UncategorizedA Divided Supreme Court Holds That Employers Can Require Arbitration For Employees Barring Class Action Lawsuits In A Victory Decision For Employers

 
On May 21, 2018, the Supreme Court justices held in a 5-4 decision that employers can use arbitration clauses in employment contracts to prohibit employees from banding together in class action suits over workplace issues. This landmark decision encompassed three cases from three different circuits, including Chicago’s Seventh Circuit. The Supreme Court justices were ultimately confronted with the task of reconciling federal laws. While some federal laws protect workers’ rights to band together in discussing the terms and conditions of employment, the Federal Arbitration Act encourages the use of arbitration.
In the cases decided Monday, employers argued that arbitration clauses are binding and enforceable to prevent workers from bringing class actions. Whereas the workers argued that employment contracts are different and cited the National Labor Relations Act, which prohibits class waivers and protects workers’ rights to engage in “concerted activities.”
While two federal appeals courts in Chicago and San Francisco accepted the employees’ argument, the third in New Orleans, rejected it. The Supreme 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, and ruled in favor of the employers, finding that arbitration clauses were in fact enforceable. These three consolidated cases 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 separately.
Under this decision, employers can require employees to individually use arbitration to resolve disputes, protecting employers’ business interests. Generally, employers use arbitration clauses to require employees to waive their right to collective action, and instead, arbitrate these matters individually. Such provisions can protect employers from lengthy and costly litigation.
Justice Gorsuch, in writing for the majority stated that the court’s conclusion was dictated by the 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.”Those in support of the majority decision believe that it protects employer’s expectations and avoids the threat of burdensome litigation.
Those who have come out in opposition of the decision, including the dissenting justices are concerned that this decision will run contrary to other federal and state statues designed to advance vulnerable workers and could produce inconsistent results in similar cases, particularly because arbitrations are often confidential.
If and until Congress decides to legislate otherwise, arbitration clauses are deemed enforceable. This decision does not affect those workers who are represented by labor unions, but is estimated to affect around 25 million employees who work under contracts that prohibit collective action in contesting the terms and conditions of employment.
Tristan & Cervantes has advised clients in drafting employment agreements and in navigating employment related issues. Please contact our office with any questions at 312.345.9200 or via email at info@tristanlegal.com.