It was going to save us, alternative dispute resolution. Couched in glowing terms, replete with warm and fuzzy adjectives, reasonable people would resolve their disputes through mediation, where the sides would try in good faith to accommodate their differences, see each other’s perspective and, because people are truly good at heart, end in a hug. And if they didn’t, there was always arbitration.
The legal system was brutal, expensive and time-consuming. It took forever and, by the time anything was resolved, the damage was long since done. Arbitration was derived from the notion that a prompt, informal system would far better serve people’s needs than the formalized legal system. Sure, not for everything, but for some. And so the Federal Arbitration Act was enacted in 1925, reflecting the government’s favor of informal resolution.
The problem wasn’t the concept of arbitration, per se, but that it became captive of its users. If you’re an arbitrator working for an arbitration company, you would have a one-off user on one side and a corporate user on the other, who might have hundreds, perhaps thousands, of employees, and need your services over and over.
It’s not that arbitrators necessarily were corrupted by the need for business, but it’s impossible not to become co-opted by the side that appears regularly and not to realize that a ruling in the wrong direction might spell the last time that regular user wanted you anywhere near its arbitration. If you wanted another arb gig, you didn’t piss off the person feeding you business. You might not always rule for your patron, but you never went too far off the reservation or that would be your last time arbitrating.
Corporations realized the benefits of arbitration in general, quicker and less expensive procedures than real court, and certainly a greater likelihood of a friendly face, and arbitration clauses magically appeared in employment contracts. For the employee, the choice was clear: say yes or work elsewhere. There was no negotiation involved. It was Bulwarism at its worst, a take-it-or-leave-it contract of adhesion. You were there for a job. You needed a job. They had a job and were willing to give it to you, along with a paycheck. Plus this minor side detail, arbitration.
In Epic Systems v. Lewis, the employees tried to make an end run around the arbitration clause and the FAA by seizing upon their Section 7 rights under the National Labor Relations Act, enacted a decade later. It provided that employees had the right to band together for their mutual benefit. That meant they could, as a group, overcome what they could not do individually, form a class to sue an employer in court and nullify the arbitration clause in their employment contract. And the National Labor Relations Board agreed. But in a 5-4 decision, the Supreme did not.
Although the Federal Arbitration Act generally requires courts to enforce arbitration agreements as written, the employees argued that its “saving clause” removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings, the agreements here violated the National Labor Relations Act.
The employers countered that the Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the saving clause nor the NLRA demands a different conclusion. Until recently, courts as well as the National Labor Relations Board’s general counsel agreed that such arbitration agreements are enforceable. In 2012, however, the Board ruled that the NLRA effectively nullifies the Arbitration Act in cases like these, and since then other courts have either agreed with or deferred to the Board’s position.
There’s a little kicker in the syllabus that bears noting, that the NLRB switched sides in 2012, holding that the right to collective action trumps the Arbitration Act. That was about the time that federal administrative agencies changed a great many long-held positions, discovering that the laws they were created to administer meant something different than what they had always meant before. Congress didn’t say so, but they did, and weren’t they the “experts”?
The opinion, by Justice Gorsuch, is premised on the FAA being clear in its mandate, and the NLRA saying nothing to expressly overcome the FAA. For the employees, this meant that its end-run failed, and they would be denied the ability to band together to challenge violations to the Fair Labor Standards Act, not to mention other laws like Title VII, because the standard arbitration clause in employment contracts would be enforceable nonetheless.
As a practical matter, individual employees are unable to mount a successful challenge to dubious corporate practices, lacking the funding necessary to do so and given the cost-benefit analysis. If a practice screwed you out of $179, did it make sense to invest a few million into the fight? On the flip side, put together a thousand employees in a class action and the cost-benefit analysis shifts, making the challenge viable.
On the other side, there were foundational concepts at stake, primarily the right to contract. If two parties enter into a contract of their own volition, the government should not have the power to nullify it. It’s a “sacred” right. And, indeed, the right to contract is one upon which we all rely, constantly, or society would be incapable of functioning. Imagine if you bought a stick of gum, and on the way out the door, the shopkeeper ran up to you, grabbed the gum from your fingers and took it back, demanding another dollar if you wanted it. Hey, too late, the sale was done, the deal was struck, right?
But the right to contract, sacred as it may be, relies upon some basic premises that aren’t enjoying a great deal of favor. First, that there is actual, good faith negotiation. Second, that the parties have equivalent bargaining power.
The argument that a potential hire can always refuse a job if the arbitration clause doesn’t work for him is sort of true but mostly specious. There are core concerns, salary and perhaps vacation days, and then there are a bundle of collateral terms of employment that are distant seconds to making decent money, like the choice of law clause, or the venue clause. Or the arbitration clause. A potential hire may take a hike if the money sucks, but nobody walks because of this boilerplate term. And why would they, as nobody enters into employment anticipating they will soon need to go to war with their employer?
In other words, the right to contract really isn’t the issue here, as these aren’t negotiated terms between parties of equivalent bargaining power. These are throwaways, take ’em or leave ’em, but employers know that no one will ever walk away from a decent salary over them.
And there’s yet another aspect to consider here, that a reform measure from 1925 that was meant to be a panacea to facilitate dispute resolution comes back to bite employees in the butt in 2018. Arbitration seemed like such a great idea at the time when it was presented as a huge benefit for those who wanted swift and inexpensive resolution of disputes. It’s not that the notion was necessarily false, but that there are always unintended consequences to consider before singing a rousing chorus of Kumbaya.
Postscript: Elie Mystal, unsurprisingly, finds the dissent by Justice Ruth Bader Ginsburg more persuasive.
Class status didn’t exist in 1935, so the NLRA couldn’t possibly protect it. In related news, chlorophyll didn’t exist 4 billion years ago, so the Sun is still pissed off that plants steal energy in life giving ways.
Gorsuch’s opinion does everything he can to take us back to 1935, when white male employers were unassailable in courts by their employees.
You might wonder, what does “white male employers” have to do with this? While the NLRA was enacted in 1935, it hasn’t been amended since then to reflect the change in perspective that the dissenting judges believe it should.
But even if each of the provisions the Court cites had been included in the original Act, they still would provide little support for the Court’s conclusion. For going on 80 years now, the Board and federal courts—including this one—have understood §7 to protect numerous activities for which the Act provides no “specific” regulatory guidance.
And this is correct, that Section 7 has been read to include all manner of unspecified collective activity. But the NLRA is about labor relations, not the antidote to racism or sexism. There is much to question in the majority’s rationale, but to dismiss it as “white male employer” law isn’t going to win any converts among the rational and unwoke.