Some employers require employees to sign agreements in which they consent to submit any employment-related disputes to binding arbitration in stead of filing a lawsuit or a charge. I know I’ve written about the is topic at least a few times (here, here and here, for example) but bear with me, OK? The topic is warming up again. The U.S. Supreme Court just struck down a contractual provision requiring drivers to submit disputes to binding arbitration. Wait a minute. Didn’t the Supreme Court just end a 6-year debate over an NLRB ruling striking down such clauses and rule that such provisions do not violate the National Labor Relations and Federal Arbitration Act? You may also have heard of the walkout in November, 2018 by Google workers protesting mandatory arbitration provisions in their employment agreements. Just two days ago, the group staged Twitter and Instagram campaigns aimed at raising awareness of use of such provisions in tech firms’ agreements. What’s going on here? Read on and see what’s behind Curtain #1 today…
In general, the US Supreme Court, citing the Federal Arbitration Act, (FAA) has favored arbitration agreements. That includes employers’ requirements that employees submit employment-related disputes to binding arbitration. That seemed to get derailed when the National Labor Relations Board in D.R. Horton ruled that such a requirement was an Unfair Labor Practice and a violation of Section 7 the N.L.R.A, which protects employees’ rights to engage in concerted activity aimed at discussing/improving work conditions. But then, this past May, the U.S. Supreme Court seemed to have put that issue to bed, ruling that “arbitration agreements providing for individualized proceedings must be enforced” and that neither the FAA nor the NLRA suggest otherwise. Therefore, per the US Supreme Court, employers do not violate the NLRA if they require workers to forgo the ability to pursue class actions by including the class waiver provisions in arbitration agreements that must be signed as a condition of employment.
So what’s the problem, then? First, the U.S. Supreme Court just handed down another ruling that at first blush seems to contradict its ruling in D.R. Horton. In New Prime Inc v Oliveira, just 2 days ago, the US Supreme Court ruled that a trucking company could not compel its drivers, which it classified as independent contractors, to arbitrate their wage and hour claims against the company because Congress intended to exempt all interstate transportation workers from the Federal Arbitration Act (“FAA”). How do we know what Congress intended? The Court relied on Section 1 of the FAA, which specifically exempts: ““contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from binding arbitration.
The Court in New Prime analyzed the following two issues: 1) (1) whether the application of the Section 1 exemption is an issue for courts or an arbitrator to decide, even if the parties have agreed that issues of arbitrability are to be decided by the arbitrator; and (2) whether the “contracts of employment” language in Section 1 of the FAA applies to agreements only involving employees, or if it also applies to transportation workers classified as independent contractors. The Court agreed with the lower courts on the first issue, that courts should decide for themselves whether Section 1’s “contracts of employment” exemption applies, even when the agreement says it’s to be decided by an arbitrator. As to the second issue, the Court interpreted a “contract of employment” using the ordinary meaning of those words when Congress enacted the FAA in 1925. The Court reasoned that in 1925, the term “employment” was synonymous with “work” and that Congress therefore intended the exemption to apply to anyone working in industry, and that the exemption therefore applied regardless of whether one was classified as an employee or an independent contractor.
This decision is particularly interesting for a few reasons. First, it was unanimous and came from a mostly conservative court and was in favor of workers’ rights. Additionally, it closed a loophole for employers looking to sidestep certain responsibilities, obligations or restrictions normally imposed on employers by classifying (and likely mis-classifying) workers as independent contractors. In some respects that point may be more noteworthy than the issue of mandatory arbitration agreements. On that issue, while it will probably have a significant impact on the interstate transportation issue (especially for any such businesses that rely significantly on independent contractors.
OK, let’s have a brief look on what is going on at Google and see if we can’t tie everything together. In November 2018 groups of organizers worldwide staged a walkout and then on Tuesday launched a campaign via Twitter and Instagram to protest Google and other tech firms (such as ) use of mandatory employment arbitration agreements. The group behind the social media campaigns, End Forced Arbitration, formed last month. Posts from the group included presentations and conversations with law professors, research and statistics, information on legislation introduced in Congress, to prohibit use of mandatory arbitration. The group names firms such as Netflix, Facebook, Uber, Airbnb, Two Sigma and staffing firm Adecco as employers who could not meet [three] basic criteria of a transparent and equitable workplace.” The criteria: no gag rule, no class action waivers and arbitration being optional. The group told employees to contract members of Congress and named other possible remedies, such as filing police reports, contacting the EEOC and requesting different arbitration panel configurations.
Without commenting on the viability or validity of the recommendations, what can we take from the protests and the recent Supreme Court rulings? For now, the general rule is that mandatory arbitration agreements are legal–unless you are in the interstate transportation industry. As a practical matter, however, you will have to make a business decision as to whether mandatory arbitration is a good idea. There is evidence that it doesn’t always mean a much shorter or less expensive dispute resolution process than litigation. Beyond that however, it may be an example of “just because you can, doesn’t mean you should”. The protests right now seem to be confined to the tech industry, but that could spread. Either way, if employers push mandatory arbitration and enough employees push back, getting and retaining good talent may be harder. Will Congress pass legislation amending the FAA? Well, between the shutdown and the usual rate at which Congress moves, that does not appear to be very imminent, if likely. Again though, whether to require submission of employment disputes to binding arbitration may come down to very practical, individual considerations for each employer.
I think that covers it for now. See you next week!
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