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U.S. Supreme Court Upholds Use of Class Action Waivers in Employee Arbitration Agreements

July 5th, 2018

By Ryan A. Hancock

U.S. Supreme Court Upholds Use of Class Action Waivers in Employee Arbitration AgreementsA few weeks ago, the United States Supreme Court issued a sweeping decision in Epic Systems Corp. v. Lewis, in three consolidated cases including one arising under the National Labor Relations Act, that will make it difficult, if not impossible, for employees to gain access to a court of law to assert their rights under a myriad of local, state, and federal laws. Specifically, the court in Epic held that companies may use mandatory arbitration clauses to stop employees from collectively asserting their rights in court and are forced to seek redress in private arbitration, a process that favors employers over employees. In other words, employees that were forced to sign an arbitration agreement as a condition of their employer may no longer collectively sue their employer in state or federal court for wage and hour violations, other statutory violations of the Americans with Disabilities Act, Age Discrimination in Employment Act, Title VII, concerted activity or any other illegal and egregious workplace violations.

As Deepak Gupta recently wrote for the SCOTUS Blog – “The main effect is not to channel cases to some private forum but to kill cases entirely, cutting off not only compensation and deterrence but public accountability and the development of the law itself.” In 2017, the Economic Policy Institute found that “More than half—53.9 percent—of nonunion private-sector employers have mandatory arbitration procedures. Among companies with 1,000 or more employees, 65.1 percent have mandatory arbitration procedures.” Around 60 million workers are bound by an arbitration clause and 25 million are bound by an arbitration clause with a class waiver. Following the court’s decision in Epic the number of employees forced to sign an arbitration agreement is certain to grow. As Justice Ginsburg stated in her dissent in Epic, “The inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

The inability of workers to join together to bring a collective action discourages individual claims. For example, a worker that has a small minimum wage and overtime claim will have to find a lawyer who is willing to spend an exorbitant amount of resources and costs to recover the small claim for the individual employee. Equally important, many arbitration awards, unlike court decisions are confidential. In other words, the public will not have access to or know which employers systemically and routinely steal wages, harass their employees or engage in other illegal actions.

As you can see, the United States Supreme Court’s decisions on arbitration in general, including its decision in Epic has dramatically changed the United States’ civil legal system. A change that comes at the expense of the most vulnerable and is a vehicle to protect corporate liability from public accountability. Action must be taken. The impact of the United States Supreme Court’s decisions can be reversed and/or significantly limited through collective action – the very thing that employers, with the blessing of the Supreme Court has stripped away. While there is no doubt the court’s decision is hostile to workers, as discussed below, there are several ways in which workers can fight back – through collective action.

Congress and the Ballot Box

In 1925 Congress passed the Federal Arbitration Act (FAA) to codify Congress’ policy to enforce arbitration agreements. The principal purpose of the FAA is to “require courts to enforce privately negotiated agreements to arbitration, like other contracts, in accordance with their terms.” Arbitration is a private form of dispute resolution that allows an arbitrator to settle a legal dispute outside of court. Arbitration in general is bad for workers in that fewer claims are brought to the arbitration process and when workers do win, the awards are on average lower than in court. The Economic Policy Institute found that “…employers adopting mandatory employment arbitration have been successful in coming up with a mechanism that effectively reduces their chance of being subject to any liability for employment law violations to very low levels.” However, review of the FAA, as well as its legislative history reveals that Congress originally intended the FAA to apply only to commercial parties of equal bargaining power. However, over the past twenty years the Supreme Court has expanded the reach of the FAA into almost every type of legal dispute despite the legislative intent of the statute and the practical outcomes of its decisions.

The FAA is a statute that may be amended or repealed by congress. At the very least, the FAA should be amended to invalidate all mandatory pre-dispute agreements, individual or class waivers, to arbitrate employment, consumer, antitrust and civil rights disputes. Further, the FAA should be amended to state that the validity and enforceability of arbitration agreements shall be determined by a court, rather than an arbitrator, regardless of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the overall contract containing the arbitration agreement. Further, the National Labor Relations Act states that class actions are specifically protected.

The power of individuals to collectively identify and support political candidates that support the amendment and/or repeal of the FAA also values the importance of collective action through unions is immense.  The Supreme Court invited congress to amend the FAA if it disagreed with its decision in Epic. Candidates running for congress and the senate must commit to supporting such an amendment. Through collective power at the ballot box, we can ensure that working people are given an equal opportunity to bargain and confront unfair and illegal workplace issues.

Administrative Agencies

Administrative agencies, including but not limited to the United States Equal Employment Opportunities Commission, the Pennsylvania Human Relations Commission, and the Department of Labor have statutory enforcement authority to investigate and prosecute violations of the statutes which they enforce. Administrative agencies, with enforcement power should take the initiative to bring actions against large corporations who have used mandatory arbitration agreements to shield themselves from liability. Congress and state legislatures should ensure that agencies have the resources to pursue collective actions.

Unions

The Supreme Court’s decisions on arbitration, is all the more reason for employees to organize and unionize. Organized workers’ rights are protected and collective and class actions can and do occur. Additionally, negotiated collective bargaining agreements can preserve the right of an employee to maintain lawsuits either alone or collectively for violations of statutory rights. One underpaid worker has limited rights right but organized workers can take action together. Therefore, employees should use collective action through union representation to bargain for better compensation, to fight for fair and just conditions, and to demand employer accountability. In turn, unions should use their resources to fund legal strategies to hold employer’s accountable when they violate the law.

Mass Arbitration Filing

Lawyers should start filing individual arbitrations en masse. Employers that require an applicant to execute a mandatory arbitration waiver is usually responsible for the cost of arbitrations. Accordingly, the more individual arbitration claims that are filed against the employer, the more expensive it gets for them.

If you have questions about employment law, please contact the labor and employment lawyers at Willig, Williams & Davidson at (800) 631-1233.

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