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In 5-4 Split, US Supreme Court Approves Mandatory Arbitration

On Behalf of | May 24, 2018 | Federal Wage and Hour Violations |

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“The policy may be debatable but the law is clear,” wrote Justice Neil Gorsuch in Epic Systems Corp. v. Lewis, a case testing whether employers can require employees to arbitrate wage and hour claims individually, as opposed to banding together in a class action.

Part of the 1925 Federal Arbitration Act allows employers to ban collective action. Gorsuch wrote for a 5-4 majority that employers are therefore free to require non-union workers to sign mandatory arbitration agreements or clauses as a condition of employment, and courts will enforce them.

The employees contended that the National Labor Relations Act (NLRA) was passed years after the Arbitration Act and guaranteed workers the right to act collectively. Therefore, they argued, it should be viewed as overwriting that portion of the Arbitration Act.

Gorsuch and the majority, however, said that the NLRA does not displace the Arbitration Act “because we can easily read Congress’s statutes to work in harmony.”

The four dissenters, led by Justice Ruth Bader Ginsburg, called this “egregiously wrong.” They argued that the NLRA was passed, in part, to fight the one-sided “yellow dog” contracts that employers have the power to insist upon. It did this by protecting workers’ right to band together so they can afford to challenge an employer’s illegal actions.

“[T]he edict that employees with wage-and-hours claims may seek relief only one by one does not come from Congress,” wrote Ginsburg. “It is the result of take-it-or-leave-it labor contracts harking back to the type called ‘yellow dog,’ and of the readiness of this Court to enforce those unbargained-for agreements.”

Three underlying wage-and-hour claims were consolidated for this case. Such claims typically involve disputes over employee classification, nonpayment of the minimum wage, unpaid overtime, illegal child labor and certain working conditions. In one case, for example, employees at Ernst & Young, LLP, sought to sue collectively over unpaid overtime.

When the cases were being argued, the Ernst & Young plaintiffs pointed out that the most individual claimants could recover in the dispute was $1,800. However, the legal fees for a single case in arbitration ended up costing $200,000. While fees reaching that level might be rare, the probability that legal fees will far outstrip the potential recovery will certainly discourage many employees from trying arbitration — especially since there is no guarantee a successful case will end up changing the employer’s policies.

The three cases alone affect tens of thousands of employees, but many more may be affected. Although Epic Systems Corp. v. Lewis specifically involved wage-and-hour claims, there is good reason to suppose that other employment law cases, including discrimination complaints, would be handled the same way by the Supreme Court.