Stop Calling It an Arbitration Agreement—Employers Are Forcing Workers to Give Up Their Rights

Moshe Z. Marvit May 23, 2018

Mandatory arbitration agreements allow bosses to impose their will on workers. (Getty)

Trump-appointee Jus­tice Neil Gor­such begins his deci­sion for the major­i­ty in Epic Sys­tems v. Lewis, the land­mark arbi­tra­tion case decid­ed Mon­day at the Supreme Court, with a sim­ple set of ques­tions: Should employ­ees and employ­ers be allowed to agree that any dis­putes between them will be resolved through one-on-one arbi­tra­tion? Or should employ­ees always be per­mit­ted to bring their claims in class or col­lec­tive actions, no mat­ter what they agreed with their employ­ers?” Jus­tice Gor­such and the rest of the five-Jus­tice con­ser­v­a­tive major­i­ty answered the first ques­tion in the affir­ma­tive and the sec­ond ques­tion in the neg­a­tive. In so doing, the Supreme Court has ush­ered in a future where almost all non-union pri­vate sec­tor work­ers — near­ly 94 per­cent of the pri­vate sec­tor work­force — will be barred from join­ing togeth­er to lit­i­gate most work­place issues, includ­ing wage theft, sex­u­al harass­ment and discrimination.

The deci­sion incor­rect­ly holds that because the Fed­er­al Arbi­tra­tion Act requires courts to treat arbi­tra­tion agree­ments on equal foot­ing with oth­er con­tracts, the Nation­al Labor Rela­tions Act, which explic­it­ly pro­tects work­ers who engage in con­cert­ed activ­i­ty for mutu­al aid or ben­e­fit, does not pro­tect work­ers’ rights to lit­i­gate claims at work. But the prob­lem with the rul­ing goes much fur­ther: The entire deci­sion is premised upon a mas­sive fic­tion: that these arbi­tra­tion agree­ments, where­in the work­er los­es all access to court to bring a col­lec­tive action with her fel­low work­ers, are the result of an agree­ment between the work­ers and the employ­er. In real­i­ty, arbi­tra­tion agree­ments are manda­to­ry rules imposed uni­lat­er­al­ly by the employ­er — not two-sided agreements. 

On April 2, 2014, Jacob Lewis, who was a tech­ni­cal writer for Epic Sys­tems, received an email from his employ­er with a doc­u­ment titled Mutu­al Arbi­tra­tion Agree­ment Regard­ing Wages and Hours.” The doc­u­ment stat­ed that the employ­ee and the employ­er waive their rights to go to court and instead agreed to take all wage and hour claims to arbi­tra­tion. Fur­ther­more, unlike in court, the employ­ee agreed that any arbi­tra­tion would be one-on-one. This agree­ment” did not pro­vide any oppor­tu­ni­ty to nego­ti­ate, and it had no place to sign or refuse to sign. Instead, it stat­ed, I under­stand that if I con­tin­ue to work at Epic, I will be deemed to have accept­ed this Agree­ment.” The work­ers had two choic­es: imme­di­ate­ly quit or accept the agree­ment. This is not the hall­mark of an agree­ment; it is the hall­mark of a manda­to­ry rule that is uni­lat­er­al­ly imposed.

When Lewis tried to take Epic Sys­tems to court for mis­clas­si­fy­ing him and his fel­low work­ers as inde­pen­dent con­trac­tors and depriv­ing them of over­time pay, he real­ized that by open­ing the email and con­tin­u­ing to work, he waved his right to bring a col­lec­tive action or go to court. It is esti­mat­ed that approx­i­mate­ly 60 mil­lion Amer­i­cans have already been forced to sign such indi­vid­ual arbi­tra­tion agree­ments, and with Monday’s deci­sion, they are cer­tain to spread rapidly.

