Supreme Court Upholds Workplace Arbitration Contracts

WASHINGTON — The Supreme Court on Monday ruled that companies can use arbitration clauses in employment contracts to prohibit workers from banding together to take legal action over workplace issues.

The vote was 5-4, with the court’s more conservative justices in the majority. The court’s decision on the matter could affect some 25 million employment contracts.

The case was the court’s latest attempt to determine how far companies can go in insisting that disputes be resolved in individual arbitrations rather than in court.

The Supreme Court ruled in earlier cases that companies doing business with consumers may require arbitration and forbid class actions in their contracts, which are often of the take-it-or-leave-it variety.

Such contracts typically require two things: that disputes be resolved by arbitration and that claims be brought one by one. That makes it hard to pursue minor claims that affect many people, whether in class actions or in mass arbitration.

The ruling followed several Supreme Court decisions endorsing similar provisions, generally in contracts with consumers. The question for the justices in the new cases is whether the same principles apply to employment contracts.

In both settings, the challenged contracts require that disputes be raised through the informal mechanism of arbitration rather than in court and that claims be brought one by one. That makes it hard to pursue minor claims that affect many people, whether in class actions or in mass arbitrations.

In 2011, in AT&T Mobility v. Concepcion, the Supreme Court ruled that the Federal Arbitration Act, which favors arbitration, allowed companies to avoid class actions by insisting on individual arbitrations in their contracts with consumers.

By a 5-4 vote, the court said a California couple who objected to a $30 charge for what had been advertised as a free cellphone were barred from banding together with other unhappy customers.

Arbitration clauses with class waivers are now commonplace in contracts for things like cellphones, credit cards, rental cars and nursing home care.

In a 2015 dissent, Justice Ruth Bader Ginsburg, citing a New York Times article examining arbitration agreements, wrote that the 2011 decision and later ones “have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer protection laws.”

In the new cases, workers argued that employment contracts are different. They said a second law, the National Labor Relations Act, prohibits class waivers. The labor law protects workers’ rights to engage in “concerted activities.”

Two federal appeals courts, in Chicago and San Francisco, accepted that argument. A third, in New Orleans, has rejected it. The court agreed to hear appeals in all three cases: Epic Systems Corp. v. Lewis, No. 16-258; Ernst & Young v. Morris, No. 16-300; and National Labor Relations Board v. Murphy Oil USA, No. 16-307.