On May 21, 2018, the U.S. Supreme Court made a 5:4 decision to enforce arbitration requirements in employment contracts. It has previously ruled, in the 2015 DirecTV, Inc. v. Imburgia decision that arbitration agreements with consumers can force them into arbitration instead of successfully filing a lawsuit over services or products disputes. Yesterday’s ruling on employment contracts consolidated three cases that all questioned Congress’ Arbitration Act. Epic Systems Corporation v. Jacob Lewis (Seventh Circuit) was a case that started in Chicago, Illinois on April 2, 2014. Lewis was a technical writer for Epic, who signed one of these arbitration clauses because it was required to continue his employment. In the following year, he filed a class action lawsuit that named as the injured party all of the company’s technical communications employees. Like the other cases in this joint ruling, Lewis claimed that Epic violated the Fair Labor Standards Act (FLSA; 1938). By falsely reclassifying this segment of employees, Epic avoided compensating them for overtime. In the second case, from California, Ernst & Young Llp, et al., v. Stephen Morris, et al. (Ninth Circuit), Morris and McDaniel filed a class action because the junior accountants were misclassified as “professional employees” by Ernst and Young to avoid paying them for overtime. The third case, stemming to a decade ago, is National Labor Relations Board v. Murphy Oil USA, Inc., et al. (Fifth Circuit). Sheila Hobson started working for a retail gas station back in November of 2008 in Calera, Alabama. Two years later, June 2010, Hobson and three of her coworkers filed a class action under FLSA. To summarize, all three parties objected that they had a right to overtime pay, and this decision struck down up to a decade of their continued appeals.
It’s obvious who this decision benefits. Murphy Oil, DirecTV, and other corporations are allowed to stop consumers and employees from litigation. Can a little mom-and-pop shop write into their contract an arbitration clause and then refuse to pay their employees for overtime? This past year, I have been attempting to become a contractor with the US General Services Administration. One of the reasons there has been a year-long delay is that I am my publishing company’s sole employee. I cannot even afford to purchase fringe benefits for myself; these include healthcare, dental, and, more importantly, overtime and vacation pay. I do not even pay myself a salary. I take a bit of money out of the profits to cover my living expenses. If I am finally awarded a GSA contract, and the contract requires me to take on a volume of work that I cannot handle by myself, I will be required to hire somebody full-time (part-time laborers cannot be hired for government contracts). I would have to pay him or her $80,000 or more (to match minimum competing salaries in the sector), and I would need to also pay $20,000 or so annually for fringe benefits. Does this new judicial decision cancel the requirement for me to pay this potential employee for overtime as long as I write in an arbitration agreement into our contract and reclassify him or her under a category of workers that are not owed overtime pay? I would have to sneak this clause into the contract, and surprise this potential employee with it. I would have to refuse to pay for overtime first. Once this employee rebels and pays court fees to file a lawsuit over the contract violation, I would have to file a motion with the court, forcing this unsuspecting fellow into paying to arbitrate the matter with me, forbidding him or her from joining with other potential employees in a class action.
Obviously, I would never engage in this type of backhanded tomfoolery because it is morally repulsive. If I cannot afford paying for overtime, I am just not going to hire an employee until I can cover what the government mandates; alternatively, I would refrain from asking him or her to work overtime, if I cannot pay for it. Despite these types of obvious moral rules, these Supreme Court decisions are siding with employers and producers who want to avoid American laws that guarantee overtime pay and product and services’ quality to the detriment of employees and consumers. Why would any rational American vote people into office who create acts and judicial decisions that are this illegal and immoral?
The details of the majority decision, delivered by Judge Neil Gorsuch (Trump appointee), in Epic Systems Corp. v. Lewis demonstrate how US corporations can bypass laws that the rest of us must adhere to. Judge Ruth Bader Ginsburg (Clinton appointee) made a relatively strong dissenting opinion, but it really should have been stronger considering the potential impact of this ruling. One explanation for this light touch is that Ginsburg has corruption-fatigue after all these decades of pro-corporate, anti-employment and anti-consumer judicial manipulations.
Gorsuch begins by stressing that in Ernst & Young LLP v. Morris, the “employee could choose the arbitration provider,” as if this illusion of choice excused the negatives of forced arbitration. Gorsuch’s argument throughout is that arbitrators are a cheaper and more convenient solution for all parties. On the other hand, Ginsburg counters: “Arbitration agreements often include provisions requiring that outcomes be kept confidential or barring arbitrators from giving prior proceedings precedential effect… Arbitrators may render conflicting awards in cases involving similarly situated employees—even employees working for the same employer.” Arbitrators are arbitrary in their decisions because they do not have to follow precedents.
