Trial Magazine

The U.S. Supreme Court’s decision in Epic Systems is another in a line of forced arbitration opinions that strips workers of their right to access the courts.

In AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant, the U.S. Supreme Court handed companies a free pass to use forced arbitration clauses to rob consumers and small businesses of their right to file class actions under both state and federal law.¹ Now, with its recent 5-4 decision in Epic Systems Corp. v. Lewis, the Court has extended this troubling trend to workers, preventing them from banding together to redress the full range of employment law violations in the workplace—including wage theft, sexual harassment, and race and gender discrimination.²

The Court's decision will have broad impact. Many employment cases will not simply be channeled into another (private) forum; they will be eliminated entirely.

The Court’s decision will have broad impact. Many employment cases will not simply be channeled into another (private) forum; they will be eliminated entirely. This type of claim suppression will substantially curtail workers’ access to justice, undermine meaningful public accountability for companies and employers that violate workers’ rights, and freeze the development of the law itself by keeping evidence of and decisions about wrongdoing secret and shielded from the public eye.

As a result, it is now up to policymakers to act. Congress can revise federal law to better reflect the reality that employees lack any meaningful bargaining power to push back against the use of forced arbitration, and states can consider several tools that remain available to them to address the problems that employees face in the workplace.

The Decision’s Scope

The specific question facing the Court was a relatively narrow matter of statutory interpretation: whether a specific provision in the National Labor Relations Act (NLRA) renders class and collective action waivers illegal. Yet the majority opinion, written by Justice Neil Gorsuch, sweeps broadly and answers that question with a wide-ranging decision that tackled a host of arbitration issues.

A brief bit of background: In Epic Systems, Jacob Lewis alleged that the Wisconsin-based software company failed to pay him and other technical writers overtime in violation of the Fair Labor Standards Act. Epic Systems moved to compel arbitration based on an electronic arbitration agreement that required wage-and-hour claims be brought through individual arbitration only and prohibited any collective or class action proceeding. The contract did not contain an option to decline or opt out, and acceptance was made a condition of employment: The contract stated that employees were “deemed to have accepted this [a]greement” if they “continue[d] to work at Epic.”³ After the district court refused to enforce this contract, the Seventh Circuit affirmed.⁴ The employer sought Supreme Court review.⁵

The majority’s decision began by narrowing the Federal Arbitration Act’s (FAA) saving clause. Section 2 of the FAA provides a safety valve for consumers and employees opposing efforts to force claims into arbitration by allowing courts to invalidate contracts “upon such grounds as exist at law or in equity for the revocation of any contract.”⁶

The employees and the National Labor Relations Board (NLRB)7 had argued that the arbitration agreement was illegal because it violated §⁷ of the NLRA, which protects employees’ rights to “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,”8 and §⁸, which makes it “an unfair labor practice for an employer . . . to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed” under §7.⁹ Because the contract was illegal, they explained, §2 of the FAA should kick in and permit a court to refuse to enforce the contracts.¹⁰

The majority rejected this argument. In its view, although illegality “may be a traditional generally applicable contract defense in many cases,” it could not be used here to defeat the contracts because the illegality turned exclusively on the requirement of “bilateral arbitration.”¹¹ That type of illegality, the Court said, was “a different creature” and not subject to §2’s power.¹²

The Court turned next to the question of statutory conflicts with the FAA. The employees argued that, to the extent that the FAA mandated enforcement of these contracts, the NLRA (enacted after the FAA) conflicted with and overrode that command. The Court again disagreed. It concluded that the two statutes—both as a matter of text and structure—were not in conflict “at all.”¹³ And it sent a message to lower courts that might face such an argument in other contexts, observing that “over many years, this Court has heard and rejected [every] effort[] to conjure conflicts between the [FAA] and other federal statutes.”¹⁴

Finally, the Court cabined the authority of federal agencies to regulate or restrict the use of arbitration procedures. It denied Chevron deference¹⁵ to the NLRB—the agency charged with administering the NLRA—because conferring such discretion would mean that the agency’s interpretation of the NLRA “limits the work of a second statute,” the FAA, that it “does not administer.”¹⁶ That, according to the Court, is impermissible: The “reconciliation of distinct statutory regimes is a matter for the courts, not agencies.”¹⁷ As a result, “courts must exercise independent interpretive judgment” when faced with a question over “the balance Congress struck in its statutes.”¹⁸

The Fiction of Consent

Like much of the Supreme Court’s recent forced arbitration jurisprudence, the majority’s decision rests on a core fiction: Epic Systems is about nothing more than the enforcement of bilateral contracts to which the parties freely consented, as when corporations try to resolve a commercial dispute. The opinion’s very first sentence highlights this fiction by framing the issue this way: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?”¹⁹ But this defies reality: Workers do not hold equal bargaining power with their employers.

And, more to the point, the right to freely negotiate employment contracts isn’t what the case is about at all. It’s about whether employers should be allowed to force their workers to sacrifice any right to collectively use the legal system to combat wage theft, sexual harassment, or other serious legal violations as a condition of continued employment—even if doing so deprives workers of any meaningful way to remedy that harm.

