The Supreme Court of the United States of America recently created history or rather destroyed it. Hearing a batch of three cases - Epic Systems Corp v. Lewis, Ernst & Young v. Morris and National Labor Relations Board v. Murphy Oil USA - it debarred the employees who signed an arbitration clause from filing class action lawsuits in any dispute arising with their employers. It ruled that the 1925 Federal Arbitration Act trumps the 1935 National Labor Relations Act- by a 5-4 majority.
This comes as a boon for the three companies - Ernst & Young LLP, Epic Systems Corp. and Murphy Oil USA Inc. - which were fighting allegations of mis-classifying thousands of employees to make them ineligible for overtime pay. Epic Systems Corp., a health-care software company was sued by Jacob Lewis, an employee who alleged the company mis-classified him and other technical writers so as to render them ineligible for overtime pay. Murphy USA was fighting allegations that it underpaid four employees at its gas station in Calera, Alabama.
The National Labor Relations Board had ruled that the companies engaged in an unfair labor practices by refusing to let the workers pursue their claims collectively. The National Labor Relations Act, under which the board is constituted, guarantees employees the right to press claims as a group, either in arbitration or in court- the latter is popularly referred to as a ‘class action lawsuit’. The 1935 law protects "concerted activities" by workers, without explicitly mentioning lawsuits.
On the other side in court, were workers' rights groups such as the National Employment Law Project, which argued that forcing arbitration instead of collective action is an attempt towards trying to strip workers of important rights, including the ability to band together on claims that are too small (in monetary terms) to press individually. They say that the ruling is likely lead “take it or leave it” clauses in employment contracts- forcing employees to waive their right to join a class-lawsuit by making it a pre-condition in employment contracts. Arbitration agreements, they add, force employees to settle disputes individually with a third-party arbiter, and hurt workers, particularly those on low wages. Christine Owens, NELP’s executive director, said in a statement,
“Workers’ ability to band together is crucial to making legal protections real — and bosses know it. Companies that use forced arbitration and ‘class waiver’ clauses know that individual workers face enormous barriers if they have to bring their claims alone.”
The contracts in question placed two restrictions on employees:
1) “Forced Arbitration” provision, which requires that any legal disputes between the employer and the employee to be resolved in a privatized arbitration system; and,
2) A provision prohibiting employees from bringing class actions or other collective suits against their employers.
To understand how these class action suits are beneficial for workers, consider for instance that an employee wishes to raise a dispute on wages worth $500,000. Conventionally, he/she could find a lawyer to take up the case on contingency basis .i.e. the lawyer can fix his/her fee as a percentage of the suit value, i.e., the wages in question. In this case, the worker has the ability to pursue his/her claims. But, if 100,000 workers are cheated out of wages worth $50 each, no lawyer would be willing to take such a case on contingency basis, unless all the workers come together under one suit- a class action lawsuit. Paying an upfront fee to the lawyer is also not an option as that fee would be far greater than $50. This would discourage virtually every employee.
The major impact of this ruling is predicted to be on class discrimination (unfair treatment on the basis of gender, religion, etc.) and workplace sexual harassment lawsuits, both of which, interestingly, put women at a great disadvantage. This decision applies directly to wage-and-hour claims (claims of overtime wages) by workers, most of whom sign the arbitration clause without realizing that they have signed over their personal rights to band together as an association or a group.
A survey by the Economic Policy Institute (See Alexander J.S. Colvin) noted that, mandatory arbitration clauses of one kind or another had been imposed on more than half of all U.S. workers, while about one-third of all businesses that imposed mandatory arbitration clauses specifically forbidding class-action lawsuits.
In 1925, the US Congress enacted the Federal Arbitration Act to allow, as Justice Ruth Bader Ginsburg the author of the dissenting judgement in this case explained, “merchants with relatively equal bargaining power” to agree to resolve their disputes through arbitration- which was quicker and more efficient than the courts. Beginning in the 1980s, however, the Court started to read this law expansively to permit forced arbitration between businesses and relatively powerless consumers and employees. In extension of the same, in its 5-4 decision in Circuit City v. Adams, the Supreme Court held that the Act applies to most workers engaged in foreign or interstate commerce. Thus, forced arbitration clauses in employment contracts were given a protected status, despite the fact that the Federal Arbitration Act exempts “workers engaged in foreign or interstate commerce” (Section 1).
The supporters of arbitration argue that it is a low cost, effective method for dispute resolution. Also, such suits, if filed individually have a low chance of an actual payout since most of these workers anyway cannot afford to spend the time and money to take the litigation to its final stages.
One must note that a change in the political environment in the United States is also a factor for the culmination of this judgment. Earlier, the Obama administration had sided with the workers, but the Trump administration reversed course and urged the court to uphold the arbitration agreements. It becomes even more apparent by the appointment of Justice Neil Gorsuch on the recommendation of President Donald Trump last year. The appointment itself was controversial as Senate Republicans held up a vote in 2016 on then-President Obama’s nominee, Merrick Garland, after Justice Scalia’s seat fell vacant following his death. Garland was never given a hearing by the Senate and upon his election, Mr. Trump rescinded Garland’s nomination and nominated Mr. Gorsuch instead. Chief Justice John Roberts and Justices Clarence Thomas, Anthony Kennedy and Samuel Alito - all Republican appointees and members of the court’s conservative wing - joined Gorsuch in the majority.
The decision is a major blow to a societal belief of the presence of power of the majority. Taking away worker’s ability to collectivize for the various abuses faced by them, leaves all those who’ve suffered from serious violations of their basic political rights stranded for remedy.
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About The Author
Soumya Khurana is a law and CS student, an avid reader and an articulate speaker. Soumya has conducted training sessions and adjudged several debating and Model United Nations Conferences at institutions such as Sri Venkateswara College, SGTB Khalsa College, Presidium School, among others.