The US Supreme Court ruling on Monday upholding employers’ right to include arbitration agreements and class action waivers in employees’ work contracts is being celebrated by business associations and employer-side attorneys as a major victory, mitigating the risk of expensive litigation over labor disputes that may arise from honest mistakes rather than deliberate malfeasance. Advocates of arbitration say it is faster and cheaper than a courtroom trial and that the confidentiality of arbitration is a benefit to both employees and employers (though critics, of course, disagree on all of these points).
What individual arbitration does not protect organizations from, however, is reputational risk. We’ve seen this in the public blowback against companies whose arbitration policies are interpreted as them trying to hide ongoing discriminatory behavior. Within the past six months, companies like Microsoft, Uber, and Lyft have abandoned forced arbitration of harassment cases to guard against this risk. The public relations downside to handling these matters quietly may be growing to outweigh the upside in terms of cost and legal risk.
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:
Uber announced on Tuesday that it would no longer require employees, drivers, or customers who experience sexual harassment on the job or while using the ride-sharing service to adjudicate their claims in arbitration proceedings. Coming in response to pressure from former employees and customers, the change will allow alleged victims of sexual harassment in the US to pursue claims against the company in court. Uber will also no longer bind accusers to confidentiality requirements as a condition of receiving a settlement on the company, though it will continue to keep financial details of such settlements confidential.
In a blog post, Uber’s Chief Legal Officer Tony West said the company would also publish a public safety transparency report including data on sexual assaults and other incidents that take place on its platform.
Hours after Uber’s announcement, Lyft also announced that it was waiving its standard arbitration agreement for sexual assault claims and would no longer impose confidentiality requirements on alleged victims of sex crimes, Recode’s Johana Bhuiyan reported later on Tuesday. Lyft also intends to release a safety report on sexual assault complaints it receives on its platform; Lyft COO Jon McNeil wrote on Twitter later Tuesday afternoon that his company would be happy to work together with Uber on this reporting project.
West said Uber had made its decision in the interest of transparency, but also acknowledged the risk the company was taking in being more open about these allegations (albeit a risk mitigated to some extent by the participation of its chief competitor):
In a San Francisco courthouse, US Magistrate Judge Jacqueline Scott Corley recently heard closing arguments in a case brought against GrubHub by former food delivery driver Raef Lawson, challenging the platform’s gig economy business model and claiming protections for drivers as employees under California law. Corley’s ruling in this case is highly anticipated, as she will be the first US judge to weigh in on whether gig economy workers like Lawson have a right to those protections—while Uber and Lyft have both faced similar lawsuits, both of the ride-sharing platforms settled these disputes out of court.
Lawson is represented by Shannon Liss-Riordan, the same Boston-based attorney who pressed the cases of the Uber and Lyft drivers and is also challenging the independent contractor status of gig economy workers at other platforms. SF Gate’s Joel Rosenblatt looked in on the GrubHub case last week:
As the first case of its kind in the U.S., the GrubHub trial “will inevitably be treated as a bellwether,” said Charlotte Garden, an associate law professor at Seattle University. “That’s especially true because the lawyers in this case are also involved in other larger and higher profile misclassification cases, including the Uber case,” said Garden, who has followed the Uber litigation closely.
The US Supreme Court on Monday began hearing arguments in a group of cases they agreed to hear in January concerning the legality of contractual provisions that prevent employees from pursuing class action lawsuits over labor disputes, as opposed to settling these disputes in arbitration on a case-by-case basis instead. The right of employers to include arbitration clauses in contracts is well established, and the court has previously given its blessing to class action waivers in agreements between businesses and consumers, but class action waivers in employment contracts are a murkier area of law.
As the New York Times’ Adam Liptak explains, at issue in these cases is whether these waivers violate employees’ right under the National Labor Relations Act to engage in concerted activity. Liptak relays some of the judges’ thinking that emerged in Monday’s session:
Justice Anthony M. Kennedy seemed to be ready to side with employers. Justice Neil M. Gorsuch, the court’s newest member, asked no questions. … Justice [Ruth Bader] Ginsburg said the arbitration law was concerned with agreements between merchants of relatively equal bargaining power. The employment contracts at issue in the case, she said, have been forced on workers. “There was no true liberty of contract,” she said. …
Some justices suggested that workers could band together in a limited sense by hiring the same lawyer and filing individual arbitration cases. Justice Elena Kagan said that was not good enough. “The fact that there is one way to exercise a right left over does not make it O.K. if we’ve taken away another 25 ways of exercising the right,” she said.
The Supreme Court became virtually certain to take up this issue in May 2016, when the US Court of Appeals for the Seventh Circuit in Chicago ruled that arbitration clauses barring class actions were illegal, disagreeing with another appeals court and creating the split-court situation that typically prompts a Supreme Court review.
The US National Labor Relations Board considers arbitration agreements that bar employees from bringing class-action lawsuits against their employers invalid, according to a brief the NLRB filed in three cases the Supreme Court is hearing together on the legality of these class-action waivers, Allen Smith reports at SHRM:
Class-action waivers violate the National Labor Relations Act’s (NLRA’s) right to protected concerted activity, the NLRB argued in the brief written by General Counsel Richard Griffin Jr., an appointee of President Barack Obama whose term expires Nov. 4. The NLRB’s brief contradicts the Department of Justice’s (DOJ’s) June 16 brief in favor of class-action waivers—which was a shift from the DOJ’s position under the Obama administration. …
The NLRA’s right to protected concerted activity “is the core substantive right protected by the NLRA and is the foundation on which the act and federal labor policy rest,” the board stated. “An arbitration agreement requiring employees to resolve legal disputes solely on an individual basis is thus comparable to an unlawful contract providing that employees can be fired on the basis of age, contrary to the Age Discrimination in Employment Act, or paid less than the minimum wage, contrary to the Fair Labor Standards Act (FLSA).” Such unlawful contracts would not be permitted, so the Supreme Court similarly should not let the core purpose of the NLRA be undermined, the NLRB argued.
In a development welcomed by many employers, the Justice Department in June reversed its position on this issue, switching sides to argue on behalf of employers and against the NLRB. At the time, Greensfelder attorney Katherine Fechte described the change of position as “unprecedented” in a labor-related case:
The United States Court of Appeals for the Seventh Circuit in Chicago ruled on Thursday that arbitration clauses barring employees from taking collective legal action against their employers are illegal, the New York Times reports:
In its opinion, the three-judge panel said that Epic Systems, a Verona, Wis., health care software provider, violated federal labor law when it required its workers to bring any disputes individually to arbitration, a private system of justice where there is no judge or jury.
“The increasing use of mandatory arbitration agreements and the prohibition on workers proceeding as a class has been one of the most major developments in employment the last decade,” said Benjamin Sachs, a professor of labor law at Harvard Law School. “Most of the court decisions have facilitated this development. This is a major move in the opposite direction.”
By preventing employees from joining together in a collective action, the court said, the arbitration clause ran afoul of a critical piece of the National Labor Relations Act, a landmark 1935 law that gave workers the right to unionize and engage in concerted action. The decision announced on Thursday, in Lewis v. Epic Systems, will almost certainly prove controversial because it directly conflicts with an earlier decision by an appeals court in Louisiana, a split that could prompt the Supreme Court to wade back into the fray. Similar cases are pending across the country.