There are fees for filing a case with a court, but it is significantly more expensive to hire an arbitration firm to solve a dispute. There are also a limited number of arbitrators in some jurisdictions, and they are likely to be inundated with filers as a result of this decision, making it harder to schedule an arbitration hearing in a timely manner. Additionally, in cases where a corporation has corrupted the legal system to the point where it is difficult to find an unbiased lawyer, some litigants choose to file their lawsuits pro se, or on their own behalf.
Arbitration forgoes this right and inserts a lawyer into the equation. In contrast, a judge would not gain more money by delaying proceedings, or otherwise working to increase fees. Additionally, in all three of the consolidated cases, the employees did not appear to know about the arbitration clause, or did not think it would apply to their grievance, and their employer did not manage to communicate this before they spent money on filing fees with the court. The initial lawsuit took many months, if not years, before a petition to close down the case because of the arbitration clause was made. Given this new Supreme Court ruling, it needs to be common-knowledge that there is no overtime pay protection in America. Nobody should have to pay court filing fees and spend thousands on lawyers to figure this out up to a decade later.
This ruling is bad for court lawyers and good for arbitrators. Lawyers who usually file class action suits are going to see a drop in business to the benefit of the arbitrators. And who are these arbitrators? Judges are elected or nominated into office through the democratic process, so they answer in the court of public opinion. If a judge consistently rules for corporations to the detriment of the common men and women, that judge is likely to lose the next election. Meanwhile, an arbitrator does not face any such public scrutiny and can be as beholden to corporate interests as greed allows. Americans are paying taxes to hire judges who are supposed to decide contractual disputes, so why should Americans also pay fees to arbitrators because of an Arbitration Act that Congress felt inclined to pass?
Gorsuch explains that the urgent need to stress the superiority of arbitration clauses in contractual disputes because of the reversing 2012 ruling by NLRA, D. R. Horton, Inc., that otherwise “effectively nullifies the Arbitration Act” (1925). This is a ruling with which only in the “last two years” “some circuits” started agreeing. In other words, the Arbitration Act has co-existent with labor and consumer laws for “77 years,” but because labor laws finally started being respected above corporate interests since 2012, the Court now feels obliged to officially bar such humanitarian efforts.
Gorsuch also keeps returning to the stipulation in the Arbitration Act that contracts that are fraudulent, made under duress, or are unconscionable “render any contract unenforceable.” He argues that contracts can be dismissed for these reasons, but not solely because of an objection to an arbitration clause. He stresses that if any of the three combined cases had basis in fraud, he would have reached a different decision. The obvious but unanswered question here is: how can reclassifying employees to dodge paying for overtime be anything but fraudulent?
After making a string of these self-defeating claims, Gorsuch turns to attacking the opposition, or Ginsburg’s opinion: “like most apocalyptic warnings, this one proves a false alarm.” He is referring to Ginsburg’s argument that this ruling opens the door for the previously banned “yellow dog” contracts that fraudulently shifted power to the employer and put the employee at various disadvantages. One “yellow dog” stipulation was that employees were forbidden from joining labor unions. In this official Supreme Court ruling, it is highly inappropriate for a Judge to poke fun at a senior (in years on the Court) judge with an accusation of paranoia. This is achieved in his quip about Ginsburg making “apocalyptic warnings.” Then, Gorsuch goes on to describe Ginsburg’s scholarly opinion as her spending “page after page relitigating our Arbitration Act precedents.” I admit that it is pretty annoying that Supreme Court rulings include paragraphs of in-text precedent citations (the rest of Gorsuch’s own paragraph is spent on these citations of over a dozen case law examples). But, why is Gorsuch stooping to pretty much saying that Ginsburg is a babbling, bitchy, little girl who cannot stop talking? Is this how employment laws are settled in the highest court in America?
