Now that the U.S. Supreme Court has settled the question of the enforceability of class-action waivers in employment arbitration agreements, plaintiffs’ attorneys are weighing their remaining options for protecting workers from widespread violations of state and federal law.
The Supreme Court in Epic Systems Corp. v. Lewis ruled that arbitration clauses in the employment contracts of three different employers were enforceable as written, in particular upholding provisions waiving the employee’s right to pursue a claim as a member of a class action.
Class-action lawyer Shannon Liss-Riordan says she plans to “bombard” employers with individual arbitrations in the aftermath of Epic Systems.
“A lot of these companies will find that you have to be careful what you wish for, because when we do that it can be really expensive for the employer to have these cases decided,” the Boston-based attorney says.
Those looking to Congress to amend the Federal Arbitration Act and roll back the enforceability of arbitration clauses in the employment context should expect disappointment, says Richard S. Loftus, a Boston management-side lawyer.
“The current makeup of the Congress would be happy to let this decision stand,” Loftus says.
In terms of state action, Roger Williams University School of Law Dean Michael J. Yelnosky in Rhode Island predicts legislation that purports to invalidate employment arbitration clauses and their class-action waivers would be “completely ineffective.”
“They would be preempted,” Yelnosky says.
The general understanding was always that class-action waivers in employment arbitration agreements were enforceable.
However, the National Labor Relations Board in 2012 departed from more than 75 years of precedent to hold in D.R. Horton, Inc. that employment arbitration agreements requiring individualized proceedings violated the National Labor Relations Act’s collective action provision, 29 U.S.C. §157.
In the wake of Horton, the 6th, 7th and 9th Circuits adopted the NLRB’s position.
In January 2017, the Supreme Court granted cert in the cases from the 7th and 9th Circuits and a conflicting 5th Circuit decision to resolve the question of whether “an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.”
The Supreme Court answered that question in the affirmative in Epic Systems, a 5-4 decision authored by Justice Neil M. Gorsuch.
“Congress has instructed that arbitration agreements like those before us must be enforced as written,” Gorsuch wrote. “While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA — much less that it manifested a clear intention to displace the Arbitration Act.”
But Yelnosky takes issue with Gorsuch’s reading of the applicable statutes with respect to a worker’s right to class-wide relief.
“The NLRA says when employees engage in concerted activity for mutual aid or protection, they are protected whether they are unionized or not,” Yelnosky says. “This is concerted activity for mutual aid or protection.”
Justice Ruth Bader Ginsburg wrote a dissent condemning the court’s decision.
“The inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers,” Ginsburg wrote.
Boston plaintiffs’ attorney Philip J. Gordon agrees, calling Epic Systems a “disaster” for employees.
“What it says effectively is that you can by contract and practice evade the protections provided to employees under the law,” Gordon says.
But Chip Muller, chairman of the Rhode Island Bar Association’s Labor Law & Employment Committee, says the ruling in Epic Systems should not come as a surprise.
“The legal arguments in favor of the employees in this case were weak given the incredible power of the FAA and the Supreme Court’s interpretation of the FAA,” Muller says. “When you look at the precedent leading up to [Epic Systems], it’s really not a surprising decision.”
Instead, he sees the FAA as a “horrendous” law that needs to be fixed by Congress.
“The Supreme Court has been clear that the FAA means what it means, and that is that employees who sign arbitration agreements lose their right to a civil trial,” Muller says. “The plaintiffs’ bar is working hard to get all arbitration agreements, and particularly class-action waivers, in the employment context outlawed.”
“The legal arguments in favor of the employees in this case were weak given the incredible power of the FAA.”
— Chip Muller, Rhode Island Bar Association Labor Law & Employment Committee
Boston attorney Daniel S. Field, who defends companies facing wage and hour class actions, notes that many employers for a variety of reasons decide not to use arbitration agreements with class-action waivers. So for those employers, Epic Systems may not be as meaningful a decision as it is for other employers.
Still, he expects the Supreme Court’s decision to prompt some employers to consider the issue more seriously.
“I suspect the attention this decision has garnered may cause them to begin thinking about it,” Field says.
Boston’s Lawrence J. Casey, who represents executives and employers, says its “back to square one” now that the NLRB’s decision in Horton is no longer good law.
