SCOTUS Allows Millions of Transportation Workers to Have Their Day in Court.

In recent decades, the U.S. Supreme Court has largely sided with big business over workers, consumers, and small businesses when victims of wage theft, fraud, and monopolist market abuses[1] band together to prove their case in open court. This past week was a rare exception for potentially millions of transportation workers across the United States.

Brief Background

The FAA generally requires courts to enforce arbitration clauses according to the terms of such clauses, which businesses have forced on individuals in the workplace, in consumer contracts, and in many other contexts (e.g., nursing homes that allegedly cause their residents to die from substandard care). However, Section 1 of the FAA provides an important exception to this general rule, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the otherwise strict enforcement of arbitration agreements. 9 U.S.C. § 1.

Upshot of the New Prime Decision

Writing for an 8-0 majority, Justice Gorsuch’s opinion in New Prime Inc. v. Oliveira contains two key takeaways: (1) transportation workers are entitled to their day in court even if both sides signed an arbitration agreement and the transportation workers are classified (or arguably misclassified) as independent contractors, and (2) before ordering workers, consumers, and others to secret, one-on-one binding arbitration under the Federal Arbitration Act (“FAA”), courts still have the power to decide whether any exceptions apply that would allow these groups to have their day in open court.

The Majority’s Reasoning in New Prime

The New Prime majority relied heavily on the text and structure of Sections 1-4 of the FAA to hold that a business cannot take away a court’s authority to decide whether the exception contained in Section 1 applies to a particular dispute. No. 17-340, 2019 WL 189342, at **3-4 (U.S. Jan. 15, 2019). The Court noted that Section 3’s mandate to enforce arbitration agreements according to their terms is limited by Section 1’s exclusion for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. at *4 (citing 9 U.S.C. § 1).[2] Based on the FAA’s “terms and sequencing” of its statutory provisions, the Court concluded that “a court should decide for itself whether § 1's ‘contracts of employment’ exclusion applies before ordering arbitration.” Id.

Finding that it has authority to review whether the exception in Section 1 applies to Mr. Oliveira’s arbitration agreement with his former employer, the Court went on to address whether Mr. Oliveira’s written agreement with New Prime was a “contract[] of employment” as the term is used in Section 1 of the FAA. Here, the Court determined that the original meaning of “contracts of employment” in 1925 included both the modern idea of an employer/employee relationship and also true independent contractors. Id. at **6-7. The Court swatted down the company’s attempt to argue that the Court should ignore the plain text of the FAA, and instead make from whole cloth a general federal policy of compelling all disputes to arbitration. (“Unable to squeeze more from the statute's text, New Prime is left to appeal to its policy. … By respecting the qualifications of § 1 today, we respect the limits up to which Congress was prepared to go when adopting the Arbitration Act.”) (internal citations and quotation marks omitted). Id. at *9.

If you are a transportation worker like the lead plaintiff in the New Prime, Dominic Oliveira,[3] know that you are entitled to your day in court to recover your lost wages and expenses.

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[1] Justice Kagan’s dissent in this case, Italian Colors, sums up the state of play well:

Here is the nutshell version of this case, unfortunately obscured in the Court's decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract's arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool's errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.

Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 240 (2013) (emph. added).

[2] The Court also drew upon the then-contemporary 1925 legal landscape in which “Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties' private contracts might happen to contemplate.” Id.

[3] You can learn more about Mr. Oliveira’s personal story here.

Epic Fail: U.S. Supreme Court Rules that Employers May Require Employees to Waive Right to Bring a Class Action as a Condition of Employment

On Monday, the Roberts Court took another significant step in its ongoing project to hobble class actions and impose barriers to employees seeking redress against their employers by holding that class action waivers within arbitration agreements do not violate the National Labor Relations Act (“NLRA”). The employees, seeking to recover unpaid wages on behalf of themselves and other employees under the Fair Labor Standards Act (“FLSA”), had argued that the NLRA’s Section 7, which guarantees employees’ “right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . , and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” prohibits employers from requiring that employees agree to individual, binding arbitration as a condition of continued employment.

