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What a Recent Supreme Court Ruling Means for Employment Law

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“As with all matters legislative, right now our partisan polarization stands in the way. But hope springs eternal that our better angels, and our ability to compromise—on this and other matters, will eventually return.”

The Supreme Court’s decision in Epic Systems Corp. v. Lewis in May 2018 continued—and may have ended judicially—the steady march toward the privatization of U.S. employment claims. On May 21st, the Court decided, 5-4, in an opinion authored by new Justice Neil Gorsuch, that ‘agreements’ between employers and employees to resolve employment claims via individual arbitration trump employees’ later assertions—assertions that the arbitration agreement violates a collective right, given to employees by another federal statute. Thus, employers may continue to require workers, as a condition of employment, to agree to bring all employment claims only through final and binding individual arbitration, with no resort to the collective and class rights granted by law—in a private setting, and with little right of appeal.

This march began in 1991 when the Court in Gilmer v. Interstate/Johnson Lane Corp held that a financial services employee, whose agreement to arbitrate was part of his registration with the New York Stock Exchange, could not void that agreement simply because his dispute implicated federal anti-discrimination law. In Gilmer, the Court observed that the Federal Arbitration Act aimed to “place such agreements upon the same footing as other contracts.” Ten years later the Court construed the FAA’s exemptions narrowly in Circuit City Stores v. Adams, and the rush toward privatization was on.

As of 1997, according to estimates by the American Arbitration Association, cited by the Supreme Court, more than 3.5 million American workers were covered by private arbitration agreements, precluding their pursuit of employment claims in court. Recent studies suggest that number has risen to approximately 60.1 million workers—more than half of the private sector nonunion workforce.

Meanwhile, Court decisions in the commercial realm held enforceable agreements to arbitrate which preclude claimants’ resort to class or collective actions. The Epic decision confirms the applicability of class bans to employment arbitration agreements as well.

So where does that leave us, as workers, as employers, as citizens?  Employer advocates argue that the popularity of Gilmer-style arbitration arose directly from the increase in claims wrought by the Civil Rights Act of 1991, which added jury trials and enhanced damages to most federal anti-discrimination claims.  Moreover, employers assert, arbitration is quicker, cheaper, simpler (without juries), less formal, and more likely to result in a fairer resolution on the merits of the claim. Employers also laud the privacy and finality of arbitration. Those last two advantages for employers provide employee advocates two of their favorite arguments against it.

Employers want to avoid filings, most of which become public record; workers seek the sunlight of openness to help not only the litigant but other employees, and the public too. Employers prefer one decision—that’s what they bargained for by implementing an arbitration system. But worker advocates point out that the finality of an arbitrator’s decision–an arbitrator’s fraud or dishonesty might authorize a court to overturn her decision, but disagreements about fact-finding or reasoning will not—arose from collective arbitration, where workers were represented by a union in negotiations. These individual arbitrations, workers say, are crammed down their throats, without discussion, without representation.  And, employees say, while the 1991 CRA paid obeisance to arbitration, it added juries for a reason, and many employees prefer their claims be heard by their peers, as the statute prescribes.

Workers can benefit from some of the same factors which attract employers to arbitration. No one complains about justice rendered more promptly, at a lower price, and without the angst of endless pretrial, trial, and appeal processes.  And occasionally privacy is in the employee’s interest too. Moreover, employees generally are not always helped when a few litigants hit the jackpot with a head-spinning Las Vegas verdict. But big verdict fears, say workers, grew from individual claim legislation, starting with the Civil Rights Act of 1964, which in hindsight appears to be a societal trade-off for the weakening of the power of unions. And the ban on class and collective litigation made possible by the new Epic decision severely weakens the possibility of broad-based recovery for employees in wage and hour lawsuits. While wage-hour class or collective claims may result in a Las Vegas recovery for lawyers, generally they lead to distributions of modest payouts to large numbers of employees.

