May 28, 2018
A recent
Supreme Court decision, in Epic Systems Corp. v. Lewis,
dealt with employment agreements which contain arbitration clauses. The statement of facts in the majority
opinion is sketchy, so the description which follows is based in part on the
dissenting opinion and in part on the opinions of the Seventh and Ninth
Circuits, two of the three Courts of Appeal from which appeal was taken.
The
underlying issue is, as described in the dissent, that the "employees in
these cases complain that their employers have underpaid them in violation of
the wage and hours prescriptions of the Fair Labor Standards Act of 1938
(FLSA), 29 U. S. C. §201 et seq., and analogous state laws."
The
employees wished to arbitrate as a class, for practical, financial
reasons. Again quoting the dissent:
"Individually, their claims are small, scarcely of a size warranting the
expense of seeking redress alone. . . .
But by joining together with others similarly circumstanced, employees
can gain effective redress for wage underpayment commonly
experienced." However, the
arbitration contracts not only required arbitration, as opposed to trial in a
court, but required that each employee present his case in a separate
arbitration, rather than joining similar claims in a single proceeding.
The
employees contended that the requirement to present each claim separately was
unenforceable. The issue was summarized by the Ninth Circuit: "whether an
employer violates the National Labor Relations Act by requiring employees to
sign an agreement precluding them from bringing, in any forum, a concerted
legal claim regarding wages, hours, and terms and conditions of
employment."
The Court
held, in an opinion by Justice Gorsuch, joined by Chief Justice Roberts and
Justices Kennedy, Thomas and Alito, that the employees are bound by the
contracts, a result which they held to be mandated by the Federal Arbitration
Act (FAA) of 1925. Here is the operative section of that
statute:
§ 2. A
written provision in any maritime transaction or a contract evidencing a
transaction involving commerce to settle by arbitration a controversy
thereafter arising . . ., or an agreement in writing to submit to arbitration
an existing controversy arising out of such a contract . . ., shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.
The statute also provides, in §1, that
"[N]othing herein contained shall apply to contracts of employment of
seamen, railroad employees, or any other class of workers engaged in foreign or
interstate commerce." It might
seem that §1 would exclude employment contracts of workers in companies engaged
in commerce. However, the Supreme
Court, in an earlier decision, held that, although an employment agreement may
be, under § 2, a "contract evidencing a transaction in commerce," an
employee such as these is not part of "any other class of workers engaged in
foreign or interstate commerce." Circuit City Stores, Inc. v.
Adams 532 U.S. 105 (2001).
The rule applies; the exception does not, even though the language
arguably is the same. (The weakness in
that conclusion was pointed out in the dissents in Circuit City,
another 5-4 decision).
The
employees’ remaining basis for avoiding the individual-claim requirement
was its inconsistency with the National
Labor Relations Act (NLRA). The
majority acknowledged that the National Labor Relations Board (NLRB) had held
"that the NLRA effectively nullifies the Arbitration Act in cases like
ours," but set those rulings aside by noting that "the Executive
[read: Trump Administration] has disavowed" that interpretation.
The NLRA
was passed ten years after the FAA, and declared a new and more liberal labor
policy. As the Seventh and Ninth
Circuits had held in the cases under review, those policies, protecting joint
action, should be held to have modified the FAA.
The
majority brushed the NLRA aside: it "secures to employees rights to
organize unions and bargain collectively, but it says nothing about how judges
and arbitrators must try legal disputes that leave the workplace and enter the
courtroom or arbitral forum. . . .This Court has never read a right to class actions
into the NLRA." Again: the NLRA
deals with "efforts by employees related to organizing and collective
bargaining in the workplace, not the treatment of class or collective actions
in court or arbitration proceedings."
The notion that collective action in arbitration might be protected by a
statute protecting collective action in other aspects of labor relations seemed
too subtle a notion for the majority to grasp.
Although
the Court recited that it has a duty "to interpret Congress's statutes as
a harmonious whole," it drew a bright line between them: "[T]he
Arbitration Act and the NLRA have long enjoyed separate spheres of influence
and neither permits this Court to declare the parties' agreements
unlawful."
