Today, Explained - Arbitration Nation

Episode Date: May 22, 2018

The Supreme Court may have taken away your ability to file a class action lawsuit against your employer. In a 5-4 decision yesterday, the Court decided that workers who signed contracts with arbitration clauses aren’t allowed to band together and sue their employers. Slate’s Mark Joseph Stern says the ruling is just the latest setback to tens of millions of American workers. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Johnny Harris, you're going to Hong Kong. You're taking your Quip electric toothbrush because you went to getquip.com slash explained. Do you go to Hong Kong all the time? Is this a special thing? No, this is a very special thing. I've never been to Hong Kong. I am going as part of my job. I make documentaries about borders.

And for those who don't know, there's a very interesting border between Hong Kong and mainland China that I'm going to go film and make videos about. Maybe you can tell us a little bit more about it. I would love to. Great. You know when you want a job and you interview for that job, and then somehow through some stroke of luck, you actually get that job. And then you have to sign some long, incomprehensible contract.

And you're like, yeah, whatever, just give me the job already. I want the job, the job. Turns out there's this little thing in that contract that could really come back to bite you in the butt. It's called an arbitration clause. Yeah, so arbitration clauses are this little provision of employment contracts that have become very popular in recent years. Mark Joseph Stern writes about the law for Slate.

If the employee has some kind of grievance with their employer, say they think that they were forced to work extra hours off the books, they weren't compensated for it. They cannot join collectively with their fellow employees to sue their employer in courts. As in, if you're under an arbitration clause, you can't band together with your co-workers and file a class action lawsuit. And that is the most effective way to resolve these claims, right? Because if you were denied a couple hundred dollars pay by being forced to work off the books, there's no lawyer who's really going to want to take that case, right? So the most effective way to resolve it is to join together with your fellow employees and sue collectively, typically through a class action. But with an arbitration clause, no class action. You have to resolve your grievance directly with your employer

one on one on one. There is an arbitrator in the room acting like a judge. And arbitration is not at all like a an open court proceeding. It is rather secretive. Typically, the employer gets to choose the arbiter and the damages, if there are any, tend to be much smaller than in federal courts. If the employee can even win it all, it's a really complex process. And it's becoming the standard process. According to the Economic Policy Institute, over half of American workers who aren't in unions have these clauses in their employment contracts. And people who are in unions have them too. Something like 25 million workers in America are bound by these contracts, even though they might not know it.

Even though it wasn't totally clear if they were legal to begin with. Until yesterday, when the Supreme Court issued a decision in Case 16-285, Epic Systems Corporation v. Lewis and the Consolidated Cases. Mr. Clement. Mr. Chief Justice, and may it please the court. In Epic Systems, a group of employees at these big companies were basically denied pay that they deserved, but each individual was only deprived of a few hundred or a few thousand dollars. And so it was very difficult for them to find individual attorneys who would want to represent them for a relatively small sum. So instead, what they tried to do was come together and sue collectively through a class action.

But their employers turned around once they sued and said, you know what, you can't do that because as a condition of employment, when you started working here, you signed a contract that included an arbitration agreement. And that arbitration agreement forfeits your right to sue collectively and instead obligates each of you to go through one-on-one arbitration individually. Now, in 2012, the National Labor Relations Board held that those kinds of clauses are actually nullified by a federal law called the National Labor Relations Act. The National Labor Relations Act was passed in 1935. It's sort of a signature piece of New Deal legislation. And that law guarantees workers the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or

protection. And so the National Labor Relations Board said suing collectively through a class action is clearly an example of engaging in concerted activities for the purpose of mutual aid or protection. And so the key question for the Supreme Court was essentially whether the National Labor Relations Board was correct, whether this big piece of New Deal legislation guaranteed these workers the right to sue collectively, regardless of what was in the contract that they were forced to sign. Okay, so if I'm following you, the Supreme Court is trying to figure out whether class action lawsuits are protected by the National Labor Relations Act, the NLRA, which has been around for like 100 years. It's vintage New Deal legislation. And

is that why things get a little testy? I heard RBG wasn't too pleased to be having this debate. Yes, RBG and Justice Stephen Breyer were very upset at oral arguments. This is truly a situation where there is strength in numbers. And that was the core idea of the NLRA. There is strength in numbers. We have to protect the individual worker from being in a situation where he can't protect his rights. Partly because the writing was really on the wall in this case. So during oral arguments, basically RBG and Justice Breyer used the opportunity to eulogize the New Deal. I haven't seen a way that you can, in fact, win the case, which you certainly want to do, without undermining and changing radically

