On Monday, the Supreme Court of the United States heard oral argument in one of the most important employment cases in recent history. In Epic Systems Corp. v. Lewis, and consolidated cases, Ernst & Young LLP v. Morris, and N.L.R.B. v. Murphy Oil, Inc., petitioners asked the Court to address whether employees can join together to sue their employer for labor violations, or whether employers may enforce individual arbitration agreements. Transcript available here. Bryan Schwartz Law has previously blogged about the Morris, Lewis, and Murphy Oil cases here, here, and here. Based on the questioning at oral argument, the conservative justices of the Roberts Court appear poised to deliver a victory to big business at the expense of employees.
Background
Whether individual arbitration clauses in
employment agreements are enforceable will depend on the Court’s interpretation
of two federal laws, the Federal Arbitration Act of 1925 (FAA) and the National
Labor Relations Act of 1935 (NLRA).
The FAA provides that arbitration agreements
“shall be valid,” except, according to a savings clause, “upon such grounds as
exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Arbitration
agreements require parties to resolve legal disputes in front of a private
arbitrator rather than in a court of law. Employers frequently seek to
condition employment on a worker’s agreement to forego class-wide relief if a
dispute arises, and instead pursue their claims in individual arbitrations.
Section 7 of the NLRA prohibits
employers from interfering with employees’ right to engage in “concerted
activities” for their “mutual aid or protection.” 29 U.S.C. § 157. Class
actions have long been considered a concerted activity, which permit large numbers of employees
who share common disputes with large employers to band together to pursue
relief they would otherwise have foregone due to fear of being singled out for
retaliation, or because the cost of hiring an attorney for their individual
case would dwarf the amount of their individual wage claims. Agreements to arbitrate individually are
in tension with the NLRA’s right to “concerted” activity.
During the years John Roberts has served as Chief
Justice, the Supreme Court has consistently stretched the FAA to favor big
business, and disfavor class actions.[1] In 2011
and 2013, the Supreme Court held that the FAA allows companies to use
fine-print arbitration clauses to force consumer and merchant disputes to be
arbitrated on an individual basis. See AT&T
v. Concepcion, 563 U.S. 333 (2011) (Scalia, J.); American Express v. Italian Colors Restaurant, 133 S.Ct. 2304
(2013) (Scalia, J.). Bryan Schwartz Law previously blogged about Concepcion and Italian Colors here and here. These rulings effectively bar claims by millions of individuals
who have each suffered a relatively small injury by a corporation, by baring
them from using the class action mechanism.
Unlike consumers or
merchants, federal law specifically recognizes a worker’s right under the NLRA
to engage in “concerted activity” against employers. In Lewis v. Epic Systems Corp.,
and Morris v. Ernst & Young LLP, the Seventh and Ninth Circuit Courts of Appeal
recognized “concerted activity” as a substantive federal right which would
render individual arbitration clauses unenforceable against employees under the
FAA’s savings clause. The employers appealed.
In Epic
Systems Corp. v. Lewis, and the consolidated cases, petitioners asked the Court
to determine whether the FAA gives an employer the freedom to condition
employment on an employee’s agreement to proceed individually in arbitration.
Put another way, the issue was whether the NLRA gives workers a chance at a
more level playing field, by protecting employees
from their employer’s attempts to restrain their ability to act jointly to
vindicate rights in an arbitral or other forum.
Oral Argument
Questioning from conservative Justices Roberts
and Alito suggests they will back the employers’ arguments that the right to “concerted
activity” ends at the courthouse or arbitral forum’s doors. These justices seem
satisfied to interpret the FAA to permit companies to use forced individual
arbitration to bar workers from coming together in a concerted or joint legal
action against their employer. (See Transcript,
pp. 5, 34-36, 41-44). They appear inclined to subordinate the purpose of the
NLRA to the FAA’s mandate to honor arbitration agreements absent some very specific Congressional command. (See Transcript p. 4). Justice Thomas and
the Supreme Court’s newest addition, Justice Gorsuch, were silent throughout
the argument, but can be expected to vote with the vocal conservative Justices.
Justice Kennedy seems poised to contort the
language of the NLRA to the benefit of employers, too. In the first question of
the day, Justice Kennedy suggested the meaning of “concerted action” under the
NLRA may somehow exclude class actions. (Transcript p. 5. Justice Kennedy raised
a hypothetical of two employees seeking to arbitrate their wage claims. (Transcript
pp. 15-16). He implied that employees’ concerted activity rights could be
satisfied if each employee hired the same attorney for individual
representation – though the whole point of class action is the efficiency of not having countless individual actions
seeking the same relief. Justice Kennedy showed no apparent concern for workers’
potential confidentiality concerns, or conflicts of interest that can arise in
separate individual representation of numerous employees against a single
employer. (Transcript pp. 37). Justice Kennedy suggested, that “many of the
advantages of concerted action can be obtained by going to the same attorney”
(Transcript p. 39), but this is absurd: corporations and everyone else know that
most workers will never step forward individually to prosecute their claims.
