Analysis Law and Policy

US Supreme Court Hands Down an ‘Epic’ Blow to Workers

Lisa Needham

But it's a win for newbie justice Neil Gorsuch, who has made no secret of his belief that companies' desires should trump worker safety.

Yesterday, the Supreme Court issued an opinion in the case of Epic Systems Corporation v. Lewis. Writing for the majority, Justice Neil Gorsuch held that when an employee is forced to sign an individual arbitration agreement with their employer, that arbitration agreement overrides the ability of employees to engage in class actions against their employer. It’s a decision that has far-reaching and terrible implications for employee rights.

At many larger companies, employees are forced to sign an arbitration agreement in order to work there. One recent study found that 80 of the Fortune 100 companies require employees to sign arbitration agreements that govern work-related disputes. Of those 80, 39 forbid employees from banding together as a class and pursuing their arbitrations jointly.

Epic Systems, Ernst and Young, and Murphy Oil—the companies involved in this case—require employees to sign arbitration agreements that waive their right to class action in order to work there. Worse, at both Epic and Ernst, the demand to sign came after the employees already worked there. The companies sent employees the arbitration agreements and told them that if they continued to work there, they accepted the agreement. While there is nothing illegal about presenting an arbitration agreement mid-employment, those workers then faced what Justice Ruth Bader Ginsburg’s dissent called a “Hobson’s choice: accept arbitration on their employer’s terms or give up their jobs.”

Arbitration agreements generally state that employees and employers must resolve their disputes outside of the court system and instead opt for binding arbitration. It’s theoretically meant to be speedy and informal, but it has the effect of blocking people from availing themselves of the courts when they are wronged by their employer. Typically, these arbitration agreements say that the employee must resolve any disputes, including things like wage discrimination or wage theft claims, via individual arbitration. That means each employee has to bring their own claim against a company when that company violates a federal statute such as the Fair Labor Standards Act (FLSA), which governs overtime pay.

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And that’s exactly what happened here: A junior accountant at Ernst and Young alleged that the company had misclassified its junior accountants as professional employees, a job classification that does not require companies to pay overtime. He said that this violated FLSA, as the junior accountant position did not meet the definition of a professional employee, which refers to performance of work “requiring advanced knowledge” and including the “consistent exercise of discretion and judgment.” He sought to create a class comprised of all the junior accountants who had been similarly underpaid. However, since he’d been forced to sign the arbitration agreement, the Supreme Court ruled that agreement controlled and barred him from pursuing the class claim.

Individual arbitration is problematic for many reasons. First, employees win far more rarely than employers. One recent study showed employees prevailing only 18 percent of the time in private arbitration. Next, as Justice Ginsburg points out in her dissent, it can be very costly for individuals to pursue. An earlier case involving the same Ernst and Young arbitration program at issue in this case found that an employee would have to spend about $200,000 to recover close to $3,600. Finally, arbitration proceedings are often confidential. Both of Epic and Ernst and Young’s arbitration agreements prohibit arbitrators from relying on past decisions and keep outcomes confidential. Due to that, workers have no way of knowing what wrongs their company is perpetrating or how—or whether—those issues were resolved.

Allowing employees to band together to file a class action in court solves many of these problems. It spreads out or entirely negates the cost of litigation, as class-action attorneys typically draw their fees from what the class wins rather than having each individual pay for their share of the case. Judges are required to apply past precedential cases to current ones, ensuring consistent results. Lastly, legal proceedings aren’t generally confidential, so everyone is aware what the company has done and how the matter was settled.

Gorsuch’s majority opinion ignores all of these concerns. Indeed, it barely even mentions the actual people at the heart of the lawsuit or what they were suing over: failure to pay overtime to an entire group of employees. Instead it spends a lot of time pretending that employees have equal bargaining power with employers. Even the way Gorsuch framed the question implies this: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?”

The employees of these companies didn’t have full and free bargaining power, and employees almost never do unless they can band together—and that’s what this lawsuit turned on. The dispute here was over whether the Federal Arbitration Act, which allows for this sort of individual arbitration, overrides the National Labor Relations Act (NLRA), which allows employees to collectively organize. At issue was this specific language:

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[.]

Gorsuch read this language to only cover activities related to what he called “things employees do for themselves”—things like creating and joining unions and bargaining for higher wages. In his view, that excludes banding together for litigation, presumably because that requires the assistance of the courts. Justice Ginsburg pointed out that this was an absurd reading, because employees “joining hands” in litigation is certainly a thing employees do on their own behalf.

