Shortly, the U.S. Supreme Court will entertain arguments in three important labor relations cases:
- National Labor Relations Board (NLRB) v. Murphy Oil,
- Epic Systems Corp. v. Lewis, and
- Ernst & Young LLP v. Morris.
The cases will be argued and considered together because they share common legal and factual issues. In particular, the court will consider whether private sector employers can ban workers from bringing class action labor-related lawsuits against their employers, and force those workers to agree to individual binding arbitration as a condition of employment, vs litigation.
In recent years, forced arbitration has become popular with employers who seek to prevent workers from collectively or individually suing them in court for workplace and other violations of law. After the Supreme Court approved class and collective action bans in consumer contracts, employers have tried to impose similar bans to prevent or at least discourage workers from using the courts to enforce labor law violations.
Under the National Labor Relations Act (NLRA), employees are guaranteed the right to engage in “concerted activities” for “mutual aid and protection” in order to improve working conditions and to collectively negotiate better benefits and higher wages. As part and parcel of this principle, the Supreme Court has ruled that the NLRA protects employees’ right to engage in judicial actions to ensure that employers comply with the law. Many believe that the bans illegally interfere with employees’ rights, in particular, their rights to join together to enforce workplace laws.
Employers favor arbitration vs. litgation because it is generally cheaper and quicker than litigation and the potential for large monetary awards by jury in favor of workers is minimized. Arbitration is also final and binding, without serious potential for appellate review. The question arises, why wouldn’t arbitrators also issue large awards in meritorious cases? The answer is complicated. First, it is in fact possible that an arbitrator might do so, but far less likely. Parties, especially management, count on arbitrators to be rational and not swayed by emotion when issuing their damages awards, unlike juries. As private judges who are paid by the parties and, arbitrators want business. Toward that end, some arbitrators will “split the cow” between labor and management in order to make everyone feel they have gained something from the process. However, that is not to say that many (if not most) labor arbitrators are fair. Rather, it is the process surrounding arbitration that may not be fair. For example, discovery can be quite limited in the labor arbitration realm, extending to only disclosure of relevant documents, and without devices such as interrogatories and depositions. This helps keep arbitration cheap.
Employers contend that arbitration clauses must be upheld pursuant to federal law, specifically the Federal Arbitration Act (FAA), which does not specifically ban arbitration in the labor context. However, it seems that if mandatory arbitration clauses are illegal under the NLRA, they cannot be enforced. Illegality is a defense to enforcement of any contract, including between workers and employers. In other words, you can’t agree to do something that is against the law in any contractual setting, including the labor realm.
Claims of sexual harassment, race/age/disability and other discrimination, or even wage theft under the Fair Labor Standards Act can still be litigated, but there would be no jury, no public trial, no judicial oversight and far less pre-trial discovery. Surely this would have a chilling effect on many workers who would otherwise bring such actions. Clearly, this is not as favorable a setting for employees as is a public trial before a jury with all the procedural protections afforded other litigants.
But perhaps there is a third way? Perhaps unions and management can collectively bargain the rules and format of arbitration proceedings so that workers’ rights are protected. If arbitration is made public, and if a panel of at least three arbitrators, paid equally by labor and management and agreed upon by the parties is used, the “star chamber” feel of these proceedings is greatly diminished. Arbitrators, and the parties, would then be subject to the same public scrutiny as in a public court proceeding, including disclosure of testimony and the content of documents. This would restore at least some leverage to labor while eliminating the potential for a runaway jury awarding overblown monetary damages.
With the addition of Justice Neil Gorsuch, who is widely seen as pro-management and in favor of big business, many believe the Supreme Court will side with employers and against labor. But this doesn’t mean labor can’t collectively bargain the terms of the arbitration proceedings in which such cases will be heard to make them fair.