Supreme Court Upholds Class Action Waivers in Employment Contracts

Supreme Court Upholds Class Action Waivers in Employment Contracts

In a 5–4 ruling handed down on Monday, the US Supreme Court ruled that organizations can legally require their employees to sign arbitration agreements in their work contracts and waive their right to resolve labor disputes through class-action lawsuits. The court split on ideological lines, with the five conservative justices voting to allow class action wavers and the liberal minority dissenting, the New York Times reported:

Writing for the majority, Justice Neil M. Gorsuch said the court’s conclusion was dictated by a federal law favoring arbitration and the court’s precedents. If workers were allowed to band together to press their claims, he wrote, “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.”

Justice Ruth Bader Ginsburg read her dissent from the bench, a sign of profound disagreement. In her written dissent, she called the majority opinion “egregiously wrong.” In her oral statement, she said the upshot of the decision “will be huge under-enforcement of federal and state statutes designed to advance the well being of vulnerable workers.” Justice Ginsburg called on Congress to address the matter.

The ruling, which the Times adds could affect some 25 million employment contracts, comes nearly a year and a half after the high court agreed to hear a group of cases on the legality of arbitration clauses and class action waivers. It was not unexpected, given the court’s conservative majority and the inclinations Gorsuch and his right-leaning colleagues have shown in other labor-related cases.

Business groups and employer-side attorneys cheered the ruling, which they say will free companies from burdensome litigation and allow disputes to be resolved through the cheaper and speedier process of arbitration. Labor rights advocates expressed dismay, however, warning that it would result in a rollback of employees’ fundamental rights and would prove particularly disastrous in discrimination and harassment cases. In a Times op-ed, Terri Gerstein and Sharon Block, of Harvard Law School’s Labor and Worklife Program, criticize the ruling for taking away a key safety net for employees:

Class-action lawsuits are critical for workers to exercise their rights. The courts are supposed to be there to provide a forum for all people to demand fair enforcement of the law. But the courthouse doors are shut to those who are too scared or don’t have the resources to walk through them alone. That’s why class actions, which enable people with the same or similar injuries to sue as a group, are important. Taking collective action diminishes the fear of employer retaliation and allows workers to pool resources so they can afford to bring their cases and make them more attractive for lawyers to take on.

Even an utterly routine case can cost a lot of money to litigate. Plaintiffs’ lawyers we spoke with estimated that to represent just one worker who is denied minimum wage or overtime would take more than 40 hours of attorney time. In a case like that, a typical settlement for back wages for one underpaid low-wage worker might amount to $3,000 to $5,000, perhaps less. Few private lawyers would take that case. But if a lawyer can represent a group of workers harmed in the same way by the same employer, the economics of a case starts to make sense.

The other argument levied by the court’s critics is that these arbitration agreements are not really voluntary on the part of employees, who face a Hobson’s choice of agreeing to sign away their right to sue or losing their jobs. The mutuality of these agreements is a mere technicality, University of Baltimore law professor Michele Gilman comments at The Conversation, and Gorsuch’s understanding of them “rests on a view of the workplace that few workers would recognize”:

Gorsuch also has a very rosy view of arbitration as quick, informal and cheap. Yet if arbitration was so effective at dispensing justice, employees would be lining up to take advantage of this forum. They are not. The Economic Policy Institute found that only 1 in 32,000 employees actually files for arbitration.

And arbitration is not free. To begin with, employees need a lawyer if they want any hope of prevailing – although this is nearly impossible in the absence of a class action option. In addition, arbitrators charge hundreds of dollars an hour, and many agreements require employees to pay part of the costs. Finally, arbitration proceedings are not swift, rather they look almost exactly like trials. Indeed, they are often presided over by retired judges, who wield more discretion in arbitration than in the courtroom.

Businesses are calling this ruling a win, Gilman argues, not because these proceedings are quicker or cheaper, but because they advantage employers, who typically prevail in arbitration and face smaller penalties when they lose; and because they are confidential, meaning employers can engage in bad faith actions, settle disputes in arbitration, and never face public scrutiny of those actions or a requirement to change them:

Moreover, employers know that employees lack the resources or wherewithal to file for arbitration, especially when they must go it alone. In other words, arbitration agreements do not just reduce the number of court cases an employer has to contend with, they reduce the possibility of liability altogether. Employers also know that government agencies lack the resources, or political will, to enforce wage and hour laws.

