US Supreme Court Upholds Arbitration Provisions for Employment Contracts

On May 21, the United States Supreme Court ruled in a 5-4 decision that companies may continue to use arbitration clauses in employment contracts which could affect approximately 25 million employment contracts. The case is the latest attempt by the court to determine the extent to which employers are legally allowed to insist that workplace disputes be resolved through individual arbitration rather than inside a court room and prohibits workers from banding together to take legal action over employment issues.

The decision is the result of a trio of cases in which employees tried to bring class-action lawsuits over the employers’ failure to pay legally-required overtime, but the employers argued that standard hiring agreements, which the employees signed, require them to take their individual cases to private arbitration. This makes it more difficult for employees to pursue minor claims en masse, whether in class actions or in mass arbitration. The legal dispute essential pits two longstanding laws against each other; the 1925 Federal Arbitration Act which protects the right to agree to divert court disputes to private arbitration and the 1935 National Labor Relations Act which recognizes workers’ rights to form unions and take other collective actions to improve workplace conditions.

In 2011 the Supreme Court rule in AT&T Mobility v. Concepcion that the Federal Arbitration Act allowed companies to avoid class action lawsuits by insisting on individual arbitration in their contracts with consumers and barring consumers from banding together with unhappy customers. In the most recent cases, workers argued that their employment contracts differed from contracts between producers and consumers. They claimed that the National Labor Relations Act prohibits class waivers and protects workers’ rights to engage in “concerted activities.” Labor advocates say a ruling against the employees would destroy the incentives lawyers have to investigate and litigate broad-based legal violations in the workplace, including claims of wage discrimination.

The close decision highlights the staunch political differences between the Supreme Court Justices. Justice Anthony Kennedy, who was appointed to the Supreme Court by President Ronald Reagan in 1988, signaled support for individual arbitration stating that, “many of the advantages of concerted action can be obtained by going to the same attorney.” However, the Democrat-nominated Justices, opposed the employer’s ability to ban group legal action by workers. Justices Ruth Bader Ginsburg and Sonia Sotomayor warned that confidentiality provisions in certain employment contracts bar workers from sharing information about their grievances.