Arbitration Clauses: Does Your Employment Contract Have One?

July 20, 2018
The Law Firm of J.W. Stafford

In many cases, when employees are treated improperly by employers, it is not just a single worker that is affected by the improper treatment. Instead, often many workers are mistreated or have their rights violated – sometimes in small ways. A Maryland discrimination lawyer can help all of these workers who have been victimized by discrimination to take action. In some cases, this could mean that workers come together in a class action to pursue a joint claim.

However, employers have increasingly taken steps to prevent these types of joint claims from being brought against them. One common approach involves using employment contracts to limit the remedies that workers can pursue when they are wronged.

A growing number of employment contracts in recent years have included arbitration clauses, including those restricting workers from resolving disputes in arbitration as a group. According to the New York Times, 54 percent of non-unionized employees now have employment contracts with mandatory arbitration agreements, compared with just two percent of employees in 1992.

The use of these agreements had resulted in court challenges, with plaintiffs questioning whether these clauses could be upheld in employment contracts. Now, the Supreme Court has upheld the rights of employers to prohibit workers from litigating or arbitrating claims as a class, which means even more employers are likely to take this tactic in the future.

Supreme Court Upholds Arbitration Clauses Preventing Worker Class Actions

The Supreme Court’s ruling in Epic Systems Corporation v. Lewis was issued in response to three consolidated cases, each of which arose from accusations that employers had underpaid workers.

One of the first three cases involved a claim brought by a healthcare software company employee. An employee of the company attempted to sue in federal court on behalf of a group of workers who he claimed had all been denied overtime improperly. The company responded to the lawsuit with a request to dismiss the case because the employee who brought the claim had signed an employment contract in which he waived his right to pursue joint claims, just like the one he was pursuing.

While wage-and-hour cases, along with discrimination cases, commonly result in class actions, the employer argued that it was permissible for an employment contract to require individual arbitration in order to resolve complaints, and thus the employees in question here – who had all signed contracts with arbitration agreements – would need to act individually to resolve any potential issues they had with their employers not paying them an appropriate amount of overtime.

Two federal laws were seen to be in conflict in connection with arbitration clauses barring employees from joining together in groups to sue employers.

One of those laws is the Federal Arbitration Act, which was passed in 1925 and which permits employers to resolve disputes through settlement by arbitration. The Federal Arbitration Act broadly supports arbitration agreements in contracts and imposes few limitations on when arbitration agreements are allowed. The Federal Arbitration Act, in recent years, has also been used to justify upholding arbitration clauses included in consumer contracts to prevent individual consumers from joining together to file lawsuits against companies that wrong them.

The other law is the National Labor Relations Act (“NLRA”). The NLRA broadly protects the rights of workers to self-organize and to join together in order to engage in concerted activity for their mutual aid and mutual protection. This law, proponents of worker rights argue, makes clear that employees should be able to bring group claims in the event that their employee rights are violated.

The National Labor Relations Board, which is a federal agency created to protect the rights of workers in the private sector to join together to try to improve working conditions, supported the employees in their case, arguing that these arbitration agreements were improper and were not enforceable under the National Labor Relations Act because they infringed upon the rights of workers to take mutual action.

However, the majority in the Supreme Court determined that the Federal Arbitration Act did not create a carve-out or an exception to the preference for arbitration for workers.  The court ruled 5-4 that the use of these arbitration clauses was valid, and the majority opinion indicated that federal arbitration laws and court precedent dictated the outcome. Writing for the majority, Justice Neil Gorsuch indicated that “congress has instructed that arbitration agreements like those before us must be enforced as written.”

Because federal laws favor enforceability of arbitration clauses, the majority opinion indicated that if employers were prevented from including clauses barring group arbitrations in employment agreements, then arbitration would lose the speed, simplicity, and inexpensiveness which had prompted Congress to pass laws favoring arbitration agreements.

However, one of the dissenting justices, Justice Ruth Bader Ginsburg, read a dissent from the bench indicating that the outcome of the case would result in federal and state worker protection laws being under-enforced.

Because it can be time consuming and expensive to pursue individual small claims independently in multiple separate proceedings, employees often won’t bother to make a claim when they experience a minor wrong.  This could mean that some employees end up never being able to use the court system in order to pursue a legal remedy because it is not worth it for them to bring individual claims.  However, when employees are able to join together, they can spread out litigation costs and reduce the risk of being retaliated against so are more likely to seek justice.  Employers face greater accountability and are less likely to engage in actions that cause small amounts of harm to many different workers.

In response to the dissent, however, Justice Gorsuch wrote that the primary purpose of the National Labor Relations Act was to ensure that workers had the protected right to join a union and that the right of collective bargaining was protected. Neither of these rights were affected at all by the court’s ruling that arbitration clauses were allowed in employment agreements, and, as a result, the specific rights the law protects – to union and bargain collectively — remain strong, as the NLRA intended.

Employers, and those in favor of allowing arbitration clauses in employment contracts, pointed out that the National Labor Relations Act did not specify that Congress wanted to exclude class action or group arbitration waivers from the Federal Arbitration Act, and thus Congress did not intend to prohibit these waivers and the law does not have that affect.

The Trump administration supported the position of the employers in arguing that the Federal Arbitration Act should be controlling and that the law clearly allows employers to include waivers in employment agreements that bar employees from joining together to pursue joint claims against their employer. However, this was a shift from the Obama administration’s position, and the Obama administration had supported the workers in claiming that these waivers were not permissible because they interfered unlawfully with the rights of employees to take collective action under the National Labor Relations Act.

One issue is that employees rarely have the opportunity to engage in meaningful negotiation with employers regarding the inclusion of clauses in employment contracts that waive the right to bring joint claims in response to wrongdoing in the workplace. When these clauses are included in contracts, employees may not understand the impact of them. And, even if they do, they often have the choice between signing the contract as is or foregoing the job – they may not be able to negotiate to have the waiver removed from the contract so they can preserve their right to bring joint claims as a remedy.

Despite this issue, the Supreme Court’s ruling is the law of the land now.  Because the majority opinion found employers could prevent employees from grouping together to seek remedies in arbitration, it’s likely more employers will take action to include clauses in employment contracts limiting employee rights. Such contracts have been compared with yellow dog contracts, which previously barred employees from joining unions.

The court’s decision was considered to be a pro-business decision and is expected by some worker advocates to make it especially difficult for employees to pursue cases involving underpayment of wages.  However, group arbitration claims and class actions have also been utilized by employees who were victims of discrimination to hold employers accountable when each worker suffered only small amounts of damage. In particular, pay disparity claims alleging that women or minorities are paid less could be affected by the decision to allow arbitration agreements that bar joint legal action.

Contact a Maryland Discrimination Lawyer Today for Assistance

A Maryland discrimination lawyer can explain what this might mean for workers with arbitration clauses in their employment contracts and can provide assistance to those who are victimized by discrimination at work.  We can help you to explore all of your options for pursuing a legal remedy when your rights are violated through discrimination or other violations of worker protection laws so you can make the most informed decision. Call The Law Firm of J.W. Stafford, L.L.C. at 410-514-6099 or contact us online as soon as possible.