Setback for workers: What fallout as Supreme Court OKs forced arbitration?

In the wake of a #MeToo movement that is pushing corporations to clean up their act, the US Supreme Court threw companies a lifeline.

It allowed them to continue including forced-arbitration clauses in their employment contracts. Monday’s ruling means that companies can keep workers from launching class-action lawsuits – or even going to arbitration as a group – over issues from wages and overtime pay to potentially discrimination and sexual harassment.

Worker-advocacy groups, which say the ruling could apply to job discrimination and other grievances, called the 5-4 decision a big win for corporations and a blow to workers’ rights.

But longer term, the decision may also have unintended effects, say labor-law experts, including possibly hurting some companies and adding some luster to labor unions as a vehicle for pursuing worker concerns.

“It could be a double-edged sword,” says Martin Malin, an arbitrator and director of the Institute for Law and the Workplace at the Illinois Institute of Technology law school.

The immediate responses to the high court’s Epic Systems Corp. v. Lewis decision split along ideological lines.

“A worker who is not paid fairly, discriminated against, or sexually harassed, is forced into a process that overwhelmingly favors the employer – and forced to manage this process alone, even though these issues are rarely confined to one single worker,” complained the liberal Economic Policy Institute in a statement.

“Class-action lawsuits are an expensive and inefficient way to handle wage and hour disputes” or similar issues of employment law, and “principally benefit the lawyers” rather than workers, argues James Copland, a senior fellow at the conservative Manhattan Institute in New York. “It's an extra tax on hiring new workers.”

The court case involved three separate instances where employees had signed contracts requiring that they submit grievances individually to an arbitrator rather than go to court or press them as a group in arbitration. The employees in the case argued that they could press rights as a group under the 1935 National Labor Relations Act’s protection of “concerted activities.”

But the court’s conservative majority found that those contractual obligations were valid and did not contradict the National Labor Relations Act.

“The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written,” the court’s newest justice, Neil Gorsuch, wrote for the majority, citing the 1925 Federal Arbitration Act.

Liberal justices dissented, with Ruth Bader Ginsburg saying the ruling was “egregiously wrong” because it would mean less enforcement of federal and state protections for vulnerable workers.

Mandatory arbitration has become increasingly popular among employers as a way to avoid embarrassing and costly class-action suits that can draw lots of unwanted publicity. In 1992, such clauses in employee contracts affected just over 2 percent of employees, and that number has soared to more than 55 percent today, according to a study released last month.

“Employees often think they have a lot of legal rights,” says Alexander Colvin, author of the study and professor of conflict resolution at Cornell’s industrial and labor relations school. “But this illustrates that they have fewer than they think.”

Worker advocates argue that narrowing opportunities for group action makes workers less likely to file formal complaints because of the fear of retaliation.

This may play long term into the hands of unions, whose negotiated contracts allow union workers to act collectively on a whole host of issues, some labor experts say.

Still, Mr. Copland says he expects unions will put highest priority on bargaining over pay and benefits, albeit with a role for legal rights as an issue in their bargaining process. The fallout from the court ruling, he says, will “test how much do they actually value this?”

And for employers, it remains to be seen how vigorously they will seek to expand the use of arbitration clauses.

While arbitration is generally less costly than the court system, companies often bear the entire cost of the arbitration process. And when many individuals at a company bring up cases, “the employer is now on the hook for 40 to 300 arbitrators,” says Mr. Malin, the arbitrator who has served in several such big cases. In all but one instance, the cases were settled before arbitration.  

Finally, mandatory arbitration could allow companies to hide systemic bad behavior at a time when the #MeToo and other movements are showing the need for more corporate transparency, says Robert Bruno, a professor at the School of Labor & Employment Relations at the University of Illinois at Urbana-Champaign.

“I can’t imagine how it’s good for the long-term shareholder value of those companies,” he says. “It’s not going to help the business root out bad practice.”