Outten & Golden: Empowering Employees in the Workplace

Posts Tagged ‘arbitration agreements’

The sinister history underlying Neil Gorsuch’s decision lashing out at American workers

Wednesday, May 23rd, 2018

The ink was barely dry on Neil Gorsuch’s opinion in Epic Systems v. Morris before Ogletree Deakins — a management-side employment law firm that earned nearly three-quarters of a million dollars in profits per equity partner last year — started hawking an “innovative new product” that would enable employers to enrich themselves at the expense of their most vulnerable workers.

Epic Systems held that employers may force their employees, under pain of termination, to sign away their right to bring a class action lawsuit against their employers. It is an invitation — if not an incentive — for wage theft, as class actions are often the only recourse available to someone robbed of a few hundred, or even a few thousand, dollars by their boss.

Employment lawyers have known this decision was coming for months. And many of them are going to cash in.

Yet, while this Epic Systems decision became inevitable the minute Gorsuch claimed ownership of a Supreme Court seat that Senate Republicans held open more than a year until Donald Trump could fill it, the Court’s decision would shock the lawmakers who actually enacted the laws at issue in this case.

Gorsuch’s opinion is a mix of willful historical ignorance, ideological blindness, and a smug insistence that he has a special window into the law that many of his more experienced colleagues lack. Now, it threatens to revive one of the Supreme Court’s most disgraceful chapters.

The new Lochnerism

The conceit of Gorsuch’s Epic Systems opinion is that workers and their bosses sit down like equal bargaining partners to hash out their terms of employment. “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?” Gorsuch begins his opinion with a question framed as if it could only have one answer. “Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?”

In reality, the facts of Epic Systems bear little resemblance to the civilized negotiation presented by Gorsuch. Workers at one of the companies at issue in this case received an email one day informing them that they must give up their right to bring class actions. Employees who “continue[d] to work at Epic,” according to the email, would “be deemed to have accepted” this agreement. A similar email was sent to the employees of one of the other companies that prevailed in Epic Systems.

These employees, in other words, only “agreed” to the terms proposed by their bosses in the same sense that a person accosted by a gunman in a dark alley “agrees” to give up their wallet. Their choice was to give up their rights or to immediately lose their jobs.

This is not the first time the Supreme Court ignored the fairly basic fact that employers typically have far more bargaining power than their workers — and can use this greater share of power to exploit their employees.

In its anti-canonical decision in Lochner v. New York, the Supreme Court struck down a late nineteenth century law prohibiting bakeries from overworking their bakers. Such a law, Justice Rufus Peckham wrote for the Court, “interferes with the right of contract between the employer and employes [sic],” adding that “there is no contention that” bakery workers were unable “to assert their rights and care for themselves without the protecting arm of the State.”

In reality, bakers faced horrific working environments before the “protecting arm of the State” intervened to improve these conditions.

At the time, the overwhelming majority of New York City bakeries were basement operations located in the same tenements in which their customers lived. “’Filth, cobwebs and vermin’ filled these basements,” according to a city inspector’s report. Sewer pipes ran through many such bakeries, leaking their raw contents onto the workers, their workplaces, and the dough. In one such bakery, “’the water closet walls were literally black’ with roaches from floor to ceiling.”

Bakeries often had no windows and little ventilation, filling the air with irritating flour dust and fumes. Ovens heated the workplaces into infernos. Low ceilings required many workers to crouch, and the floors were typically either dirt or rotten wood filled with rat holes.

The average bakery worker labored at least 13 hours a day in these conditions, though some worked as much as 126-hours a week. Workers, moreover, were often required to sleep on the very same tables where they prepared the dough, and the cost of these makeshift beds were then deducted from their wages.

These were the sorts of conditions that the free market offered workers who, without the law to protect them, were forced to bargain alone with their employers. Perhaps, in some narrow sense, these workers “agreed” to work countless hours among the roaches, the heat, and the raw sewage. But only a judge blinded by their own ideology could conclude that these workers had any real choice in the matter.

