In May, a 5-4 majority of the U.S. Supreme Court held that employers may require workers to sign mandatory arbitration agreements that waive an employee’s right to participate in class and collective actions. Arbitration agreements generally require employees to resolve employment disputes individually through arbitration, rather than through a court of law. Arbitration agreements may now also prohibit employees from banding together with other employees in larger lawsuits.
The ruling involved three cases that were consolidated because they raised the same general question. Non-union workers from Epic Systems Corp., Murphy Oil USA, Inc., and Ernst & Young, LLP, proposed to bring class action lawsuits against their employers for wage-and-hour issues (e.g., minimum wage, overtime wage, and employee misclassification issues).
In each case, the employees had signed employment contracts containing mandatory arbitration provisions. The employees claimed that the National Labor Relations Act (NLRA) guaranteed their right to collective action, and that the individual arbitration requirements thus violated the law. The employers argued that the Federal Arbitration Act (FAA) specifically entitled them to ban class and collective actions by employees.
Justice Neil Gorsuch, who authored the Court’s opinion, stated that the FAA required arbitration agreements to be enforced just as the requirements of any other contract would be enforced. There was no exclusion in NLRA, he continued, for class or collective action waivers.
In dissent, Justice Ruth Bader Ginsburg called the majority’s opinion “egregiously wrong.” Justice Ginsburg said the ruling will inevitably erode enforcement of laws meant to protect workers. The NLRA, she argued, was meant to prevent “yellow dog” contracts where one side — the employer — has all the bargaining power and can dictate the terms.
In practical terms, the Court’s decision will have wide-ranging consequences. A study by the Economic Policy Institute estimates that 56 percent of non-union employees in the private sector currently have mandatory arbitration terms in their employment agreements, and this undoubted win for employers will likely increase that number in the coming years.