New York Times

Justices to Rule on Mandatory Arbitration

January 15, 2017

by Adam Liptak

WASHINGTON — The Supreme Court on Friday agreed to decide whether companies can use employment contracts to prohibit workers from banding together to take legal action over workplace issues.

The court accepted three cases on the subject. They follow a series of Supreme Court decisions endorsing similar provisions, generally in contracts with consumers. The question for the justices in the new cases is whether the same principles apply to employment contracts.

In both settings, the challenged contracts typically require two things: 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-to-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 a 2015 dissent, Justice Ruth Bader Ginsburg, citing a New York Times article examining arbitration agreements, wrote that the 2011 decision and later ones “have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer protection laws.”

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

Two federal appeals courts, in Chicago and San Francisco, have 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.

In its brief seeking Supreme Court review, Epic Systems, a Verona, Wis., health care software provider, said the court should set a national standard.

“Employers need to know whether class waivers in arbitration provisions will actually be enforced,” the company’s brief said. “Employees need to know whether they are actually bound by these provisions.”

A legal patchwork, it said, “is especially troublesome for companies with employees in workplaces across the United States.”

The Obama administration, which supports the workers’ position, told the justices that the question was one of “exceptional importance.”

“Resolving the question presented will have a direct and immediate effect on countless employees and employers throughout the nation,” the administration’s brief said, “because individual-arbitration agreements have become so widespread.”

It is not clear whether the Trump administration will alter the federal government’s position.

Cases concerning arbitration clauses with class-action waivers have divided the court along ideological lines, with the conservative justices voting to uphold the provisions.

The new cases, which were consolidated for a single hour of argument, will probably be heard in April, by which time the current eight-member court may be back at full strength.

The arbitration cases were among 16 the court added to its docket on Friday, and they probably represent the last ones that will be decided in the term that ends in June.