In an article I wrote for this publication shortly after the November 2016 presidential election, I suggested that predictions of the demise of employment and consumer-related arbitration provisions (including clauses waiving class action arbitration) should be put on hold pending the appointment of the ninth U.S. Supreme Court justice to break the balance of the then-4-4 court deadlock.
That this deadlock related to arbitration matters has indeed been broken was demonstrated most recently in the May 21 SCOTUS decision in Epic Systems v. Lewis. That ruling involved three cases with different facts but similar issues from the Fifth, Seventh and Ninth circuits.
In the Epic case, the employee and employer had entered into agreements for individual arbitration of employment disputes. (The minority opinion, however, deemed the arbitration agreement as something employees were required to sign as a condition of employment.) Despite the provision for individual arbitration, employees pursued class and collective actions as “concerted activities” protected by Section 7 of the National Labor Relations Act, guaranteeing employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively … and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” At the heart of the challenges to individual arbitration were the role of the “savings” clause of the Federal Arbitration Act, as well as a ruling from the National Labor Relations Board effectively nullifying the FAA.
Significantly, the opinion was delivered by the newest member, Justice Neil Gorsuch, with Chief Justice John Roberts Jr. and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito joining (with Thomas filing a concurring opinion). Justice Ruth Bader Ginsburg filed a dissenting opinion that was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.
As to the NLRB claim, the court noted that the FAA and the NLRB have long co-existed (from 1925 and 1935, respectively) and found the suggestion that they might conflict as “something quite new.” In fact, the court highlighted a 2010 NLRB general counsel memorandum that the validity of arbitration agreements “does not involve consideration of the policies of the National Labor Relations Act.”
Giving a textbook history of the purpose of the 1925 Arbitration Act and its goal to battle judicial hostility to arbitration, recognize arbitration’s benefits and enforce arbitration agreements, the court quickly dispatched the notion that the savings clause and the action of the NLRB might invalidate the Arbitration Act. It found that by challenging the agreement for individual arbitration, the challengers sought to undo one of arbitration’s “fundamental attributes.” Citing its AT&T Mobility v. Concepcion and Stolt-Nielsen decisions, the court stated that “courts may not allow a contract defense to reshape traditional individualized arbitration by mandating class-wide arbitration procedures without the parties’ consent.” The court warned that “we must be alert” to new devices and formulas “that would replicate pre-FAA antagonism” to arbitration which “manifested itself in a great variety of devices and formulas declaring arbitration against public policy.”
The history lesson continued as the court analyzed what Section 7 intended and did not intend to do. Its sharp conclusion was that Section 7 can hardly be construed to confer a right to class action since such procedures were “hardly known” in 1935 and the Federal Rules of Civil Procedure didn’t create the modern class action until the 1960s. Conducting a methodical statutory construction analysis, it found no conflict between the two statutes. Using colorful language from a previous decision, the court concluded that Congress does not “hide elephants in mouseholes.” It found it unlikely that Congress would have “tucked into the mousehole of Section 7’s catchall phrase an elephant that tramples the work done by these other laws” (such as the FAA).
The majority found nothing supporting the employees’ challenge to support a “clear and manifest” congressional command to displace the Arbitration Act. Further, the majority dispatched much of the minority’s reliance on legislative history by stating that once a legislative enactment is complete, “we do not inquire what the legislature meant; we ask only what the statute means.”
The minority opinion also looked into the legislative history of the NLRA and the FAA. However, the minority view of the reasons behind the enactment of the FAA were strikingly at odds with those of the majority. The minority stressed the rationale of the Arbitration Act to expedite resolution of commercial disputes and concluded that Congress’ purpose was to “enable merchants of roughly equal bargaining power” to enter into arbitration agreements for those disputes.
The minority did not feel that Congress intended the act to apply to arbitration provisions in employment contracts and that it was intended for voluntary and negotiated agreements, not “take it or leave it” employment contracts. The minority bemoaned the many “wrong turns” the court’s Arbitration Act decisions have taken over the past years. Ginsburg’s dissent complained of “anomalous results” of deciding common claims by individual arbitrations, including confidential rulings, failure to rely on previous precedents, conflicting awards and costs greatly exceeding the amount in controversy. Unlike the majority, the minority did not concede that these results came from “legislative choices.”
The majority opinion cited several decisions over the past several years, such as Concepcion (2011), Italian Colors (2013) and DIRECTV (2015), resulting in the matters proceeding as individual cases rather than classwide. Nonetheless, the majority opinion offered some very interesting language which might be seized on by opponents of arbitration seeking legislative change.
The majority opinion began by acknowledging that “As a matter of policy these questions are surely debatable.” It then stated that “You might wonder if the balance Congress struck in 1925 between arbitration and litigation should be revisited in light of more contemporary developments. You might even ask if the Act was good public policy when enacted. But all the same you might find it difficult to see how to avoid the statute’s application.” And in its conclusion, the majority, in a possible nod to the many public policy arguments leveled against class action restrictions, restated that “The policy may be debatable, but the law is clear.”
After concluding that the dissent ultimately “retreats” to policy arguments, the majority stated, “The respective merits of class actions and private arbitration as means of enforcing the law are questions constitutionally entrusted not to the courts to decide but to the policy-makers in the political branches where these questions remain hotly contested. … This court is not free to substitute its preferred economic policies for those chosen by the people’s representatives.” Additionally, the opinion states “when Congress wants to mandate particular dispute resolution procedures it knows exactly how to do so” and went on to cite several examples.
While the current membership of the Supreme Court seems to support arbitration as envisioned by the FAA for the immediate future, further and more intensified efforts to revisit these important public-policy issues make legislative attempts to bring about changes more likely. Surely, the fierce debate between supporters of individual arbitration proceedings and proponents of class-action proceedings in the employment and consumer context will continue to be played out in the judicial and administrative arenas for some time to come, but the legislative arena is now particularly important to watch.
The November midterm elections might play an important part in future arbitration-related developments and will certainly offer a clue as to how these important policy issues will be further shaped.
Harry N. Mazadoorian is a commercial arbitrator, mediator and member of the American Arbitration Association’s Master Mediator Panel. He is the distinguished senior fellow in the Center for Dispute Resolution at Quinnipiac University School of Law.