A recent decision by the U.S. Supreme court will have a major impact on the rights of private, non-union employees to move forward with class-action lawsuits. The case, which was decided in a 5-4 vote, concluded that the provisions of 1925 Federal Arbitration Act overrides the National Labor Relations Act of 1935.
The decision was based on three labor disputes between private sector employees and their employers. The courts determined that since the employees had signed an arbitration agreement as part of their employment contract, they would not be allowed to band together in the form of a class-action suit regarding Federal wage and labor violations.
Writing on behalf of the majority, Justice Neil Gorsuch stated that although the opinion may be unpopular, the law is clear. Signed arbitration agreements must be enforced as they are written.
Basis for the Dissenter’s Rebuttal
Speaking for the four dissenters, Justice Ruth Bader Ginsburg argued that these arbitration agreements are often a forced element of the employment contract. Presented as a “take-it-or-leave-it” requirement for employment, most employees sign not because they actually agree, but because they have no choice.
Individual cases are also usually too small to warrant the large legal fees. It’s extremely unlikely that an employee owed $1,900 in back wages will elect to move forward with a case that will cost $200,000 in attorney’s fees. Many employees also fear retaliation, which is minimized when the claim is part of a larger class-action suit. According to the dissenters, these factors, paired with the protections intended under the National Labor Relations Act, warrant enforcement of employee rights to a class-action suit. At this time, however, their opinion has been overruled.
What This Means for Employers
It’s estimated that 56 percent of private-sector, non-union employees are currently bound by mandated individual arbitration agreements. This decision impacts the ability of tens of millions of employees to band together against unfair labor violations.
Following this ruling, it’s expected that more employers will choose to protect themselves by adding arbitration terms to their employment contracts. Employers clearly benefit, as this allows them to wipe out the single largest and most expensive employment risk by simply ensuring their employment contracts include the proper language.
Potential Far-Reaching Implications
Academic professionals have weighed in on the ruling, noting that it applies to all forms of class-action suits and arbitration clauses. This could impact the ability for people to move forward with race, gender, or religious discrimination lawsuits and civil rights class action suits like the #MeToo movement.
Manufacturers, suppliers, and others could now use binding arbitration agreements to protect themselves from the dangers of a class-action suit. Whenever you buy or use a product, if it comes with an arbitration agreement, you would essentially be required to give up your right to use public courts to resolve problems or seek damages for negligence. According to Cornell University labor law professor Angela Cornell, this would eventually lead to “…the privatization of our justice system.”
It’s possible that this argument will resurface in the future, and results could be different next time. For the time being, however, business owners are well advised to review their current contracts with their legal advisors and consider making recommended adjustments.