers’ ability to join together for the purpose of mutual aid and protection. The courts of appeals split over the issue.
Justice Neil Gorsuch, writing for the majority in Epic Systems, rejected the NLRB’s position and held that the pro-arbitration policy of the Federal Arbitration Act required that the arbitration agreement be enforced according to its terms, including the term that waived the right to proceed collectively. He reasoned that this did not contravene the NLRA because that statute protects only collective action in the context of unionization and collective bargaining, not collective action in a legal forum. He also claimed that the result was compelled by a hefty stream of Supreme Court rulings that have made arbitration agreements virtually unassailable and have held that the FAA overrides other federal statutes with which it might conflict. Moreover, Gorsuch expressly refused to engage the policy debate about whether it is desirable for employers to be permitted to force workers to forgo the ability to assert their rights collectively. He said that “[t]he policy may be debatable but the law is clear.”
Justice Ruth Bader Ginsburg wrote a compelling dissent in which she situated the issue in the context of the history of the NLRA and the Norris-LaGuardia Act. Before the 1930s, employers used many techniques to prevent their workers from acting collectively, including requiring them to assent to “yellow dog” contracts in which they promised to abstain from joining a union. Ginsburg argued that the NLRA and Norris-LaGuardia were an explicit rejection of such contracts. Instead, they were based on the premise that “employees must have the capacity to act collectively in order to match their employers’ clout in setting terms and conditions of employment.” Today’s employer-designed arbitration clauses that require employees to forgo the use of class actions in either a court or arbitration are, she claims, a latter-day version of the yellow dog contracts that Congress explicitly prohibited more than 80 years ago. And she pointed to research showing that the result of the decision is that workers will be unable to vindicate their rights to minimum wages and overtime protections.
The difference between the majority and dissenting opinions exemplifies two different modes of judicial analysis. Gorsuch avoids taking a position on the policy issue by reciting what he calls “a mountain” of Supreme Court precedent. He maintains that the outcome is mandated by that precedent.
In contrast, Ginsburg addresses the policy issue head on, using not merely judicial precedent, but also legislative history and current empirical evidence to show that the decision will lead to significant “underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Moreover, she questions the majority’s characterization of the precedent and argues that the court could uphold workers’ rights, protected by the labor law, to assert claims collectively without undermining the FAA. For example, Ginsburg points out the absurdity of the majority’s argument that, because Congress did not explicitly rule out class arbitration when it enacted the NLRA, the FAA compels the enforcement of arbitration agreements that ban collective procedures. As she explains, in 1935, at the time of the enactment of the NLRA, there were no class actions or class arbitrations, and it was 50 years before the Supreme Court decided that the FAA applied to statutory claims. Thus it is entirely unsurprising that Congress, in drafting the statute, did not expressly preclude the possibility of compelled waivers of collective assertion of statutory claims.
In Epic Systems, Gorsuch has shown himself to be a reliable, though perhaps less brash, version of Justice Antonin Scalia, the jurist he replaced on the Supreme Court. Like Scalia, Gorsuch musters a wall of precedent to support an outcome that was actually not at all preordained. And like Scalia, he washes his hands of the policy implications by claiming that he is only doing his job. His approach is disappointing, though unsurprising. Given that he had a bare 5-4 majority on his side, we might have hoped he would provide some reasoned analysis that tackled the serious policy issues at stake.
These issues are enormous. The use of arbitration clauses combined with class-action waivers seriously undermines the ability of workers to vindicate their rights. For example, in the past four years, Uber drivers in many states have brought class-action lawsuits alleging they are wrongfully classified as independent contractors and hence denied federal and state employment rights to minimum wages, overtime pay, expense reimbursement and other employment protections. The cases turn on the definition of “employee” for the purposes of federal and state law. And that issue has implications not only for Uber drivers but for hundreds of thousands of other on-demand workers in the new “gig” economy. But because Uber’s individual contracts with its drivers contain an arbitration clause that prohibits the drivers from participating in a class or collective action, the lower courts dismissed the lawsuits and held that each worker must arbitrate the issue on an individual basis. Now that the Supreme Court’s holding in Epic Systems can be cited to support those rulings, the question of whether on-demand workers have the protection of the labor laws – an important issue for millions of American workers — may never be definitively resolved.
One telling omission from Gorsuch’s opinion is his failure, despite recounting a mountain of precedent, to mention a fundamental pillar of arbitration law that was articulated by Justice Harry Blackmun in Mitsubishi Motors v. Soler Chrysler-Plymouth. There the court proclaimed that under the FAA, arbitration is only appropriate when it entails no loss of substantive statutory rights. In that case, the court justified sending an antitrust case to arbitration by stating that “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” It further elaborated by stating that “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute.”
This principle, known as the effective vindication doctrine, is essential if courts are to justify closing the courthouse door to otherwise qualified litigants. And it is not a new idea. In the 19th century, Justice Joseph Story refused to order parties to arbitrate out of a concern that moving from a judicial to an arbitral forum could prejudice the rights of a party and lead to unjust results.
If there were ever a case in which compelled arbitration makes it impossible for parties to vindicate their substantive rights, it is a case like Epic Systems in which an employer insists that workers relinquish their ability to vindicate their employment rights on a collective basis. Under Mitsubishi’s effective vindication principle, the arbitration clause should not be enforced.
The Epic Systems decision not only closes the courthouse door to workers, it effectively bars them from any tribunal where they can vindicate their rights. Empirical evidence establishes that when courts compel workers to take their disputes to arbitration on an individual basis, workers are unlikely to prevail. And when they do prevail, their damage awards are significantly less than they would obtain in a court, as I’ve written about with Alexander Colvin. Moreover, in the face of plaintiffs’ reduced prospects for success and the measly amounts of any likely damage award, lawyers are often unwilling to take the cases. Thus, by endorsing clauses that require workers to take their claims to arbitration on an individual basis, Epic Systems empowers employers to deprive their employees of any viable mechanism to enforce their rights.
Given the important commitment to worker collective action embodied in our labor laws since the 1930s, it is depressing to see the Supreme Court majority give such short shrift to worker rights without any serious engagement with the issues at stake.