Logic reigns supreme on the other side. Ginsburg uses a 1908 case, Adair v. United States, to remind the Court of its earlier ruling that: “‘[t]he right of a person to sell his labor upon such terms as he deems proper is… the same as the right of the purchaser of labor to prescribe ‘working conditions.’” What if laborers gathered together and forced employers to insert clauses into contracts that allowed them to take unlimited, paid time off. Then, if an employer did not like these employees’ excessive absences, the employer had to pay money to an arbitrator who might or might not eventually enforce a contract that has been pre-designed to allow for this divergence from normal employment law. A century ago, the Court decided that the rights of labor and the purchasers of labor were equal; this latest ruling disagrees with this premise.
NLGA reinforced these rights in 1932 by explaining that “individual unorganized” workers are “helpless to exercise actual liberty of contract.” In other words, the labor market was and remains so tight that an individual worker cannot reject a contract simply because it prevents unionizing, or refuses to offer overtime payments, or otherwise makes working conditions untenable. NLGA insisted that while this lone worker might be helpless, the Court and the government was on his or her side in guaranteeing “full freedom of association… and designation of representatives of his own choosing… and that he shall be free from the interference, restraint, or coercion of employers…” Contracts that contradict these rights are supposed to be in conflict with the law. Class action is one of the deterrents NLGA promises to vulnerable employees.
Ginsburg further explains that the Arbitration Act was not intended to be used to arbitrate employment contracts with a quote from Herbert Hoover, then Secretary of Commerce. AA is supposed to only apply to “voluntary, negotiated agreements.” She clarifies that “Congress never endorsed a policy favoring arbitration where one party sets the terms of an agreement while the other is left to ‘take it or leave it.’” Laborers and other “parties” with “little bargaining power are expressly excluded from the Act.” Despite these regulations, Ginsburg is outraged that “this Court has veered away from Congress’ intent simply to afford merchants a speedy and economical means of resolving commercial disputes.” She is further indignant that the use of these arbitration agreements has grown from 2.1% in 1992 to 53.9% today according to a study from the Economic Policy Institute. So more than half of those reading this article probably have an arbitration clause in their employment contract, and will be impacted by this decision if they ever have a grievance against their employer. She further complains that “Violations of minimum-wage and overtime laws are widespread,” citing a 2009 study that determined that between Chicago, Los Angeles and New York City, “workers lose nearly $3 billion in legally owed wages each year.” At least one of my readers is one of these workers with $3 billion in unpaid wages. It might be you, and you just might not realize it’s you. How would you feel if your wages were not paid in a timely manner?
Ginsburg concludes that “an employee utilizing Ernst & Young’s arbitration program would likely have to spend $200,000 to recover only $1,867.02 in overtime pay.” If you have $200,000 to spend on arbitration, you definitely would not be troubled enough about the loss of $1,867 to file a claim against this employer. If you need these lost funds to pay your rent or mortgage, how can you possibly beg or borrow enough to pay $200,000 for an arbitration process that might not, in the end, rule in your favor? Obviously, without specific rules that limit arbitration fees to those equivalent to filing fees in the courts, these rules blatantly prevent claims in defense of workers.
To summarize, forcing arbitration on consumers and employees and suppressing rights to class action and litigation through the judicial system is an outlier in the recent governmental violations of Americans’ human and democratic rights. Companies that need to avoid overtime or standard wage payments to stay afloat deserve to fail. How can Republicans reconcile the laws of human decency with policies that assist with avoidance of contractual obligations? What are they going to overturn next? Did they refuse to let Obama nominate a Democrat to this Court before his term ran out to enact these types of blatantly corrupt rulings? Gorsuch argues that he is not to blame, but rather the Arbitration Act, which can be overturned or amended by Congress at any time. If the AA is to blame, any reasoning person would conclude that it needs to be adjusted to comply with the various employment and consumer rights laws that it now supersedes. If America no longer recognizes employment and consumer rights… this should be clarified in laws, so that employees can finally abandon working for these corporations and become self-employed, taking advantage of this new extreme permissiveness.
Epic Systems Corp. v. Lewis. No. 16–285. Argued October 2, 2017—Decided May 21, 2018. Supreme Court of the United States. https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf
National Labor Relations Board v. Murphy Oil USA, Inc. https://ballotpedia.org/NLRB_v._Murphy_Oil
Ernst and Young v. Morris. https://ballotpedia.org/Ernst_and_Young_v._Morris
Epic Systems Corp. v. Lewis. https://www.law.cornell.edu/supct/cert/16-285
Anna Faktorovich, Ph.D., is the Founder, Director, Designer and Editor-in-Chief of the Anaphora Literary Press, which has published over 200 titles in non-fiction, fiction and poetry.