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Epic Systems Corp. v. Lewis: Another Wrong Turn for the American Worker

As published in the New Jersey Labor and Employment Law Quarterly, Vol. 40, No. 1

by Michael Malatino

On May 21, 2018, the United States Supreme Court, in Epic Systems Corp. v. Lewis,(1) provided no respite for American workers, weary in their struggle for full and fair access to the courts. In this decision, the United States Supreme Court held that agreements to arbitrate that include language banning collective action, even in arbitration, are not contrary to the mandates of the National Labor Relations Act (NLRA)(2) and its protections for employees engaged in concerted activity. This 5-4 decision should come as little surprise given the Court’s prior rulings in AT&T Mobility LLC v. Concepcion(3) and American Express Co. v. Italian Colors Restaurant,(4) which both upheld class action waivers in consumer arbitration agreements. The Court’s excessively broad interpretation of the Federal Arbitration Act(5) (FAA) in Epic Systems will deny workers engaged in concerted activity meaningful redress for many state and federal law violations.

There are myriad reasons why the Court lost its way in what Justice Ruth Bader Ginsburg calls an “egregiously wrong” decision.(6) The majority opinion, authored by the then-newly appointed Justice Neil Gorsuch, espouses a narrow and anti-worker interpretation of NLRA §157, often referred to simply as §7. As Justice Ginsburg’s well-crafted dissent notes, “Suits to enforce workplace rights collectively fit comfortably under the umbrella ‘concerted activities for the purpose of… mutual aid or protection.’”(7) Viewing the FAA in its historic context, Justice Ginsburg rejects the flawed arguments put forth by the majority.

The majority argues the ejusdem generis canon limits §7’s “other concerted activities clause.” Ejusdem generis, Latin for the proposition that if a “more general term follows more specific terms in a list, the general term is usually understood to embrace only objects similar in nature to those objects enumerated by the preceding specific words.”(8) While the “other concerted activities” language of §7 is at the end of a list, the specific guidance upon which the majority relies in applying the ejusdem generis cannon are actually later amendments to §7. Interpreting later amendments to limit the scope of §7’s original language based on an application of the ejusdem generis canon is a misapplication. As Justice Ginsburg writes, “It is difficult to comprehend why Congress’ later inclusion of specific guidance regarding some of the activities protected by §7 sheds any light on Congress’ initial conception of §7’s scope.”(9)

Justice Ginsburg also responds to the majority’s argument that §7 cannot guarantee collective action in arbitration because §7 does not “even whispe[r]” about the “rules [that] should govern the adjudication of class or collective actions in court or arbitration.”(10) Acting collectively to address the great imbalance in negotiating power that favors the employer over the employee, however, is the hallmark of the NLRA. The NLRA clearly does more than whisper in this regard.

The majority next argues that because the NLRA was enacted in 1935 and class action procedures, as we currently understand them, were not enacted until 1966, the NLRA cannot be read to protect procedures not enacted for years.(11) That the majority would even make this argument tacitly acknowledges the weakness of their position. Justice Ginsburg responds simply, “[I]s there any reason to suppose that Congress intended to protect employees’ right to act in concert using only those procedures and forums available in 1935?”(12) Given the broad mandate of the NLRA, the response is a definitive no. Nonetheless, the majority does its best to couch the question before it as merely procedural. As we are all aware, however, a right that cannot be enforced is no right at all. Unfortunately, that is exactly how this deci- sion undermines many workers’ rights. If the damages that flow from violations of wage and hour laws, by way of example, are too small to warrant the significant risk and expense inherent in litigation, that individual right is essentially waived. The fact remains that when workers are denied the ability to act collectively to defend their interests and prosecute their claims in the aggregate, many workers’ rights are rights only in theory.

Arbitration has come a long way from the fringe disfavored means of dispute resolution that served as the genesis for the enactment of the FAA. Arbitration found its first footing in commercial disputes among entities with roughly equal bargaining power.(13) Since the FAA’s passage in 1925, however, this law has gradually expanded. In 1983, 58 years after its passage, the Court for the first time declared a “liberal federal policy favoring arbitration.”(14) The Court has expanded this so-called federal policy in favor of arbitration into the employment context and, in Epic Systems, now abrogates the NLRA. As more employers recognize the obstacles that arbitration presents for thwarting the enforcement of workers’ rights, the number of employers demanding employees agree to arbitration as a condition of employment—and to waive their right to collective action—will only expand.

