Supreme Court Upholds Worker Arbitration Agreements
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UPDATED: Jul 16, 2021
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The US Supreme Court has ruled that employers may use arbitration clauses in employment agreements to prevent employees from bringing class actions over workplace issues.
As the New York Times reports, this decision could affect 25 million employment contracts.
The case arose out of three employment-related cases that were appealed to the Court. All involved claims that employers had underpaid their workers.
In one, a junior accountant at Ernst & Young had entered into an agreement with his employer stating that he would arbitrate any disputes that might arise.
After his employment ended, the accountant sued, saying that the firm had mis-classified its junior accountants as professional employees and thus violated the federal Fair Labor Standards Act (FLSA) and California law by paying them salaries without overtime pay.
The arbitration agreement only allowed for individual proceedings, but the accountant sought to litigate on behalf of a nationwide class of workers who were in the same situation.
The Supreme Court ruled that in the Federal Arbitration Act the US Congress had directed federal courts to enforce agreements according to these terms — including terms that prohibit class actions.
The Court found that the National Labor Relations Act (NLRA) didn’t contradict this policy.
According to the decision written by Justice Neil Gorsuch, if class actions were allowed despite being prohibited in arbitration clauses,
the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.
Justice Ruth Bader Ginsburg dissented, saying that the majority was “egregiously wrong.”
She said that the result of the decision “will be huge under-enforcement of federal and state statutes designed to advance the well being of vulnerable workers.”
Both Sides Now
As the Times noted,
The cases featured an unusual element: Lawyers for the federal government appeared on both sides.
The Obama administration had filed a brief supporting the workers on behalf of the National Labor Relations Board. The Trump administration reversed course, and it argued on behalf of the employers. The labor board’s general counsel, however, argued for the workers.
Arbitration clauses are becoming increasingly common in employment agreements. As Justice Ginsburg noted, they appeared in only 2%of contracts with non-unionized employees in 1992, but they appear in 54% of such contracts today.
She also noted that “By joining hands in litigation, workers can spread the costs of litigation and reduce the risk of employer retaliation.”
She said arbitration clauses that prohibit class actions could encourage employer misconduct:
Employers, aware that employees will be disinclined to pursue small-value claims when confined to proceeding one-by-one, will no doubt perceive that the cost-benefit balance of underpaying workers tips heavily in favor of skirting legal obligations.
The Supreme Court had previously ruled that companies may require arbitration clauses and prohibit class actions in consumer contract.