Justices uphold use of arbitration clauses

WASHINGTON — The Supreme Court on Monday ruled that companies can use arbitration clauses in employment contracts to prohibit workers from banding together to take legal action over workplace issues.

The vote was 5-4, with the court’s more conservative justices in the majority. The court’s decision could affect some 25 million employment contracts.

Writing for the majority, Justice Neil Gorsuch said the court’s conclusion was dictated by a federal law favoring arbitration and the court’s precedents. If workers were allowed to band together to press their claims, he wrote, “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 read her dissent from the bench, a sign of profound disagreement. In her written dissent, she called the majority opinion “egregiously wrong.” In her oral statement, she said the upshot of the decision “will be huge under-enforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

Ginsburg called on Congress to address the matter.

The latest decision applies directly to wage-and-hour claims, and its reasoning

might let employers avoid class action job-discrimination suits as well.

Brian T. Fitzpatrick, a law professor at Vanderbilt University who studies arbitrations and class actions, said the ruling was unsurprising in light of earlier Supreme Court decisions. Gorsuch, he added, “appears to have put his cards on the table as firmly in favor of allowing class actions to be stamped out through arbitration agreements.”

As a result, Fitzpatrick said “it is only a matter of time until the most powerful device to hold corporations accountable for their misdeeds is lost altogether.”

But Gregory F. Jacob, a lawyer with O’Melveny & Myers in Washington, said the decision would have a limited impact, as many employers already use the contested arbitration clauses. “This decision thus will not see a huge increase in the use of such provisions,” he said, “but it does protect employers’ settled expectations and avoids placing our nation’s job providers under the threat of additional burdensome litigation drain.”

Gorsuch wrote that there are policy arguments on both

sides of the dispute but that the role of the courts was to interpret the governing statutes.

“The respective merits of class actions and private arbitration as means of enforcing the law are questions constitutionally entrusted not to the courts to decide but to the policymakers in the political branches where those questions remain hotly contested,” he wrote.

Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito Jr. joined the majority opinion.

The National Labor Relations Board, breaking with the administration, argued that contracts requiring employees to waive their right to collective action violate the labor laws.

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.

The three consolidated cases decided Monday concerned charges that employers

had underpaid their workers. The workers’ employment contracts required that they resolve such disputes in arbitration rather than court and, importantly, that they file their claims one by one.

Arbitration clauses in employment contracts are a recent innovation, but they have become quite common. In 1992, Ginsburg wrote, only 2 percent of nonunionized employers used mandatory arbitration agreements, while 54 percent do so today. Some 23 percent of employees not represented by unions, she wrote, are subject to employment contracts that require class-action waivers.

Under those contracts, Ginsburg wrote, it is often not worth it and potentially dangerous to pursue small claims individually. “By joining hands in litigation, workers can spread the costs of litigation and reduce the risk of employer retaliation,” she wrote.

The contracts may also encourage misconduct, Ginsburg wrote.

“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,” she wrote,

adding that billions of dollars in underpaid wages are at issue.

Ginsburg added that requiring individual arbitrations can produce inconsistent results in similar cases, particularly because arbitrations are often confidential.

Justices Stephen G. Breyer, Sonia Sotomayor and Elena Kagan joined Ginsburg’s dissent.

In response, Gorsuch wrote that Ginsburg was overstating things. “Like most apocalyptic warnings, this one is a false alarm,” he wrote. “Our decision does nothing to override Congress’ policy judgments.”

The case was the court’s latest attempt to determine how far companies can go in insisting that disputes be resolved in individual arbitrations rather than in court.

The Supreme Court ruled in earlier cases that companies doing business with consumers may require arbitration and forbid class actions in their contracts, which are often of the take-it-or-leave-it variety.

The question for the justices in the new cases is whether the same principles apply to employment contracts.

In both settings, the challenged contracts require that disputes be raised through

the informal mechanism of arbitration rather than in court and that claims be brought one by one. That makes it hard to pursue minor claims that affect many people, whether in class actions or in mass arbitrations.

In 2011, in AT&T Mobility v. Concepcion, the Supreme Court ruled that the Federal Arbitration Act, which favors arbitration, allowed companies to avoid class actions by insisting on individual arbitrations in their contracts with consumers.

By a 5-4 vote, the court said a California couple who objected to a $30 charge for what had been advertised as a free cellphone were barred from banding together with other unhappy customers.

Arbitration clauses with class waivers are now commonplace in contracts for things like cellphones, credit cards, rental cars and nursing home care.

In the cases decided Monday, workers argued that employment contracts are different. They said a second law, the National Labor Relations Act, prohibits class waivers. The labor law protects workers’ rights to engage in “concerted activities.”

The workers in the latest case said the National Labor Relations Act guarantees them the right to press claims as a group, either in arbitration or in court. The 1935 law protects “concerted activities” by workers, without explicitly mentioning lawsuits.

The majority said that language wasn’t specific enough to overcome a separate law, the 1925 Federal Arbitration Act, which says arbitration agreements must be enforced like any other contract.

Two federal appeals courts, in Chicago and San Francisco, accepted that argument. A third, in New Orleans, has rejected it. The court agreed to hear appeals in all three cases: Epic Systems Corp. v. Lewis, No. 16-258; Ernst & Young v. Morris, No. 16-300; and National Labor Relations Board v. Murphy Oil USA, No. 16-307.

Gorsuch wrote that Congress would not have overridden the arbitration law by using general language in the labor law. “The employees’ theory,” he wrote, quoting an earlier decision, “runs afoul of the usual rule that Congress ‘does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions — it does not, one might say, hide elephants in mouseholes.’”