By forcing employees to handle wage theft claims individually and by pretending that employees have equal bargaining power, Gorsuch is hearkening back to a much earlier era—a time before the New Deal. Back then, there were cases like Lochner v. New York (1905). There, New York tried to regulate how much employees could work in bakeries, limiting it to 60 hours per week. This was because working in bakeries back then was dangerous: Breathing flour dust inflamed the lungs, the heavy lifting caused swollen legs, and the hours were irregular. Lochner, a bakery owner, sued the state, arguing that this health regulation interfered with the right to contract. Ultimately, the U.S. Supreme Court agreed, saying that if an employee wanted to contract to work long hours in unsafe conditions, that was their right, and no public health concerns could override that.

Since then, both court decisions and agency regulations generally reflect that there must be limits on the right to contract. People can’t contract with employers to receive pay that is less than the minimum wage. People can’t contract with employers to do work that is certain to maim or kill them. At root, this is because society has correctly decided that employers and employees aren’t similarly situated. Employers have far more power, and the only way employees combat that, Justice Ginsburg points out, is to work together.

Gorsuch’s opinion utterly destroys that right. It’s a disappointing but not surprising result. Gorsuch has made no secret of his love of deregulation and his belief that what a company wants should trump worker safety. He’s also been very clear that he doesn’t believe the courts should give any deference to agency interpretations of the law. Those twin impulses are well-represented here. Gorsuch wasn’t interested in hearing how the inability to effectively challenge wage theft would hurt employees, and he wasn’t interested in the fact that the National Labor Relations Board has interpreted the NLRA to allow employees to pursue these kind of class actions.

This decision hits low-wage workers—who are, of course, disproportionately women and people of color—very hard. Wage theft, Justice Ginsburg points out, is rampant. People who work in retail, in restaurants, and manual labor see their wages compromised in ways large and small. Some, like car wash employees, are simply paid below the minimum wage. Some, like those in retail, are forced to work through breaks and after hours, all without receiving overtime. Some fast food employees are misclassified into job classes like “assistant manager” so that they’re exempt from overtime.

All of these things add up. A 2009 survey of more than 4,000 low-wage workers in Chicago, Los Angeles, and New York found that 26 percent made less than minimum wage and 76 percent of workers who exceeded 40 hours per week had unpaid or underpaid overtime. If those numbers are presumed to hold true when extrapolated to the more than 1 million low-wage workers in those three cities, it works out to low-wage workers being underpaid $56 million per week, or nearly $3 billion per year.

However, these losses are often relatively small individually—a missed break here, an extra 15 minutes on the clock there—and the idea of pursuing an individual arbitration is tough to imagine. Many lawyers aren’t going to be interested in taking such a case because the time they’d need to put into the case would likely outweigh the possible award.

Ten years ago, Wal-Mart paid more than $350 million to settle dozens of wage claim lawsuits comprising hundreds of thousands of employees. Those victories were only possible because all of those individuals were able to join together in a class and fight. Now, Wal-Mart could make each of those low-wage workers sign an arbitration agreement that will prohibit them from doing just that.

With this case, Gorsuch firmly stakes out his position on the court: a conservative in the unsympathetic and sarcastic mode of the man he replaced, the late Justice Antonin Scalia. Gorsuch has even begun to affect the sardonic and dismissive tone that was a signature characteristic of Scalia’s writing. He refers to the litigation theory of the workers in the case as “a sort of interpretive triple bank shot” that is “enough to raise a judicial eyebrow.” He takes aim at Justice Ginsburg, scorning her dissent as “apocalyptic warnings” and excoriating her for “spending page after page” discussing the Court’s previous arbitration cases. It’s as if he’s irritated that she—or anyone, really—would disagree with his bloodless interpretation of the law.

This is an incredible blow to workers and sets workers’ rights back literally 100 years. And things can, and likely will, get worse. Later this term, the Court is expected to hand down a decision in Janus v. American Federation of State, County, and Municipal Employees, Council 31. That case deals with whether public-sector unions can charge a “fair share” fee to nonunion members to cover the cost of collective bargaining. There’s a very real possibility that the Court will rule that those unions cannot impose that charge, and that would very likely spell the end of public unions.

With this decision and the likely decision in Janus, we’re witnessing Gorsuch’s dream: a return to an unregulated state where workers have little to no protection against their employers, and the only right they have is the false freedom to bargain away their labor and their safety.

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