Companies don’t want to arbitrate at all – they want to eliminate legal
challenges by workers, and know the Supreme Court has gifted them a
sledgehammer for doing so, with the creative distortion of the FAA to ban group
litigation.
Even before Concepcion, Justice Kennedy has been willing to twist the plain
language of the FAA to the benefit of employers. In Circuit City Stores, Inc. v. Adams, 532 U.S. 105, he interpreted
the FAA to apply to all employment contracts, except for interstate
transportation workers, despite the fact that the plain language of the FAA
suggests the Act excludes all employees working in interstate commerce. 9
U.S.C. § 1 (“nothing herein contained
shall apply to contracts of employment of seamen, or railroad employees, or any other class of workers engaged in foreign or interstate commerce.”)
(emph. added).
To the Court’s progressive wing,
the resolution of these issues could not be clearer – the NLRA is a
Congressional command that falls within the FAA’s express savings clause, and the
NLRA prevents employer restraints on employees’ concerted action, including
joint efforts to seek labor law remedies.
Justice Breyer made his view clear that the
NLRA requires invalidation of forced individual arbitration agreements in
employment contracts, because, under the NLRA, “what the employer cannot stop
is joint effort” including bringing legal claims in a class or collective
action. (Transcript, pp. 56-57). Enforcing individual arbitration agreements
would gut a foundation of labor law that represents “the entire heart of the
New Deal.” (Transcript, pp. 7-8).
Justice Ginsberg described
as the “driving force” of the NLRA the recognition of an “imbalance”
in bargaining power between employers and employees, and explained that the
protection of employees’ “concerted activity” was meant to correct that
imbalance. (Transcript, pp. 5-6). A worker with small monetary damages can
thereby join with other workers sharing similar claims in order to bring a
larger claim to recover their damages jointly. (Transcript, pp. 21).
Justice Kagan pointed to the Supreme Court’s
prior precedent, federal statutes, and the Constitution in support of the progressive
wing’s straightforward position. The Supreme Court in Eastex v. N.L.R.B., 437 U.S. 556, 565-566, 566 n. 15 (1978) recognized
that the NLRA protects employees from retaliation by their employers when they
resort to “administrative and judicial forums” for their mutual aid and protection.
(Transcript, pp. 6-7). Sections 102 and 103 of the Norris-LaGuardia Act of
1932, upon which the NLRA was modeled, state that any contract that prevents
concerted activities of workers for their mutual aid and protection “shall not
be enforceable in any court.” (Transcript, pp. 18). Once such a basic right has
been articulated, as in, e.g., the
First Amendment right to free speech, its broad protection may not be easily
narrowed in its exercise. (Transcript, pp. 66).
To Justice Sotomayor, the NLRA is a federal
law that invalidates contracts that constrain concerted activity, making forced
individual arbitration clauses illegal and unenforceable, in much the same way
that “state law concepts like fraud[ and] duress,” invalidate contracts. (Transcript
pp. 13-14).
No Proportional Check on Corporate Wrongdoing
The conservative justices of the Roberts
Court appear determined to interpret the FAA based on its text, or as Congress
intended, but rather by any means available to protect large corporations
against consumers, small businesses, and now employees. Berkeley Law’s Dean, and
the famed constitutional law scholar Erwin Chemerinsky, has observed that to
effectively protect their rights employees need a proportional response to
violations by large corporations:
With
the rise of the large corporation in the early twentieth century, courts and legislatures
developed class actions as a procedural device to protect individuals from the
harms of exploitation by large entities. Courts and legislatures realized that
large entities have incentives to engage in widespread but small violations of
the law, because corporations know that people cannot afford to sue over a
small violation of the law. When individual litigation is not economically
rational, the threat of litigation is not an effective deterrent to illegal
behavior. Absent a robust government bureaucracy dedicated to enforcing
consumer- or employee- protection laws, class actions are an essential aspect
of law enforcement. And even the most aggressive enforcement agency cannot deal
with even a significant fraction of law violations. Litigation is essential for
deterring wrongdoing and class actions suits are necessary when a large number
of people suffer a relatively small injury.[2]
If the Supreme Court proceeds as expected,
based on Monday’s oral argument, millions of workers will lose an effective
means to remedy many violations of their rights. More and more employees
will be forced to enter into individual arbitration agreements and face their employers alone.
[1] Jessica
Silver-Greenberg & Robert Gebeloff, “Arbitration Everywhere, Stacking the
Deck of Justice,” N.Y. Times, Oct. 31, 2015.
[2] Erwin Chemerinsky, The Case Against the Supreme Court, § II.5 (2014).
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