The case, Epic Systems Corp. v. Lewis, comes on the heels of series of Roberts Court cases expanding the ability of companies to impose individual arbitration on their employees and customers, thus preventing employees and consumers from filing lawsuits in open court or filing class actions anywhere. Bryan Schwartz Law has written extensively about the Court’s decisions expanding the Federal Arbitration Act (“FAA”) at the expense of the rights of employees and consumers: here, here, here, here, here, and here. In 2001, the Rehnquist Court ruled in Circuit City Stores, Inc. v. Adams that the FAA’s express exclusion of “the contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” meant to remove only the employment disputes of transportation workers from binding arbitration, notwithstanding the broad “any other class of workers” language in the Act. Then, in 2011, the Roberts Court approved of class action waivers in consumer arbitration contracts in AT&T Mobility v. Concepcion.

The Court’s opinion in Epic Systems, while hardly a surprise given this Court’s expressed disregard for the rights of workers and consumers in its recent arbitration jurisprudence, is notable for the sheer level of its intellectual dishonesty. Justice Gorsuch, writing for the five-Justice majority, feigns confusion as to why the National Labor Relations Board did not address the apparent conflict between the NLRA (enacted 1935) and the FAA (enacted 1925) until 2012, when the obvious answer is that no one thought that the FAA had anything to do with employment disputes in the late 1930s when Congress passed both the NLRA and the FLSA, which permits employees to bring “collective actions” to recover unpaid wages.

Gorsuch counsels judicial restraint in admonishing the employees for asserting a conflict between the FAA and NLRA – “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives” – but fails to mention that the current regime making compulsory, pre-dispute arbitration a ubiquitous requirement for employees and consumers is a recent, judicial invention. Given the low value of most individual employment and consumer claims, the right-wing innovation is tantamount to a get-out-of-jail-free card (or out-of-liability-free card, at least) for companies engaging in wage theft and other insidious business practices, undermining fair competition with companies that play by the rules.

Completely absent from Court’s opinion is any discussion or concern as to how forced individual arbitration undermines the substantive rights enshrined in laws like the FLSA and Title VII of the Civil Rights Act of 1964 (prohibiting employment discrimination). The success of these Acts has depended greatly on the ability to bring group actions challenging policies and practices that injure large numbers of workers. For instance, the landmark 1971 discrimination case Griggs v. Duke Power Co. involved a class of African-American employees who successfully challenged high school diploma and IQ-testing requirements that were unrelated to their jobs, but had the effect of keeping African-Americans out of the most desirable positions. In Gorsuch’s world, these sorts of fundamental statutory protections must give way to the Roberts Court’s arbitration regime, under which its expansive reading of the FAA trumps all.

Justice Ginsburg penned a fiery and forceful dissent, joined by Justices Breyer, Sotomayor, and Kagan, in which she blasts the majority opinion for trampling on the ability of employees to exercise their statutory rights. Ginsburg traces the history of the Court’s labor jurisprudence, noting that New Deal legislation like the NLRA and the FLSA arose from an understanding that individual employees lacked the bargaining power to demand fair working conditions, and that only through acting collectively could employees “match their employers’ clout in setting the terms and conditions of employment.” In that sense, the majority’s opinion, premised on the fanciful notion that most employees have any ability to negotiate when their employers demand they sign an arbitration agreement, reflects a return to the pre-New Deal Lochner era, when the Court routinely struck down worker protections as violating the supposed freedom to contract.

Ginsburg further notes that the result of Epic Systems “will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Low-wage employees, especially, may be reluctant to take on their employers alone for fear of retaliation, since the costs and risks of proceeding individually often dwarf the potential recoveries. Of course, this is not an accidental outgrowth of the Roberts Court’s arbitration jurisprudence, but its central design: to insulate companies from liability for harm to their employees and customers.

After Epic Systems, employees, consumers, and those who advocate on their behalf have an increasingly limited toolbox to confront corporate abuse on a class-wide basis, so long as employers can demand individual arbitration. At this point, the only comprehensive solution is likely a legislative one, highlighting the importance of who Americans elect to the next Congress. When most Americans know victims of corporate overreaching – a day we fear is coming soon – the tide will turn, and the Roberts Court will be seen in its true light, on the wrong side of history.

The United States Supreme Court Hears Oral Argument on Individual Arbitration Agreements in Employment Contracts in Epic Systems Corp. v. Lewis and Consolidated Cases

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.

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[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).