what has gone back to the New Deal, that is the interpretation of Norris LaGuardia and the NLRA. So I will stop. I would like to listen, and I want to hear what your answer to that is. And what was the counter-argument being made? What were the more conservative justices saying in defense of these arbitration clauses? The conservative justices relied on this law called the Federal Arbitration Act that was passed in 1925. This was not designed to let employers slip such a clause into every single contract. But it was commercial contracts that triggered the FAA. But the law says that arbitration agreements are valid, irrevocable, and enforceable except upon such grounds as exist at law. So that was passed in 1925.

And then 10 years later, Congress passed the National Labor Relations Act, which guarantees workers the right to come together and engage in concerted activities for mutual aid or protection. Basically, liberals think that the NLRA should take precedent, and the conservatives think that the Federal Arbitration Act should take precedent. So an often forgotten aspect of these cases that go before the Supreme Court is that some attorney representing the presidential administration is always there. What was the Trump administration's stance in this case? Yeah, so this was interesting. This case first arose under the Obama administration, right? And Epic Systems first asked the Supreme Court to take the case when Obama was president. And under Obama, the Department of Justice, the Office of the Solicitor General, said, look, we think that basically the National

Labor Relations Board got it right, that we think these arbitration agreements, they're invalid in the face of federal labor law, that employees have a right to sue collectively under federal law, and employers can't nullify that by slipping in these arbitration agreements. When Trump came into office and appointed his own people to the Department of Justice, it switched sides. And suddenly, the Office of Solicitor General said, oh, we've changed our minds about that. Now we actually think that, you know, the employees don't really have that right. So yeah, this case had a very awkward posture coming before the court. You had a Solicitor General who had switched sides in a move that was widely seen as political. And then you had a conflict between the Solicitor General's view and the NLRB's view, which I think reveals just how partisan this case really was.

So what was the decision? What came down? Right. So the decision was essentially embracing the conservative argument that the Federal Arbitration Act says that arbitration agreements are valid unless there's some clear exception in federal law. And in an opinion written by Justice Neil Gorsuch, the court said there is no clear exception. The court said, yes, federal labor law guarantees employees the right to act collectively to protect their own interests. But we don't think that that is a clear enough command to qualify as an exception under the Federal Arbitration Act.

And so what does that mean for, you know, the average American? Did corporations just get a lot stronger? Oh, corporations got a whole lot stronger because until this point, yes, there are already millions of these, I think tens of millions. But no one was actually quite sure if they would work, right? Because the Supreme Court hadn't clarified. And in fact, there was a circuit split in the courts below. So you had different courts of appeals going different directions on this question. There was a chance that, you know, maybe Justice Kennedy could switch sides and rule that these are invalid. But the court blessed them and in doing so dramatically expanded their use. And in fact, just hours after the court's decision came down, a big law firm came out with this new tool that auto-generates mandatory arbitration agreements to slip them

into every single contract. We're going to see these used in every single state all throughout the country. Because if you're a corporation, if you're an employer, why would you want to subject yourself to class actions when the Supreme Court itself has said that you can just slip one of these clauses into all of your contracts and shield yourself from any future class action. It's a real sweetheart deal and there's not any compelling reason for corporations not to take it. Arbitration clauses can make it harder to get money your employer owes you, but the implications here are actually a lot bigger, from Me Too sexual harassment suits to all kinds of corporate malfeasance. That's after the break.

This is Today Explained. Johnny, an adventure that started at getquip.com slash explained where you found toothbrushes, you upgraded from a $25 one to some chrome situation, a refill is coming in the mail soon, is now taking you to Hong Kong. What is going on there? The Hong Kong border is a really interesting place. It technically belongs to China on paper. China has sovereignty over this place. But in reality, Hong Kong is its own independent territory. They have their own government.

They have their own identity. They have their own history. They were part of Britain until 1997. All of that is to say it's a really interesting mix of identity and politics. And to be in the shadow of this superpower, China, who kind of wants to bring Hong Kong back into the fold, is really – it's playing out in real time right now. And I'm going to go, like, point a camera at it. And at some point use your travel toothbrush to keep your teeth clean, yeah? I'll probably be brushing twice a day. And I kind of have a thing with like really nice gear. And like, it's just fun.

