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