In what many employee advocates see as a blow to workers and the employment laws that protect them, the U.S. Supreme Court has ruled that employers may require mandatory arbitration clauses in employment contracts. The 5-4 ruling makes it more likely that companies will require these clauses, which typically prohibit employees from banding together to bring class action lawsuits.
The ruling involved three consolidated cases involving wage and hour law. For example, in one of the cases, former employees of Ernst & Young brought suit claiming they did not receive overtime pay to which they were allegedly entitled. The company, however, had required the employees to sign arbitration agreements.
The workers complained that they could not realistically bring their complaints separately in arbitration because the amount they could obtain was dwarfed by the legal fees they would incur. In this case, the lead plaintiff did try to arbitrate a complaint. The possible recovery was no more than $1,800, but the legal fees totaled $200,000.
The companies argued that the 1925 Federal Arbitration Act entitles them to ban collective action by contract. The workers countered that the National Labor Relations Act, which was first passed ten years later, guarantees workers the right to collective action.
Justice Neil Gorsuch wrote for the majority that there was no conflict between the Federal Arbitration Act and the NLRA. Essentially, the majority concluded that the NLRA does guarantee workers the right to collective action -- as long as they don't give up that right by signing a restrictive arbitration agreement.
The dissenters, led by Justice Ruth Bader Ginsburg, called this conclusion "egregiously wrong" and warned that it will result in many workers' employment rights going unenforced. Workers who sign arbitration agreements will now have only one option: A process in which the costs may outweigh the benefits. Moreover, even a successful arbitration is less likely than a class action to achieve what many plaintiffs really want, which is for the employer to change its behavior.
Ginsburg also pointed out that employment contracts are generally "take it or leave it," meaning that employees lack the bargaining power to realistically resist arbitration clauses -- a problem the NLRA was meant to address.
Unfortunately for workers, there is no reason to suppose the ruling will apply only in wage and hour cases. Mandatory arbitration clauses generally apply to all disputes, including those involving discrimination and sexual harassment.
Today, approximately 56 percent of non-union, private-sector employees have signed mandatory arbitration agreements. This ruling is likely to increase that number.