Supreme Court To Determine Whether Forced Arbitration Trumps Federal Law

Elizabeth Colman, Paul H. Tobias Attorney Fellow

On October 2, the U.S. Supreme Court will hear oral arguments in National Labor Relations Board (NLRB) v. Murphy Oil, Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris, a group of cases that will be argued together concerning forced arbitration and the National Labor Relations Act (NLRA). In what may be the most important employee-rights case to be heard this term, the Court will decide whether employers can require workers to waive their right to band together to resolve workplace disputes in any forum as a condition of employment. In recent years, forced arbitration has become the preferred method by which employers suppress claims and avoid public accountability for workplace violations. After the Supreme Court approved class and collective action bans in consumer contracts in 2011, employers pounced on the opportunity to beef up their forced arbitration clauses by adding similar bans. These bans isolate workers who seek to use the judiciary to enforce labor laws and improve working conditions. From 2012 to 2014, the number of companies using class and collective action bans more than doubled. Among the 54% of companies that reported using arbitration clauses in 2016, nearly one third included a class and collective action ban.

Under the National Labor Relations Act (NLRA), employees are guaranteed the right to engage in “concerted activities” for “mutual aid and protection” in seeking to improve stagnating wages, alleviate industrial strife, and ensure safe and fair working conditions. The Supreme Court has ruled that the NLRA protects employees’ right to engage in judicial actions to ensure that employers comply with the law. The Court has also provided that employers cannot suppress concerted activity by entering into contracts with workers that require them to resolve disputes on an individual basis. In this case, opponents of the bans maintain that by requiring employees to arbitrate all disputes individually employers are interfering illegally with their workers’ right to join together to enforce workplace laws.

Employers argue that concerted-action bans in arbitration clauses must be enforced under the Federal Arbitration Act (FAA), and some recent judicial interpretations of the FAA have made many arbitration clauses as difficult to escape as Harry Houdini’s Suspended Straightjacket. However, under Section 2 of the FAA, an arbitration clause may be invalidated under “any general contract defense”—such as illegality. If concerted-action bans are unlawful and unenforceable under the NLRA, they would be illegal whether written as part of an arbitration clause or a separate provision of an employment contract. Much to the chagrin of employers, the FAA does not have the power to transform otherwise illegal contract terms into enforceable ones.

Closing off employees’ access to group legal proceedings leaves workers with virtually no ability to hold an employer accountable for illegal activity at work. Private lawsuits initiated by wronged employees are the primary way that corporate employers are held accountable for unlawful activity, but enforcing workplace rights through legal action in any forum is financially and emotionally draining. When employees are able to shoulder these burdens together, enforcing workplace rights becomes viable. But when forced to choose between entering arbitration’s expensive, privately-paid, secret proceedings in isolation, or doing nothing, many workers essentially are compelled to abandon their legitimate grievances. This type of claim suppression leaves companies free to operate with little worry of public accountability for employer wrongdoing, such as rampant sexual harassment, race discrimination, or wage theft. Moreover, once employees know that their employer’s illegal acts will never reach the light of day, workers who would otherwise come forward become reluctant to speak up for fear of being singled out and targeted for retaliation, which leaves the door open for even greater workplace abuse. In these cases the NLRB and employee-side parties are challenging employers’ ability to silo workers in individual forced arbitration.

The Court’s ruling in this case has the power to dramatically affect the lives of millions of workers. Laws protecting workers against corporate exploitation are meaningless if employees have no practical way to enforce them. Will the Court protect employees’ right to come together to enforce federal labor laws and improve working conditions, or will it allow companies to use contractual fine print to silence employees and effectively make themselves above the law?

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