Federal and state law allows consumers, employees and other groups of persons under certain circumstances to amalgamate and jointly pursue common legal claims against an individual defendant. Such class actions or, in the vernacular of the Fair Labor Standards Act (governing unpaid wage and overtime claims), collective actions, operate to level the playing field, especially when they involve small claims that would be uneconomical to pursue on an individual basis. In response, more and more companies are subjecting their employees to “take it or leave it” arbitration agreements that prohibit class or collective actions. Plaintiff’s lawyers decry this practice, not only based on economic fairness but under a common perception that private arbitrators tend to be biased in favor of corporations, which under most agreements pay the arbitrator’s fee.
The U.S. Supreme Court has a record of supporting contractual bars on class actions, most recently in the May 2018 decision Epic Systems v. Lewis. In that case, a sharply divided (5-4) Court upheld a defendant employer’s right to require that employment-related legal claims be resolved exclusively through private arbitration on an individual basis. The core issue in Epic Systems was how to reconcile two seemingly contradictory federal policies. On the one hand, the Section 7 of the National Labor Relations Act grants non-union workers the right to engage in “concerted activity” vis-à-vis the employer, whether relating to work conditions, rules, pay or other matters of mutual concern. It is unlawful for an employer to retaliate against any employee or group of employees for doing so. On the other hand, the Federal Arbitration Act promotes arbitration as a cheaper and faster (in theory) means for businesses to resolve all manner of disputes. Following precedents in prior decisions involving consumer contracts, the Court’s conservative wing ruled in favor of business interests and held that employees’ rights must give way to the federal policy promoting arbitration of claims.
The longer term effect of this decision remains to be seen. For one thing, it applies only to non-unionized workplaces. For another, arbitration agreements are far from ubiquitous. As a rule, they are not appropriate for small or even medium sized employers. Most agreements require the employer pay all costs associated with arbitration, which on smaller claims magnify the relative expense (in comparison to conciliation court or district court litigation), without removing the financial risks of having to pay two sets of lawyers. The Supreme Court has not, to date, let employers contractually strip away rights under worker protection laws addressed to pay, discrimination, harassment and whistleblowing activity, which contain one-way fee shifting provisions awarding reasonable attorney fees to successful plaintiffs. Finally, many plaintiffs’ employment firms have taken an aggressive “be careful what you ask for” approach, filing dozens or even hundreds of smaller individual arbitration claims on behalf of workers subject to contractual class action bans against an individual employer. In such instances, employers will often relent and permit class actions or class arbitrations to proceed, in the interest of saving many tens of thousands of dollars in expenses.