Supreme Court upholds arbitration that bans workers from joining forces over lost wages

Reporting from Washington —  The Supreme Court on Monday delivered a major victory to corporations by sharply restricting the rights of American workers to join together to challenge their employers for allegedly violating federal laws on wages, overtime pay or civil rights.

The justices by a 5-4 vote agreed with Trump administration lawyers and ruled that employers may enforce so-called individual arbitration agreements that require workers to give up the ability to collectively pursue claims that they were short-changed or treated unfairly.

The court’s conservatives, speaking through Justice Neil M. Gorsuch, said the employees must abide by a company’s arbitration contract, including provisions that limit them to bringing only individual claims.

In dissent, Justice Ruth Bader Ginsburg called the decision “egregiously wrong” and said it harks back to the era of “yellow dog contracts.” She was referring to a pre-1930s period when workers could be forced to abide by contracts that prohibited them from joining with others, including to form a union.

Labor law experts said the impact of the ruling in Epic Systems vs. Lewis will fall heaviest on tens of millions of low-wage workers who do not belong to unions. As a practical matter, they said, workers at convenience stores, restaurants, hotels or the like will find it expensive and risky to bring complaints if they must do so on their own.

Ginsburg said 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.… One study estimated that in Chicago, Los Angeles and New York City alone, low-wage workers lose nearly $3 billion in legally owed wages each year.”

The ruling is consistent with a series of high court decisions over the last 25 years that have expanded the reach of the Federal Arbitration Act of 1925, which was originally adopted to uphold commercial contracts between two companies. As a result, it is now routine for banks, credit card companies, cellphone providers and others to include arbitration clauses in their contracts. By doing so, they can prevent consumers from joining class-action lawsuits if they believe the company has violated part of the contract.

The ruling not only affirmed employers’ ability to bind workers to arbitration, but it also expanded that power to include asking workers to waive the right to take collective action, even though such a right is protected by 1930s labor laws and 1960s civil rights measures. The court’s majority ruled the arbitration law in this case overrides later labor laws.

Workers rights advocates accused the court of undermining enforcement of workplace rights laws.

“The Supreme Court has dramatically tilted the legal landscape against working people,” said Catherine K. Ruckelshaus, general counsel for the National Employment Law Project. She said the #MeToo movement had also exposed the danger of arbitration clauses, which have allowed some employers to conceal sexual abuse and harassment by top executives.

About 60 million nonunionized workers in the private sector are covered by arbitration agreements that bar them from going to court to sue over alleged violations of federal workplace laws, according to a survey by the Economic Policy Institute, a liberal group based in Washington. Among them, about 25 million are also required to arbitrate as individuals. Lawyers predicted Monday that number will rise quickly.

The decision is not likely to affect workers who belong to a union. For them, the union negotiates a contract, and it may represent them before an arbitrator.

The case before the court began when several workers in gas stations in Alabama complained they were not paid overtime for working after hours. Their employer, Murphy Oil, which operates more than 1,000 gas stations in 21 states, pointed to an arbitration agreement that prohibited them from suing or joining a class complaint. The National Labor Relations Board, led by Obama appointees, ruled this restriction was an unfair labor practice. It pointed to the National Labor Relations Act of 1935, which said workers had a right to join a union or “engage in other concerted activities for … mutual aid or protection.”

A similar dispute over overtime pay arose from software workers employed by Epic Systems in Wisconsin and accountants for Ernst & Young in Northern California. The Supreme Court took up all three cases and decided them as one.

It is unclear whether discrimination and civil rights claims will be affected. Gorsuch’s majority opinion did not mention the issue. In dissent, Ginsburg said it “would be grossly exorbitant” to read the ruling so as to “devastate” discrimination claims under the Civil Rights Act of 1964.

Ginsburg read much of her dissent in court. She said her colleagues in the majority had upheld “these arm-twisted, take-it-or-leave it contracts” even though the labor laws of the 1930s have recognized “there is strength in numbers.”

Epic Systems Corp., a Verona, Wis.-based provider of healthcare software, said it was pleased with the court’s decision. “It is important that employers protect an employee’s right to file complaints, while also providing for a fair forum in which those grievances are addressed,” Epic founder and Chief Executive Judy Faulkner said in a statement. “When it comes to grievances regarding wages and hours, we believe individual arbitration agreements strike that reasonable balance.”

The U.S. Chamber of Commerce praised the decision, saying it “restores the law to where it was prior to the NLRB’s overreaching 2012 determination that the National Labor Relations Act overrides the Federal Arbitration Act.… Gutting America’s arbitration system harms all Americans but one group — the plaintiffs’ bar,” the chamber said. “Plaintiffs’ class-action lawyers will vigorously attack this decision because they will lose hundreds of millions in fees.”

California Atty. Gen. Xavier Becerra said on Twitter that despite the ruling “we will continue to defend Californians from all backgrounds and their rights to band together — our hardworking families need a meaningful option to protect themselves in the workplace.”

Al Latham, partner at the law firm Paul Hastings who teaches at USC’s Gould School of Law, said that “California is bound by this decision.” He said the ruling would encourage companies that don’t yet have arbitration agreements with workers to implement them because “class-action cases are extremely risky for employers even if ultimately there’s no merit to the case. The cost of litigation is huge and the risk is huge, should — at the end of the road — a jury decide there was merit to the class-action claims.”

The Obama and Trump administrations took opposite stands on the case as it moved through the courts. Early in 2016, Obama adminstration lawyers appealed the case of the gas station workers from Alabama and urged the court to allow them to bring a complaint seeking overtime pay. But in 2017, when Trump appointees took office, they urged the court to rule for the company.

When the justices heard arguments on the issue in October, they heard from two government lawyers, one of whom represented the Obama-era workers’ rights view at the NLRB and one from the Justice Department representing the Trump administration’s pro-employer view.

Joining Gorsuch in the majority were Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito Jr.

Justices Stephen G. Breyer, Sonia Sotomayor and Elena Kagan joined Ginsburg in dissent.

Staff writer James F. Peltz in Los Angeles contributed to this report.

Here are major cases before the Supreme Court this year »

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UPDATES:

3 p.m.: This story was updated with reaction for legal experts and Epic.

8:35 a.m.: This story was updated with more details from the decision.

This story was originally published at 7:25 a.m.