For all the complaining about an uncontrollable surge of employment claims following the 1991 Civil Rights Act, the numbers show a less extreme world. A significant uptick in charges with the U.S. Equal Employment Opportunity Commission appears from FY 1992 to ’93.  But thereafter the numbers flatten, and employment claims then seem to ebb and flow with the economy, as recessions great and small give way to recoveries slow or heartening.   

Moreover, the growth in claims trails the growth in the pool of workers, as the U.S. full-time workforce grew by 26% between 1990 and 2017 and the number of EEOC charges grew less than 17% during that time. Recently reported increases in claims during the past year reflect more interest in sexual harassment claims, suggesting that cultural trends affect this growth, not legislation alone. So while the number of claims may not have grown substantially, perhaps, as employer anecdotes urge, costs per employment claim have grown.  A problem with teasing out that assertion is the secrecy which accompanies most employment settlements, as nondisclosure and ‘no bad-mouthing’ clauses inhabit, with the jerk of a knee, almost all settlement agreements of employment claims. At least the growth in the number and popularity of Employment Practices Liability Insurance policies attests to employer concern about costs per claim.

But the numbers in our federal courts have long told a story that fuels the ascendancy of arbitration. Claims under the employment law umbrella comprise the largest share of federal courts’ civil dockets.  Federal judges might not dislike employment claims. But their dockets, civil and criminal, are growing, and if there’s a way to relieve that burden, then judges and policymakers will listen.

So is there a way to reconcile these interests? Employees want and deserve a dispute resolution system which is genuine and credible, a system worthy of the dreams of the authors of Title VII.   Employers want to treat employees fairly– a happy workforce, marked by equity, is more productive —and want to manage costs per claim sensibly. Judges and policymakers—and, most important, the public they serve—want a court system that helps citizens and resolves disputes in a fashion that promotes trust in the rule of law. And most Americans still agree with the statement in the National Labor Relations Act that between employer and employees there’s an “inequality of bargaining power.

Well before the Epic decision, federal legislators and at least one governor had proposed banning the enforcement of Gilmer agreements in sexual discrimination and harassment matters and had proposed bans on nondisclosure agreements in settlements of harassment claims. Sen. Kirsten Gillibrand (D-Ny.) proposed federal legislation and Gov. Andrew Cuomo of New York proposed state law changes.  But both dealt only with sexual harassment, and both were prompted by the #Me-Too movement, as both appeared before the end of 2017. We need a broader solution.

We could look to other democracies. The United Kingdom, and the European Union and other governments in continental Europe, have specialized employment courts.  But it’s noteworthy that U.K. and other European employers abide by tight regulation of terminations from employment, contrary to our enthrallment in the U.S. with employment at will (by default, employers can fire at any time, for good, bad, or no reason—unless otherwise prohibited by law).  And the U.K employment regime (like those throughout Europe) rests on a safety net more supportive than the U.S. scheme of unemployment compensation and other benefits.

What about a uniquely American (or Swiss) solution: a system of private arrangements regulated by federally mandated standards? Could present U.S. arbitration schemes continue alongside a federal appeals tribunal, to monitor both the formation of arbitration agreements and the activities of arbitrators pursuant to those agreements? Arbitration law after Gilmer emphasized that arbitration should provide to employees all substantive remedies available under the statutes the arbitration agreements cover. Might we benefit from a statutory reassurance that all the rights and remedies of our anti-discrimination statutes prevail in private arbitration, as well as at least limited availability of class and collective rights and processes?  If the appeals tribunal enjoyed the status of U.S. magistrates, answerable to Article III judges, then employees and the public would gain confidence in a system, as of May 2018, steeply tilted away from employees’ interests. And if the call for state law bans on nondisclosure agreements in employment settlements gives any indication, the public is hungry for less secrecy in employment disputes.

As with all matters legislative, right now our partisan polarization stands in the way. But hope springs eternal that our better angels, and our ability to compromise—on this and other matters, will eventually return.

Weyman T. Johnson is an adjunct at the University of Georgia School of Law.

Weyman T. Johnson is an adjunct professor at University of Georgia School of Law.

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