Casey speculates that plaintiffs’ attorneys can adapt by going to more of a “form practice” that “cranks out” complaints and demands for arbitration.
“If I think there are 100 employees in the state of Massachusetts that have a [specific claim], I have a standard form, I file it, make my demand for arbitration, and get them scheduled,” Casey says.
Loftus estimates that more than half of employers do not have class-waiver arbitration agreements with their employees.
“They’ve increased, but it’s not like every company uses them,” he says.
For some types of cases, such as sexual harassment and discrimination, employers prefer going to court because arbitrators tend to be less open to “technical” legal defenses, such as the expiration of the statute of limitations, Loftus explains.
“A court in some ways can be more receptive to those sorts of things, so I don’t know that we’re going to see something that will eliminate class actions entirely,” he says.
Liss-Riordan says plaintiffs’ attorneys can continue to challenge the enforceability of arbitration clauses as they always have using traditional contract defenses.
“It’s possible that state and federal courts look more closely at certain unconscionability arguments in light of this decision,” she says.
Liss-Riordan says it’s nothing new for her to put together large groups of workers and bring their cases en masse in individual arbitrations. Generally, employers pay for arbitration, she adds.
“Each arbitration can cost $50,000 just for fees to the arbitrator,” Liss-Riordan says. “If we [file] a whole bunch of times, employers can find themselves paying the arbitration fees, paying our fees, paying their own lawyers’ fees — even if the damages for each worker is relatively nominal.”
The piling up of arbitration costs can serve as an inducement for the employer to settle, she adds.
“We’re calling their bluff,” she says.
But Field is skeptical about the strategy of inundating employers with individual arbitrations, having seen it work only in a handful of cases when arbitration clauses stood in the way of class relief.
“Class action cases are brought by a very small number of class representatives who allege that they’re representing hundreds or thousands of others,” he says. “In fact, the hundreds or thousands of others don’t express much interest in participating and often don’t come forward.”
However, Liss-Riordan says pressing for multiple arbitrations ironically can bring an employer to the table asking for an agreement to establish a procedure to handle the numerous claims more efficiently.
“The defendants will come to us and say, ‘Why don’t we figure out some streamlined way to decide this one time rather than have it done over and over again.’ That’s when we turn to them and say, ‘Oh, we thought you didn’t like class actions.’”
“The inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”
— Justice Ruth Bader Ginsburg, dissenting in Epic Systems v. Lewis
Although Field agrees that state laws enacted in response to Epic Systems would probably be preempted, for some courts it would be an open question, he says.
“In a number of other situations, federal courts have ruled that the FAA preempts state law and attempts to abrogate provisions of the FAA,” Field says. “I would think there’s a high probability that a federal court would do the same here.”
Field suggests that the rise of the #MeToo movement could put pressure on Congress to amend the FAA to abrogate arbitration clauses with respect to sexual harassment. In that vein, he notes that Sens. Lindsey Graham of South Carolina and Kirsten Gillibrand of New York in December introduced the Ending Forced Arbitration of Sexual Harassment Act of 2017, which would void mandatory arbitration agreements with respect to such claims.
“I wouldn’t completely rule it out,” Field says of the bill’s chances of passing.
Liss-Riordan says one legislative approach that may withstand FAA preemption is exemplified by the California Private Attorneys General Act. Under that law, an attorney files a claim on behalf of a plaintiff who stands in the shoes of the state attorney general to deter violations of state law.
The downside, Liss-Riordan explains, is that a PAGA action primarily provides for the state to recover substantial penalties from a defendant, with only 25 percent of the recovery going to the workers.
According to Liss-Riordan, both the California Supreme Court and the 9th Circuit have held that PAGA representative actions are not preempted by the FAA, notwithstanding class-action waivers.
There are early discussions in the wake of Epic Systems about enacting similar laws in other states, including Massachusetts, Liss-Riordan says. There’s hope for advocates that enacting similar laws in other states would survive Supreme Court scrutiny since the court has turned down several opportunities to review the California law, she adds.
According to Gordon, it would require a “sea change” in jurisprudence for the Supreme Court to strike down a state PAGA lawsuit on FAA preemption grounds.
“These acts allow individuals to bring their claims on behalf themselves and everybody else as the [state] AG could do it,” Gordon says. “They are very, very powerful tools.”