U.S. Supreme Court to Decide Whether Employment Arbitration Agreements Can Block Class Actions

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Sometimes problems in the workplace are so widespread that they affect hundreds or even thousands of employees. That's when lawyers and government enforcement agencies use class action lawsuits to protect employee rights. But if the U.S. Supreme Court decides that employment arbitration agreements apply to employment disputes, it could put the solutions out of reach.

In this blog post, I will review Epic Systems v. Lewis, 16-285; Ernst & Young v. Morris, 16-300; and National Labor Relations Board v. Murphy Oil, 16-307, three lawsuits consolidated for the U.S. Supreme Court's consideration this term. I will explain how employment arbitration agreements work and how they could affect future of workplace discrimination law.

What Are Employment Arbitration Agreements?

In arbitration, the parties pay one to three individuals, usually with relevant legal or professional experience, to hear the arguments and make binding decisions about how the dispute will be resolved. In commercial litigation, arbitration can be used used to resolve collections issues, product defect problems, and a variety of other possible lawsuits. Employment arbitration agreements come into play in enforcing non-compete agreements, wage disputes, and even claims of sexual harassment and workplace discrimination.

Today, nearly every credit card contract, lease agreements, and other consumer contract includes a mandatory arbitration agreement. This contract language removes disputes from the courts and places them in front of private, professional arbitrators. Arbitration agreements are also part of many employment contracts across the country. From large corporations to small start-ups, many employers have included these provisions in their employee handbooks and other employment contracts in an effort to control the cost of litigation.

What's Wrong With Employment Arbitration Agreements?

Consumer advocates and others say that the close financial relationship between arbitrators and the companies who use them regularly can sometimes make it harder for individuals to receive a fair outcome. They also say that mandatory arbitration agreements can sometimes keep people from the relief they deserve. The cost of arbitration is often so high that it doesn't make sense to take many smaller disputes through the process.

In the court system, cases with small remedies are addressed through class actions. The law allows hundreds or thousands of employees facing the same illegal treatment by the same employer to be compensated for small-figure wage disputes or harassment claims in one large class action lawsuit. However, employment arbitration agreements have the ability to interfere with those class action lawsuits. This is because an arbitration clause requires each dispute to be arbitrated individually before (or often instead of) going to court.

The U.S. Supreme Court Weighs Arbitration Against Collective Litigation

Attorneys for employers have successfully argued that employment arbitration agreements prevent employees from joining together in collective litigation including class action lawsuits. Three recent lawsuits, Epic Systems v. Lewis, 16-285; Ernst & Young v. Morris, 16-300; and National Labor Relations Board v. Murphy Oil, 16-307, all of which have been granted certiorari by the U.S. Supreme Court, have addressed this issue. The three cases arose when employees who had entered into employment arbitration agreements tried to file class actions or collective litigation in federal courts:

  • In Murphy Oil, the lawsuit was for unpaid overtime compensation. However, the court dismissed the case because the employees had not taken their disputes to arbitration first. The representative plaintiff, Sheila Hobson, then took the issue to the National Labor Relations Board. The NLRB sued the gas company saying that requiring employees to waive their right to collective litigation was an unfair labor practice. The case was again dismissed for lack of arbitration.
  • In Epic Systems, Jacob Lewis also filed his class action lawsuit for denied overtime pay. But his lawsuit went forward after federal court judge rejected the software company employer's argument that its arbitration agreement was enforceable.
  • In Ernst & Young, two employees sued for violations of the Fair Labor Standards Act and state laws. There the district court enforced the arbitration provision, but the Circuit court reversed and reinstated the employees' case.

These three cases, and their different outcomes, showed how important the upcoming U.S. Supreme Court decision will be for employment litigation. The Justices heard oral arguments on October 2, 2017. During the arguments, and in the closed-door deliberations that will occur in the months to come, the Supreme Court Justices will weigh the Federal Arbitration Act's (FAA) mandate that arbitration agreements "shall be valid, irrevocable, and enforceable" against the National Labor Relations Act (NLRA), which protects employees right to engage in "concerted activities" for "mutual aid or protection".

The employees' attorneys say that if the Justices enforce the employment arbitration agreements it will interfere with the NLRA's purpose to correct the power imbalance between employers and employees. By prohibiting the employees from coming together to pursue collective litigation, the employers may be able to avoid proper compensation all together because the cost of arbitration would outweigh the potential remedy.

Arbitration Agreements and Workplace Discrimination

The Supreme Court cases center around wage issues. However, if the FAA is held to "unequivocally" protect an employer's right to enforce arbitration agreements, it could also affect employees' ability to advocate for changes in the workplace. Private employment discrimination attorneys and the Equal Employment Opportunity Commission (EEOC) often bring claims on behalf of classes of employees to enforce Title VII of the Civil Rights Act against sexual harassment and workplace discrimination.

Depending on the outcome of the FAA, these cases could be broken up into individual, single-plaintiff lawsuits. Particularly in sexual harassment cases, the strength of the plaintiffs' claims is often in their similarities and the patterns within their stories. When arbitrated one by one, this could weaken employees' abilities to get relief in hostile workplaces.

A great deal hangs on the U.S. Supreme Court's resolution of employment arbitration agreements and collective litigation. From wage disputes to employment discrimination litigation, employee attorneys use class action lawsuits to great effect. Whether that tool will remain available in the future remains to be seen.

If you are facing fair pay concerns or workplace discrimination, the skilled employment discrimination attorneys at Eisenberg & Baum, LLP, can help. Contact us today to schedule a free initial consultation and get your case started.

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