“Concerted activities”

By the mid 1930s, Congress understood what men like Peckham and Gorsuch refused to see. As Justice Ruth Bader Ginsburg explains in her Epic Systemsdissenting opinion, Congress enacted the National Labor Relations Act (NLRA) on the premise that “employees must have the capacity to act collectively in order to match their employers’ clout in setting terms and conditions of employment.”

The law may not have the power to equalize bargaining power between workers and their bosses, but, by enabling those workers to join together, it could give them a fighting chance.

One provision of the NLRA — a provision that Gorsuch refused to honor in his Epic Systems opinion — provides that “employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Class actions are precisely this — a form of “concerted activity” that workers may use for their own “mutual aid or protection.”

The idea behind a class action is that multiple workers with the same legal claim against their employer can join together under a single lawsuit. Such concerted activity is necessary for the simple reason that litigation is often prohibitively expensive. As Ginsburg notes in her dissent, employers at one of the companies at issue in Epic Systems “would likely have to spend $200,000 to recover only $1,867.02 in overtime pay and an equivalent amount in liquidated damages.”

Only a truly fanatical worker — and one with very deep pockets — might be willing to spend such an exorbitant sum for such a small amount of money. The only real hope for such a worker is to join a class action lawsuit with colleagues who were also cheated out of their fair pay.

Except that workers will soon be unable to seek this remedy. An estimated “23.1% of nonunionized employees are now subject to express class-action waivers in mandatory arbitration agreements,” according to Ginsburg’s dissent. Now that the Supreme Court has endorsed such illegal agreements, this number will skyrocket. Law firms are already lining up to show employers how to draft such agreements, and workers throughout the country will soon be left powerless against wage theft.

Twisted commerce

Gorsuch concludes his Epic Systems opinion with a flourish. “The policy may be debatable but the law is clear,” Trump’s Supreme Court nominee claims. “Congress has instructed that arbitration agreements like those before us must be enforced as written.”

As it turns out, Gorsuch is half correct. The law is, indeed, clear. It just doesn’t say what he wants it to say.

The contracts at issue in Epic Systems are “forced arbitration” contracts, meaning that they not only strip employees of their right to bring a class action, they also require employment disputes to be resolved in a privatized arbitration system that tends to favor employers more than real courts of law. Though a law known as the Federal Arbitration Act protects arbitration agreements in certain contexts, that very same law explicitly exempts employment contracts.

Nevertheless, in its 2001 decision in Circuit City v. Adams, the Supreme Court wrote this safeguard for workers out of the law.

Circuit City turned on two interlocking provisions of the Federal Arbitration Act. The first provides that “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable” except under limited circumstances. The second exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

To understand the scope of these two provisions, it’s important to understand some of the history surrounding the Federal Arbitration Act, which was enacted in 1925.

In the late nineteenth and early twentieth century — the same period when the Court handed down Lochner — the Supreme Court also imposed strict limits on Congress’ constitutionally granted power to “regulate commerce with foreign nations, and among the several states.” During this period, the Court defined the word “commerce” narrowly, to encompass little more than the transit of goods across state lines. Manufacture of goods to be sold, mining of raw materials, and the farming of commodities were all deemed to be beyond Congress’ power to regulate.

Among other things, the Court relied on this stingy definition of the word “commerce” to strike down a federal law banning the interstate sale of goods manufactured by child labor.

In the 1930s, a little more than a decade after the Federal Arbitration Act became law, the Supreme Court abandoned this narrow understanding of Congress’ power to regulate commerce. Under modern precedents, Congress’ power over “commerce” now includes broad authority to regulate economic matters of nearly all kinds.

Which brings us back to the text of the Federal Arbitration Act. When Congress wrote this law, it understood phrases like “a transaction involving commerce” or “any other class of workers engaged in foreign or interstate commerce” to use the narrow, pre-New Deal understanding of the word “commerce.” As the law was originally understood, it only protected arbitration agreements involving the transit of goods for sale.

Contracts involving manufacture, mining, or agriculture were beyond the scope of Congress’ authority, according to the Supreme Court at the time, and therefore beyond the scope of the Arbitration Act. Similarly, when the Act exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” Congress sought to exempt all employment contracts that it believed that it had the power to regulate at the time.