Employers who deal with their workers in good faith will of course not recognize themselves in Gilman’s critique, and may see arbitration as a mutually beneficial means of dispute resolution for themselves and their employees. Noah Hanft, president and CEO of the International Institute for Conflict Prevention & Resolution, tells SHRM’s Allen Smith that arbitration can and should be presented that way to employees:

While the Supreme Court’s ruling shields employers from many class actions, most notably wage and hour class actions, employers that choose to adopt arbitration programs aren’t necessarily doing this at employees’ expense, according to Hanft. He said that the benefits of arbitration programs for employers and employees include confidentiality. In a court case, virtually everything is public. Plus, if an arbitration program includes mediation, an employee may be able to raise any concerns, even if there’s no legal basis for them, and have them resolved to the employee’s and the employer’s satisfaction.

Employees generally keep in arbitration all the same rights and available remedies that they have in court, noted Eddie Berbarie, an attorney with Littler in Dallas. Arbitration can be in employees’ interests, but arbitrators must be neutral, Hanft emphasized.

One context in which arbitration has been frequently discussed is in the handling of sexual harassment claims, where it has been criticized as a means for employers to silence victims and prevent toxic culture problems from coming to light. In that regard, Quartz’s Leah Fessler calls the decision a “devastating blow to the #MeToo movement”:

Many argue that forced arbitration is effectively illegal, as it inhibits victims of sex discrimination—like sexual harassment or unequal pay—from exercising their civil right to a lawsuit. Such was the case for former Fox News anchor Gretchen Carlson, who couldn’t legally sue Fox News CEO Roger Ailes for sexual harassment, having unknowingly signed Fox’s mandatory arbitration agreement. Carlson has since become an advocate for ending mandatory arbitration. …

As Vicki Schultz, a Yale Law professor specializing in workplace discrimination, told me last month, mandatory arbitration clauses typically will not mention sexual harassment specifically: “Instead, they will pertain to all discrimination disputes. Since sexual harassment is just a type of workplace discrimination, requiring employees to arbitrate discrimination disputes automatically requires them to arbitrate sexual harassment disputes, too,” she says. “These clauses may be hidden in a paragraph that seems to protect the employee by providing that the employer will not discriminate against them.”

Arbitration of sexual harassment claims may not be legal much longer, however: The states of Washington and New York have passed legislation banning the enforcement of arbitration and non-disclosure agreements in these cases, and a bipartisan bill to that effect has also been introduced at the federal level. Mindful of growing public awareness and negative perceptions of these practices, some companies, like Uber and Lyft, have voluntarily abandoned forced arbitration in sexual harassment cases.

Speaking of Uber and Lyft, another arena in which the Supreme Court’s decision will have consequences is the fight over the classification of gig economy workers, Bryan Menegus points out at Gizmodo:

“The effect of today’s decision will be to end misclassification class actions, for Gig Economy workers and for everyone else,” Larry Peluso, an attorney who filed one such suit on behalf of Lyft drivers less than two weeks ago, told Gizmodo via email. Employees and wrongfully-categorized “contractors” are in the same boat. “This decision lays the final stone in an almost impenetrable barrier to group action to redress all unlawful employer practices, whether in court or in private arbitration,” he wrote, “the class action aspect of all these cases cannot proceed.”

Shannon Liss-Riordan, an attorney famous for her representation of Uber drivers, explained the grim future of redress in this space: “Gig workers will need to sign up with a lawyer to do an individual arbitration. There are fewer lawyers who will be willing and able to handle individual arbitrations for a lot of workers.” Not only are there fewer firms willing to do the work, but according to employment lawyer Michael Subit, it’s often prohibitively expensive. “If you’re a low-paid worker, the cost of arbitration will most of the time outweigh any potential recovery,” he told Gizmodo by phone.