That
would be regressive and repressive enough in any case, but two of the "agreements" in question
barely qualify as contracts; as noted by the dissent — oddly only in a footnote
— "Petitioner Epic Systems
Corporation e-mailed its employees an arbitration agreement requiring
resolution of wage and hours claims by individual arbitration. The agreement
provided that if the employees ‘continue[d] to work at Epic,’ they would ‘be
deemed to have accepted th[e] Agreement.’ . . . Ernst & Young similarly
e-mailed its employees an arbitration agreement, which stated that the
employees' continued employment would indicate their assent to the agreement's
terms." Take it or leave. The majority opinion referred to only one of
the three contracts, but selected as its example one of those created by
e-mail; no issue there, apparently.
The
majority cited AT&T Mobility LLC v. Concepcion
563 U. S. 333 (2011), as authority for denying class arbitration. However, it’s not clear what the rationale
was in that case. Its majority opinion
stated that "[r]equiring the availability of classwide arbitration
interferes with fundamental attributes of arbitration and thus creates a scheme
inconsistent with the FAA."
However, in the preceding paragraph it had offered a different theory:
"Although §2’s saving clause preserves generally applicable contract
defenses, nothing in it suggests an intent to preserve state-law rules that
stand as an obstacle to the accomplishment of the FAA’s objectives." The latter would not include the NLRA, a
federal statute. More to the point, Concepcion
was not an employment-contract case.
The
dissent in Epic, by Justice Ginsberg, joined by
Justices Breyer, Sotomayor and Kagan, pointed out that the labor legislation
relied on by the employees, although directed specifically to such matter as
unionization and strikes, reflects a broad concern for the rights of
employees. The NLRA protects "the
right to self-organization, to form, join, or assist labor organizations, to
bargain collectively through representatives of their own choosing, and
to engage in other concerted activities for the purpose of collective
bargaining or other mutual aid or protection." (emphasis
added by the dissent)
Two other
problems with separate arbitrations were noted by the dissent: "Fear of
retaliation may also deter potential claimants from seeking redress
alone." There is strength in
concerted action. Also,
"individual arbitration of employee complaints can give rise to anomalous
results. Arbitration agreements often include provisions requiring that
outcomes be kept confidential or barring arbitrators from giving prior
proceedings precedential effect. . . . As a result, arbitrators may render
conflicting awards in cases involving similarly situated employees — even employees
working for the same employer."
The Epic Systems contract is an example: "The arbitrator’s
authority shall be limited to deciding the case submitted by the parties to the
arbitration. Therefore, no decision by any arbitrator shall serve as precedent
in other arbitrations . . . ."
The
dissenting opinion countered various of the arguments put forth in the majority
opinion, but its basic position is that the arbitration contracts are
unenforceable: "Beyond genuine dispute, an employer ‘interfere[s] with’
and "restrain[s]’ employees in the exercise of their §7 rights by
mandating that they prospectively renounce those rights in individual
employment agreements. . . .. Properly assessed, then, the ‘waivers’ rank as
unfair labor practices outlawed by the NLRA, and therefore unenforceable in
court."
The
majority’s detailed argument was little more than window dressing. Its refusal to admit any progress in labor
relations was announced, and the case was decided, by a passage in the first
two paragraphs of the Gorsuch opinion: "Should employees and employers be
allowed to agree that any disputes between them will be resolved through
one-on-one arbitration?" That is
straight out of nineteenth century labor law: the employee has a
"right" to submit to a one-sided arrangement with his employer, who
holds all the cards.
The
statement continued with this : "Or should employees always be permitted
to bring their claims in class or collective actions, no matter what they
agreed with their employers?
As a matter of policy these questions are surely
debatable. But as a matter of law the answer is clear." Actually, his view of the law is limited and
mistaken but, unless one is mired in the past, the policy issue should be
clear: the ability of an employee to join with others to enforce rights should
not be canceled by an adhesion contract.
The
majority opinion complained that, in the dissent’s view, "today's decision
ushers us back to the Lochner era when this Court
regularly overrode legislative policy judgments. So it does. "But like
most apocalyptic warnings, this one proves a false alarm." It doesn’t. Lochner,[43]
decided in 1905, struck down a statute which prohibited employers from
requiring employees to work more than sixty hours in one week. The Court then justified its action by referring to "the general right of
an individual to be free . . . in his power to contract in relation to his own
labor." Compare that to the
majority’s reference here to the right of an employee to give away collective
action. Freedom’s just another word for
everything to lose.
________________________
43. Lochner v. New York, 198 U.S. 45