Of course, the Arbitration Act could also be read anachronistically. If the modern definition of the word “commerce” is inserted into the law, that would mean that nearly all contracts are governed by the law, but all employment contracts are exempt. Thus, under either plausible reading of the statute, contracts between workers and their employers are exempt.

Circuit City, however, read the statute a third way. It reads the phrase “a transaction involving commerce” using the modern definition, while reading the phrase “any other class of workers engaged in foreign or interstate commerce” using the 1925 definition. Thus, the policy favoring forced arbitration is given the broadest scope, while the exemption favoring workers is read exceedingly narrowly.

It’s a sick double-standard — the kind that should make anyone who reads the Court’s Circuit City opinion doubt the good faith of the justices in the majority.

Without Circuit City, there could not be a decision like Epic Systems. Gorsuch’s opinion builds upon Circuit City‘s holding that the word “commerce” can mean one thing in one provision of the law and something completely different in another provision of the same law. Circuit City is one of the Supreme Court’s greatest sins against the English language, and the text of the law itself is entirely at odds with Gorsuch’s claim in Epic Systems that “Congress has instructed that arbitration agreements like those before us must be enforced as written.”

So the law, as Gorsuch condescendingly asserts, is indeed clear. The Federal Arbitration Act exempts all employment contracts, and any claim to the contrary requires the Court to turn a blind eye to history.

Which, of course, is exactly what Gorsuch did in Epic Systems. He ignored the way the law was originally understood, ignored the text of the National Labor Relations Act, ignored the law’s hard-won understanding that employees and employers do not have equal bargaining power, and ignored Congress’ explicit efforts to strike a different balance of power between workers and their bosses.

It is a great day for law firms that profit off the exploitation of workers. And it is an even greater day for their clients.

The rest of us can either sign away our rights or lose our jobs.

About the Author: Ian Millhiser is the Justice Editor for ThinkProgress, and the author of Injustices: The Supreme Court’s History of Comforting the Comfortable and Afflicting the Afflicted.

This article was originally published at ThinkProgress on May 23, 2018. Reprinted with permission.

The Trump Administration’s Backdoor Plan to Erode the Rights of Workers to Act Collectively

Monday, October 2nd, 2017

On October 2, the U.S. Supreme Court will hear a case that implicates the very concept of collective action. NLRB v. Murphy Oil asks whether it is a violation of workers’ rights to force them to enter into arbitration agreements that prohibit collective or class litigation. Such agreements, often entered into as conditions of employment, require workers who want to sue their employers to do so individually in a private arbitration setting, rather than as a class of aggrieved workers who can pool their resources and knowledge. According to a recent study by the Economic Policy Institute, more than 60 million U.S. workers have now lost access to the courts because of such forced arbitration agreements.

Now, the Trump administration is entering the fray, submitting a brief to the Supreme Court in the Murphy Oil case aimed at advancing an anti-worker legal theory poised to erode protections for workers outside of the union context.

Such efforts could have far-reaching implications. In a 1997 paper for Arizona Law review, professor of law emeritus Jack Greenberg argued, “Civil rights and class actions have an historic partnership,” with class actions routinely used “to challenge discrimination in employment, education, the use of public facilities and housing, to assert prisoners’ rights, and to promote welfare reform, to name just a few areas that conventionally are put in the civil rights category.”

More recently, the NAACP went further, arguing in an amicus brief submitted in August 2016 to the Supreme Court that “American democracy depends upon our unwavering commitment to equal opportunity. Federal labor law honors that commitment by guaranteeing employees the right to challenge workplace discrimination through concerted activity, including picketing, striking and group adjudication of workplace rights.”

Yet, in recent years, the rights of most Americans to engage in concerted legal has greatly diminished. In a 2015 investigative series on this trend, The New York Times reported that, starting in 1999, a “Wall Street-led coalition of credit card companies and retailers”—with soon-to-be Chief Justice of the Supreme Court John Roberts Jr. involved—engineered a plan to get rid of class action lawsuits, because such lawsuits allow individuals to pool their power against companies.