Fantastic. This is the latest in a line of cases in which the Supreme Court has blessed these kinds of arbitration agreements. I think that the even bigger blow to labor is going to come within a few weeks when the Supreme Court hands down its decision in Janus. The case Janus v. American Federation of State, County, and Municipal Employees deals with whether workers who benefit from union-negotiated contracts can avoid paying union dues if they opt not to join the union. This is a case that is designed to essentially turn every state into a, quote, right to work state in the public sector employees have a First Amendment right not to pay a penny of dues to their union

in order to subsidize the cost of negotiation, of collective bargaining. The lead plaintiff, Mark Janis, is a child support specialist who argues that a state law in Illinois allowing the union to charge a fee for collective bargaining activities violates his First Amendment rights. This Supreme Court is highly favorable to that argument.

And there's basically no question that the court's going to agree and strike down laws in about 25 states that require public sector employees to pay some dues to their union just to fund the cost of collective bargaining. That's going to be a major blow to public sector unions. And so to have the one-two punch of Epic Systems and Janus in the same term, I think this is going to be a historically crushing term for labor rights in the United States. So things are looking kind of crummy at the federal level for the American worker, but I wonder at the state level if any Democrats or Republicans are championing this issue?

It's tricky because the way that the Supreme Court has interpreted these laws, they've actually restricted states' abilities to go beyond what federal law allows. But look, we have no doubt seen a resurgence of labor power in the blue states that remain. And I think Democrats understand that Trump campaigning as the icon of the forgotten man, it did stir up passions that Democrats could actually seize upon by passing laws that help individuals. So I think we should be paying very close attention to states like New Jersey, especially. Even though New Jersey is very democratic, it's a kind of moderate blue state with a lot of people who are wary of taxes, wary of unions. So that's the testing ground.

And I think they're going to figure out which experiments work best and then try to expand those federally if they ever do come out of the wilderness. Corporations just got stronger. Sounds like the American worker quite possibly just got a lot weaker. And it's happening at this particular moment where women are having this sort of unprecedented opportunity to call out men who have abused power in the workplace. Is there an aspect of like the Me Too movement that just took a blow? Oh, absolutely. Because one way that corporations use these arbitration agreements is to shunt sexual harassment claims into arbitration. Sexual harassment is illegal

under federal law, under Title VII. But because of the Supreme Court's ruling in epic systems, employers and corporations can now slip in mandatory arbitration agreements that basically require employees to forfeit their right to sue under Title VII in federal court. So yeah, this is a huge blow to me too, because at least until now, employees were able to take their bosses to court. And a group of women who struggled to solve these problems individually were able to sue collectively and say, you know, we face systemic discrimination and harassment. Now, if an employer doesn't want to let them do that, they're going to be able to

prevent them from doing that. And I think that's a devastating blow to the movement because it removes one of the best avenues for redress of grievance for women who are wronged through sexual harassment discrimination. Taking care of American workers used to be something that everyone could get behind. How did this become such a politically divisive issue? You know, I would encourage you, if you have a chance, to read Adam Winkler's amazing book, We the Corporations, which talks about how the corporate rights movement is probably the most successful civil rights movement in the history of America that never had a broad base of support or a popular movement behind it. Corporations do not have individuals marching out in the streets

on their behalf saying, we want ExxonMobil to be able to enforce arbitration agreements, right? Most American workers are not hugely supportive of this notion of corporate rights or corporate personhood, but corporate lawyers and corporations are able to afford very good lawyers, have pushed these issues almost exclusively through the courts and been able to convince the courts to reinterpret both the Constitution and existing federal laws to favor them far beyond what anyone who wrote those laws ever really anticipated. Mark Joseph Stern covers the courts for Slate. I'm Sean Ramos-Furham. This is Today Explained. Thank you. can I ask you a favor? You're taking your Quip electric toothbrush with you because you went to getquip.com slash explained. Can we sort of like keep up with you

on your trip this week and hear about what's going on and how your toothbrushing is going? Definitely. I'll definitely keep you updated on that. But I also want to tell you like what I'm seeing. I'm going to this wild place and going into all the corners

of this interesting city, country, state thing. And yeah, I'll tell you all about it. Can't wait. Great. Well, safe travels. Thank you so much.