When an employer emails an “agreement” that requires employees to “agree” if they want to keep their jobs (as the case was here), most American workers don’t experience this as freedom of choice. As Justice Ruth Bader Ginsburg’s dissent points out, employees in such a scenario are “faced with a Hobson’s choice: accept arbitration on their employer’s terms or give up their jobs.”²⁰ Such “take-it-or-leave-it labor contracts,” she observes, harken back to the notorious “yellow dog” contracts used more than a century ago to prevent workers from organizing and asserting their rights.²¹

The majority’s decision simply ignores the critical questions at the core of the case that have long been central to both contract and labor law—consent and inequality of bargaining power.

The Fiction of Ascertaining Congressional Intent

The history of the FAA and NLRA reinforce this point. These statutes were written specifically to protect people from corporations’ abuse of their superior bargaining power. Yet the majority unleashed precisely that abuse in the name of harmonizing the two statutes. That led to the decision’s second fiction—that the Court genuinely cares about congressional intent.²² By ignoring what is typically used to discern congressional intent—a statute’s text, history, and purpose—the majority made clear that its decision turned on a preferred policy outcome, not settled tools of statutory interpretation.

For example, the FAA’s text expressly excludes all employment contracts from its reach.²³ And the history of that statute hammers home the concern about unequal bargaining power. When Congress considered the FAA in 1925, some legislators worried that arbitration might let “the powerful people . . . come in and take away the rights of the weaker ones.”²⁴ But the FAA’s architects assured them this wasn’t true: “It is not intended this shall be an act referring to labor disputes, at all. It is purely an act to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it.”²⁵ No hint of this makes any appearance in the majority’s description or understanding of the FAA.

What’s Next?

Epic Systems is another in a long line of pro-corporate arbitration decisions from the Supreme Court. But the FAA is a statute, not a constitutional provision, and so it is within Congress’s power to limit arbitration when parties have vastly unequal power and when those statutory rights are at risk. Indeed, reading her dissent from the bench, Justice Ginsburg called for just such congressional intervention.²⁶

A congressional fix need not happen all at once. Congress can limit arbitration in particular areas or delegate its power to do so. And, as others have recently observed,²⁷ some limited tools can be used at the state and local levels, such as disclosure requirements and the use of market power to police government contractors.

Practitioners, too, are not without recourse. Epic Systems did not disturb long-standing state law contract defenses—especially those involving basic formation questions—that will continue to play a role. Ultimately, though, the key to freeing workers and consumers from the chains of forced arbitration almost certainly will need to come from a source other than the Supreme Court.

Matthew Wessler and Deepak Gupta are principals at Gupta Wessler in Washington, D.C. They submitted an amicus brief on AAJ’s behalf in favor of the employees in Epic Systems and can be reached at matt@guptawessler.com and deepak@guptawessler.com.

Notes

1. 563 U.S. 333 (2011); 570 U.S. 228 (2013). These decisions even included the antitrust laws designed to police the very market power that enables big companies to insert forced arbitration clauses in the first place.
2. 138 S. Ct. 1612 (May 21, 2018). 
3. Lewis v. Epic Systems Corp., 823 F.3d 1147, 1151 (7th Cir. 2016).
4. Id. 
5. Epic Systems was consolidated for joint argument before the Court with two other cases. See Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016); Murphy Oil USA, Inc. v. Nat’l Labor Relations Bd., 808 F.3d 1013 (5th Cir. 2015). In Ernst & Young, the Ninth Circuit reached the same conclusion as the Seventh. But in Murphy Oil, the Fifth Circuit held that the FAA dictates enforcement of the relevant arbitration agreement.
6. 9 U.S.C.A. §2. 
7. See Murphy Oil, 808 F.3d 1013. 
8. 29 U.S.C. §157.
9. 29 U.S.C. §158(a)(1).
10. 138 S. Ct. at 1622. 
11. Id. at 1623.
12. Id.
13. Id. at 1625.
14. Id. at 1627.
15. See Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 468 U.S. 837 (1984) (setting forth a legal test as to when the court should defer to an agency’s answer or interpretation).
16. 138 S. Ct. at 1629.
17. Id. (internal citations omitted).
18. Id.
19. Id. at 1619. 
20. Id. at 1636 n. 2 (Ginsburg, J., with Breyer, Sotomayor, and Kagan, JJ., dissenting).
21. Id. at 1649.
22. Judges, the majority says, should be “expounders of what the law is” rather than “policymakers choosing what the law should be.” Id. at 1624 (majority opinion).
23. “[N]othing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C.A. §1.
24. Arbitration of Interstate Commercial Disputes: Joint Hearings on S. 1005 and H.R. 646 Before the Subcomms. of the Comms. on the Judiciary, 68th Cong. 15 (1924) (brief of Julius Henry Cohen, Am. Bar Ass’n). 
25. Sales and Contracts to Sell in Interstate and Foreign Commerce, and Federal Commercial Arbitration: Hearing on S. 4213 and S. 4214 Before a Subcomm. of the S. Comm. on the Judiciary, 67th Cong. 9 (1923) (statement of W.H.H. Piatt, Am. Bar Ass’n). 
26. See 138 S. Ct. at 1633–49 (Ginsburg, J., dissenting).
27. See, e.g., Daniel Hemel, The Arbitration Fight Isn’t Over, Slate (May 22, 2018), https://slate.com/news-and-politics/2018/05/the-epic-systems-v-lewis-mandatory-arbitration-ruling-was-awful-heres-how-states-can-counteract-it.html.