On May 21, 2018, the Supreme Court issued its decision in Epic Systems Corp. v. Lewis, holding that employers can demand individualized arbitration proceedings instead of a class or collective action with respect to wage and hours claims. Epic Systems sent an email to some of its employees containing a provision stating that wage and hours claims could be brought only through individual arbitration and that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” The email also stated that employees were “deemed to have accepted this Agreement” if they “continue[d] to work at Epic.” Epic gave employees the classic Hobson’s choice: accept the Waiver or lose their jobs. Epic Systems raises again the question plaguing employee rights for over 100 years: Do workers have the fundamental right to join together to advance their common interests? Congress has attempted at critical times to place employers and employees on a more equal footing. The Court’s decision in Epic Systems, however, fails to safeguard this right.
Around the beginning of the 20th century, aiming to secure better pay, shorter workdays, and safer working conditions, workers began banding together to make their demands more effective. In response, employers engaged in a variety of tactics to thwart workers’ efforts to act in concert for their mutual benefit. One such tactic was the “yellow-dog contract.” Such agreements—mandated by employers—barred employees from remaining in or joining a union; some went further, barring all manner of concerted activities.
In the 1930’s, in an effort to safeguard vulnerable workers, Congress passed two statutes aimed at protecting employees’ associational rights in order to redress the bargaining power imbalance workers faced. The first, in 1932, was the Norris-LaGuardia Act (NLGA), which indirectly regulates the employer-employee relationship. Specifically, Section 2 of this Act states, inter alia, that
the individual unorganized worker . . . shall be free from the interference, restraint, or coercion of employers . . . in the designation of . . . representatives [of his own choosing, to negotiate the terms and conditions of his employment] or in self-organization or in other concerted activities for the purpose of collective bargaining or other mutual aid or protection[.]
Section 3 provides that federal courts shall not enforce “[a]ny . . . undertaking or promise in conflict with the public policy declared in section 102[.]’” Thus, Congress sought to invalidate “employer-imposed contracts proscribing employees’ concerted activity of any and every kind.” The goal of the NLGA is straightforward: as part of an offer of employment, an employer cannot require employees to agree not to engage in “concerted activity of any and every kind.”
In 1935, Congress enacted the National Labor Relations Act (NLRA)—the statute at issue in Epic Systems. Section 7 of the NLRA guarantees employees
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[.]
Safeguarding these rights, Section8(a)(1) makes it an “unfair labor practice” for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section .”
In Epic Systems , the question before the Supreme Court was whether the Federal Arbitration Act (FAA) protects agreements requiring individualized arbitration proceedings or whether such agreements violate the NLRA and thus fall within the “saving clause” of the FAA, allowing courts to refuse to enforce them. In Epic Systems, the Court answered that question in favor of employers. Specifically, the Court held that the FAA protects such arbitration agreements and that neither the Act’s saving clause nor the NLRA demands a different result.
Writing for the Court, Justice Gorsuch recounted that the NLRA “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.” The Court implicitly ignored the NLRA’s protection of “other activities for the purpose of . . . mutual aid or protection.”
In response to a perception that courts were unduly hostile to arbitration, Congress adopted the Arbitration Act in 1925. Recognizing that arbitration offered “the promise of quicker, more informal, and often cheaper resolutions for everyone involved,” Congress directed courts to treat arbitration agreement as “valid, irrevocable, and enforceable”—according to the parties’ chosen terms. The saving clause of the Arbitration Act, however, creates an exception. By its terms, this clause allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” Thus, arguably, if an arbitration agreement violates the NLRA, the court can revoke the arbitration agreement, at least to the extent the agreement violates the Act.
The Supreme Court reasoned, however, that “because the saving clause recognizes only defenses that apply to ‘any’ contract . . . , the clause offers no refuge for ‘defenses that apply only to arbitration or derive their meaning from the fact that an agreement to arbitrate is at issue.’” Thus, under the Court’s reasoning, an arbitration agreement can only be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability.”
Applied in Epic Systems, because the employees objected to their arbitration agreements on the grounds that they require individualized arbitration proceedings instead of a class or collective action—“attacking the individual nature of the arbitration proceedings”—the Court held that such contracts fail to qualify for protection under the saving clause.
Citing to its 2011 decision in AT&T Mobility LLC v. Concepcion, the Court noted that courts cannot interfere with a fundamental attribute of arbitration, absent the parties’ consent. Specifically, the Court reasoned that permitting class proceedings despite the traditionally individualized and informal nature of arbitration would “sacrifice[e] the principal advantage of arbitration—its informality—and mak[e] the process slower, more costly, and more likely to generate procedural morass than final judgment.”
With respect to the NLRA, the Court stated that, although Section 7 “may permit unions to bargain to prohibit arbitration,” “it does not express approval or disapproval of arbitration,” noting that class action arbitration did not emerge until decades later. This latter argument is specious, however, given the fact that Congress entrusted the National Labor Relations Board with “responsibility to adapt the [NLRA] to changing patterns of industrial life.”
Thus, the Court concluded: “The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written.”
The dissent, however, advocates that the Arbitration Act should not be read to shrink the NLRA’s protective sphere.
In her dissent, Justice Ginsburg (joined by Justices Breyer, Sotomayor, and Kagan) argued that employers—such as the employer in Epic Systems—requiring employees “to sign contracts stipulating to submission of wage and hours claims to binding arbitration, and to do so one-by-one” is an unfair labor practice barred by the NLRA. Specifically, Justice Ginsburg posits that “[e]mployees’ rights to band together to meet their employers’ superior strength would be worth precious little if employers could condition employment on workers signing away those rights.”
The real result of the Court’s decision may be the “underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” According to Justice Ginsburg, because government agencies have limited resources, they
must rely on private parties to take a lead role in enforcing wage and hours laws. . . . If employers can stave off collective employment litigation aimed at obtaining redress for wage and hours infractions, the enforcement gap is almost certain to widen.
Certainly, employees will be deterred from bringing individual wage and hour claims given 1) that the expenses entailed in bringing individual claims will often far outweigh potential recoveries and 2) the fear of retaliation for seeking redress on their own. This result—a consequence of the unequal power between employers and employees that the majority ignores—benefits employers. Justice Ginsburg may well be correct when she predicts that “[e]mployers, aware that employees will be disinclined to pursue small-value claims when confined to proceeding on-by-one, will no doubt perceive that the cost-benefit balance of underpaying workers tips heavily in favor of skirting legal obligations.”
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