Could Justices Cause Employer Stampede to Mandatory Arbitration?

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By Lawrence E. Dubé

The U.S. Supreme Court will decide within a few weeks whether employers can lawfully require workers to accept arbitration agreements that prevent them from joining in class actions.

A ruling for the employers in three consolidated cases—NLRB v.Murphy Oil USA, Inc., Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris—could have broad implications for U.S. businesses.

Lawsuits under class action rules or collective action procedures have been important vehicles for employees to combine small employment claims, such as wage and hour complaints, into large lawsuits that are economically efficient and attractive to lawyers. The number of such cases has climbed in recent years, and the exposure for the targeted companies can be staggering.

Corporations have tried to dodge the threat of class and collective litigation by forcing employees to sign waivers. If the Supreme Court finds that class action waivers are lawful and enforceable, it’s very likely that more employers will move to incorporate them into existing employment arbitration agreements.

“It would virtually be malpractice” for employer attorneys not to recommend the adoption of class action waivers if they’re approved by the justices, Sunu P. Chandy, legal director of the National Women’s Law Center, told an audience April 6 at an Economic Policy Institute event in Washington. EPI, which is supported principally by foundations and labor unions, identifies itself as a nonprofit, nonpartisan think tank focused on addressing the needs of low- and middle-income workers in economic policy discussions.

Arbitration Boom Under Way

The EPI event publicized a new research paper on mandatory arbitration released in anticipation of the Supreme Court’s ruling in Murphy Oil and the companion cases.

In “The Growing Use of Mandatory Arbitration,” Professor Alexander J.S. Colvin says that the Supreme Court’s ruling could stimulate a major increase in the number of employers forcing employees to take employment complaints and grievances into mandatory arbitration systems selected and controlled by employers.

The NLRB has been challenging class action waivers for about six years, and Colvin’s findings suggest the litigation drew attention to alternative dispute procedures and likely spurred the use of mandatory arbitration long before Murphy Oil, Epic, and Ernst & Young were argued on the opening day of the high court’s October 2017 term.

Impact of Class Waiver Litigation

Colvin, an associate dean and professor of conflict resolution at Cornell University’s ILR School, found that more than half of nonunion private sector employees—an estimated 60 million workers—are covered by mandatory arbitration procedures. An estimated 40 percent of the employers that have established mandatory arbitration systems adopted their policies between 2012 and 2017—the period when the battle over class action waivers was working its way from the NLRB to the Supreme Court.

More than half, or 54 percent, of nonunion employers in the private sector have mandatory arbitration procedures, according to Colvin, who based his findings on a survey of 617 businesses in 2017. Among employers with more than 1,000 employees, the number is even higher—65 percent have mandatory arbitration.

Thirty percent of employers that have mandatory arbitration also have class action waivers in their arbitration agreements or policies, Colvin found. In large-employer workforces, he said, the number is even higher—41 percent are bound by class waivers.

“The overall picture,” Colvin wrote, “Is one of mandatory employment arbitration expanding through the 1990s and early 2000s to nearly a quarter of the workforce.”

Concerns About Impact on Workers

Colvin and other speakers at the EPI event expressed concern that mandatory arbitration not only deprives employees of the opportunity to have their claims heard in a forum of their choosing; it may deprive many workers of a chance to have their claims heard at all.

Requiring employees to use private dispute resolution systems is much different than pursuing a claim through an arbitration system negotiated by an employer and union, Sharon Block told the EPI audience. Block, who is now the executive director of the Labor and Worklife Program at Harvard Law School, is a former NLRB member.

Block pointed out that in a union-management arbitration, “your union is literally beside you” providing both representation and moral support. On the other hand, Block said, in a mandatory arbitration system imposed by a nonunion employer, the employee is “going it alone.”

In his paper, Colvin cited research by New York University law school professor Cynthia Estlund, who found that although 60 million American workers may be covered by mandatory employment arbitration, the number of claims actually filed is fewer than 10,000 per year.

The findings could indicate that employees are discouraged or perhaps uninformed about their options under mandatory systems. More and more companies have adopted mandatory arbitration procedures, but employees haven’t used the procedures in significant numbers, at least not yet.

The impact of expanding mandatory arbitration as the exclusive mechanism of dispute resolution could be particularly significant for minority employees and women, the Cornell professor warned. Colvin estimates that 59 percent of black workers are subject to mandatory arbitration, along with 54 percent of Hispanic and 58 percent of female workers.

Colvin wrote that the rapid expansion of mandatory arbitration systems hasn’t been matched by an increase in employees filing arbitration cases. That contrast, he said, may “indicate that employers adopting mandatory employment arbitration have been successful in coming up with a mechanism that effectively reduces their chance of being subject to any liability for employment law violations to very low levels.”

A Supreme Court ruling this term in favor of employers will certainly increase interest in mandatory arbitration, according to Colvin, and channel more employment disputes out of the courts and into private dispute resolution.

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