Years later, in a pair of cases decided in 2011 and 2013, with John Roberts Jr. as Chief Justice, the Supreme Court narrowly held that companies could include contract provisions that require plaintiffs to go through arbitration instead of court, while waiving their rights to class actions.

A federal judge interviewed in 2015 by the Times explained that the result is that now, “business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

The Times study of thousands of arbitrations—most of which are not publicly available—found that more and more consumer and labor and employment cases are being funneled into arbitration. Between 2010 and 2014, there was a 215 percent rise in arbitrations in labor cases over the previous four years. This represents a privatization of the justice system.

Furthermore, in many instances, the funneling of cases to individual arbitrations rather than class actions pressures workers into foregoing the process altogether. Looking at 2010 to 2014, the Times found that Verizon and Time Warner Cable, which have 140 million subscribers combined, faced only 72 arbitrations. After all, who would go up against an outmatched opponent alone?

It is understandable that workers would bow out, given that such arbitration settings are favorable to the employer. Unlike judges who are assigned cases randomly, arbitrators are chosen by the parties, meaning they are chosen regularly to arbitrate before the same corporations. If arbitrators against the corporations too often, there is a strong likelihood that the arbitrators will not be chosen again and therefore lose business in the future. This creates a financial incentive for arbitrators to side with corporations. The Times series notes that dozens of arbitrators “described how they felt beholden to companies. Beneath every decision, the arbitrators said, was the threat of losing business.”

Various attempts have been made to protect individuals from these arbitration provisions, including state laws holding these provisions to be unconscionable, as well as legal arguments claiming that such provisions violate federal anti-trust rules. But these arguments have failed at the Supreme Court. What has remained is the National Labor Relation Board’s (NLRB) position that Section 7 of the National Labor Relations Act (NLRA) protects workers’ substantive rights to join together in class actions. Section 7 provides that workers have “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

The NLRB has taken the position that employment class actions constitute “other concerted activities,” which are protected under labor law. And workers cannot sign away these rights, in the same way that they cannot sign away the right to form or join a union. The Seventh and Ninth Circuit Courts of Appeals agreed with the Board that the employer violated workers’ rights by making them sign arbitration agreements with class action waivers, but the Fifth Circuit held otherwise.

This split in the circuits made the issue ripe for Supreme Court review, and the matter was indeed appealed to the Supreme Court in September 2016, and accepted for review by the Supreme Court in January 2017. At the time, President Obama’s Solicitor General filed a brief with the Supreme Court supporting the NLRB’s position. But Trump’s Solicitor General later changed this position in order to side with employers.

In this case, the Trump administration expresses a view of labor law in the Solicitor’s brief that completely reorients workers’ rights. The brief acknowledges that Section 7 of the NLRA contains what it terms “core” rights, which relate to unionizing and collective bargaining, but pushes aside all other concerted activities as only contained in “residual language” and therefore not deserving of the same level of protections. Such a reading of labor law effectively states that the law’s protections only apply to workers’ activities as they relate to unions.

However, the NLRB clearly states that “the law we enforce gives employees the right to act together to try to improve their pay and working conditions, with or without a union. If employees are fired, suspended or otherwise penalized for taking part in protected group activity, the [NLRB] will fight to restore what was unlawfully taken away.” These rights are far broader than the Trump administration acknowledges in its brief before the Supreme Court, and any limitation of them would greatly diminish the few rights workers have in the workplace.

This week, management-side Republicans gained a majority on the NLRB, and soon a management-side Republican will become the agency’s General Counsel. This new conservative Board is likely to shift labor law away from worker protections, as was the case during the George W. Bush years. However, Trump’s Solicitor’s argument goes much further. It invites the Supreme Court to formally bifurcate and limit workers’ rights to act collectively.

This piece was originally published at In These Times on September 28, 2017. Reprinted with permission. 

 About the Author: Moshe Z. Marvit is an attorney and fellow with The Century Foundation and the co-author (with Richard Kahlenberg) of the book Why Labor Organizing Should be a Civil Right.
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