From the open­ing ques­tions of the deci­sion to the sub­se­quent analy­sis, Jus­tice Gor­such and the con­ser­v­a­tive major­i­ty com­plete­ly paper over the forced nature of these agree­ments.” Gor­such describes the facts of this case thus­ly: The par­ties before us con­tract­ed for arbi­tra­tion. They pro­ceed­ed to spec­i­fy the rules that would gov­ern their arbi­tra­tions, indi­cat­ing their inten­tion to use indi­vid­u­al­ized rather than class or col­lec­tive action pro­ce­dures.” In address­ing why it is nec­es­sary to hon­or the waiv­er of class or col­lec­tive action, he writes, Not only did Con­gress require courts to respect and enforce agree­ments to arbi­trate; it also specif­i­cal­ly direct­ed them to respect and enforce the par­ties’ cho­sen arbi­tra­tion procedures.” 

But the work­ers in this case had no mean­ing­ful input or oppor­tu­ni­ty to nego­ti­ate the issue of arbi­tra­tion. Describ­ing the worker’s deci­sion to open an email and not quit his job imme­di­ate­ly in this man­ner is at best delu­sion­al and at worst deceitful. 

The entire struc­ture of the Supreme Court’s mod­ern jurispru­dence on arbi­tra­tion agree­ments and class-action waivers is built on the idea that it is prop­er, appro­pri­ate and pre­ferred for those in pow­er to force oth­ers to waive their rights. But it wasn’t always this way. In 1925, Con­gress passed the Fed­er­al Arbi­tra­tion Act (FAA), which sought to address the ani­mos­i­ty some judges had towards arbi­tra­tion, by requir­ing judges to treat arbi­tra­tion agree­ments like oth­er con­tracts. A 2015 Eco­nom­ic Pol­i­cy Insti­tute report describes the FAA as some­thing that was orig­i­nal­ly intend­ed to be applied to a nar­row set of cas­es — com­mer­cial cas­es involv­ing fed­er­al law that were brought in fed­er­al courts on an inde­pen­dent fed­er­al ground.” In essence, the FAA was designed so that busi­ness­es that nego­ti­ate con­tracts with each oth­er can choose have their claims heard by an arbi­tra­tor of their choos­ing. But,” the report explains, in the 1980s, the U.S. Supreme Court turned the FAA upside-down through a series of sur­pris­ing deci­sions. These deci­sions set in motion a major over­haul of the civ­il jus­tice sys­tem. It is no exag­ger­a­tion to call the Supreme Court’s arbi­tra­tion deci­sions in the 1980s the hid­den rev­o­lu­tion of the Rea­gan Court.”

The mod­ern case that opened the door to the flood of arbi­tra­tion agree­ments was a 2011 Supreme Court case involv­ing a cou­ple that want­ed to bring a con­sumer class action against AT&T to chal­lenge a prac­tice where cell phone com­pa­nies offered free” phones, but then charged cus­tomers the sales tax on the full val­ue of the phones. Jus­tice Scalia, writ­ing for the five-Jus­tice major­i­ty, treat­ed the cell phone con­tract as some­thing nego­ti­at­ed by the par­ties. He extolls the virtues of allow­ing these types of agree­ments because afford­ing par­ties dis­cre­tion in design­ing arbi­tra­tion process­es is to allow for effi­cient, stream­lined pro­ce­dures tai­lored to the type of dis­pute.” Scalia finds no issue with the fact that only one par­ty here had pow­er, and that it can be said with cer­tain­ty that in the his­to­ry of the world, no one has ever nego­ti­at­ed a cell phone con­tract with a carrier. 

Now, to engage in most activ­i­ties, from sign­ing on to social media to buy­ing a phone or air­line tick­et to putting a rel­a­tive in a nurs­ing home, one is pro­vid­ed a forced con­tract with an indi­vid­ual arbi­tra­tion clause hid­ing inside. After Monday’s deci­sion, it will be unlike­ly that many will be able to accept or remain at their jobs in the pri­vate sec­tor with­out sim­i­lar­ly waiv­ing their right to go to court or act col­lec­tive­ly to redress their rights.

Moshe Z. Mar­vit is an attor­ney and fel­low with The Cen­tu­ry Foun­da­tion and the co-author (with Richard Kahlen­berg) of the book Why Labor Orga­niz­ing Should be a Civ­il Right.

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