Today, more  United States workers  are confined to arbitration than have access to the courts. In 1992, only 2.1 percent of companies included arbitration in their procedures.(15) In 2003, the number of nonunion private sector employees bound by mandatory arbitration procedures climbed to 22.7 percent.(16) Now, arbitration has eclipsed the courts as the primary forum for employment claims. More than half of the private nonunion workforce in the United States, 56.2 percent, is bound by mandatory arbitration agreements.(17) Even more egregious, the most vulnerable employees are those typically targeted for mandatory arbitration. Among those earning $13 an hour or less, 64.5 percent were subject to mandatory arbitration.(18) These are the very employees who will likely not have the damages individually to entice counsel to undertake the litigation at counsel’s financial risk or have the financial means themselves to enforce their statutory rights without moving collectively.

Some astute observers will likely question why, given the rise in the number of employees limited to mandatory arbitration, there is no corollary increase in the number of filed employment arbitration claims. As many employers are now well aware, mandatory arbitration suppresses claims. Studies have found that employees who litigate their claims in court have a win rate in excess of 40 percent, with some studies finding win rates as high as 65 to 75 percent.(19) By contrast, employees have a win rate of only 21.4 percent when asserting claims in a mandatory arbitration setting.(20) The employee win rate further decreases to only 12 percent when there is a repeat employer-arbitrator pairing. The employee win rate for ‘one shot’ employer-arbitrator pairings is 31.6 percent.(21)

Arbitration also decreases the amount of damages awarded to employees. The mean damage award in an employment claim in mandatory arbitration is only $23,548, substantially less than average awards in court that go well into the six figures.(22) In another data set, repeat employer-arbitrator pairings reduced the damages awarded from a mean of $27,039 in arbitrations without repeat employer-arbitrator pairings to a paltry $7,451 in arbitrations with repeat employer-arbitrator parings.(23)

If a jury of our peers is the most  equitable means of resolving a claim, arbitration must be inequitable. As if the number of employers choosing to limit their employees to arbitration as a means of dispute resolution was not indication enough, the statistics highlight the extreme imbalance favoring employers in arbitration. The purpose of the NLRA was to correct this recognized imbalance. The Court has circumvented that framework through the unwarranted expansion of the FAA. Unfortunately, with this ever-increasing imbalance of negotiating power between employer and employee together with a conservative Supreme Court, the only means of addressing this patent inequity will be through the legislative process. For the sake of American workers, legislation to this end is desperately needed.

Michael Malatino is a founding member of Meredith Malatino Law LLC in Hackensack and New York and a staff editor for the Labor and Employment Law Quarterly.

For the full volume of the Labor and Employment Law Quarterly click HERE

Endnotes

  1. Epic Systems Corp. v. Lewis, 584 U.S____ , 138 S. Ct. 1612 (2018).

  2. National Labor Relations Act, 29 U.S.C. §151, et seq.

  3. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

  4. American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013).

  5. Federal Arbitration Act, 9 U. S. C. §1 et seq.

  6. Epic Systems, supra, 138 S. Ct. at 1633 (Ginsburg, J., dissenting).

  7. Id. at 1637 (Ginsburg, J., dissenting).

  8. Id. at 1624.

  9. Id. at 1639 (Ginsburg, J., dissenting).

  10. Id.. at 1640 (Ginsburg, J., dissenting).

  11. Id. at 1624.

  12. Id. at 1640 (Ginsburg, J., dissenting).

  13. Id.. at 1642 (Ginsburg. J., dissenting).

  14. Id. at 1644 (Ginsburg, J., dissenting).

  15. Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Economic Policy Institute (Sept. 27, 2017), available at https://www.epi.org/files/pdf/135056.pdf.

  16. Id.

  17. Id.

  18. Id.

  19. Alexander Colvin, An Empirical Study of Employment Arbitration: Case Outcomes and Processes (2011), available at https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi article=1586&context=articles.

  20. Id.

  21. Id.

  22. Id.

  23. Id.

Debra Lutsky