Supreme Court endorses arbitration agreements that curtail FLSA collective actions

The Supreme Court has ruled 5-4 that arbitration agreements can foreclose employees from bringing wage-and-hour collective actions. This means that employees who sign arbitration agreements upon commencing employment will have to proceed to one-on-one arbitrations, which may not be worth it for many employees who have a legitimate case but do not have significant damages claims.

The case is Epic Systems v. Morris, decided on May 21. The case presents a clash of two federal statutes: the Arbitration Act of 1925, which authorizes parties to bring their disputes to arbitration and not court, and the Fair Labor Standards Act of 1935, which allows employees to form a union, collectively bargain and "engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection."

Writing for the majority, Justice Gorsuch says the Arbitration Act allows employers to mandate arbitration even if the aggrieved employees want to bring a collective action under the FLSA. The majority rejects the argument that "other concerted activities" includes collective action lawsuits to recover lost wages or overtime. That phrase, the majority says, "serve[s] to protect things employees 'just do' for themselves in the course of exercising their right to free association in the workplace, rather than 'the highly regulated, courtroom-bound 'activities' of class and joint litigation." This is how the majority harmonizes both statutes. Indeed, a theme of Justice Gorsuch's opinion is that statutes should be read in harmony with each other, if possible. So this case is another lesson in statutory construction.

The tone of the Justice Gorsuch's majority decision is occasionally casual. This must be his style. As the youngest member of the Court, Gorsuch is surely online and aware of the collective freakout a decision like this would create, particularly since these arbitration agreements are going to foreclose lucrative but important collective actions that individual employees are not going to be able to pursue on their own, either because the cases are too expensive to bring or there is no one to coordinate a joint effort. Justice Gorsuch's tone goes something like this: we know this is a difficult case for some of you to accept, but that's the way we interpret the statutes, and that's the way it is.

Justice Ginsburg dissents. If you're a fan of the Notorious RBG, the dissent is a must-read. She points out that employees who sign these arbitration agreements do not exactly have equal bargaining power with management, and that in this case in particular, the agreements were emailed to employees in the understanding that "their continued employment would indicate their assent to the agreement's terms. . . . [the employees] this faced a Hobson's choice: accept arbitration on their employer's terms or give up their jobs." Also, consider the entry-level employee who is presented with agreements like this. Are they really going to object to the agreements on the basis that, if they ever suffer wage-theft, they will want to proceed in court? Justice Ginsburg writes:

Suits to enforce workplace rights collectively fit comfortably under the umbrella “concerted activities for the purpose of . . . mutual aid or protection.” “Concerted” means “[p]lanned or accomplished together;combined.” American Heritage Dictionary 381 (5th ed. 2011). “Mutual” means “reciprocal.” Id., at 1163. When employees meet the requirements for litigation of shared legal claims in joint, collective, and class proceedings, the litigation of their claims is undoubtedly “accomplished together.” By joining hands in litigation, workers can spread the costs of litigation and reduce the risk of employer retaliation. . . . There can be no serious doubt that collective litigation is one way workers may associate with one another to improve their lot.

This decision will certainly kill off many FLSA collective actions. No large company in its right mind will forego the opportunity to have its employees sign arbitration agreements like this. Otherwise, they risk a collective action that can cost the company hundreds of thousands, even millions, in damages among the many plaintiffs whose claims are not lucrative enough for an individual arbitration. The solution is legislative action, but that is highly unlikely in this political climate.