How the Supreme Court Could Reshape Employment Law

The conservative justices’ interpretation of the Federal Arbitration Act could cripple employee challenges to wage, hour, working-conditions, and job-status disputes.

Family members and attendees place flowers during the 100th anniversary of the Triangle Shirtwaist Factory fire on March 25, 2011, in New York City. (Eric Thayer / Getty Images)

During Neil Gorsuch’s Supreme Court nomination hearing last year, then-Senator Al Franken asked the nominee whether he had read a recent New York Times series about the use of arbitration to thwart consumer complaints against corporations.

Gorsuch said he had. “It made me think about a little bit of history,” he added. “It used to be back at common law that arbitration was disfavored because it was thought that everyone should go to trial, trials were the norm, Seventh Amendment and all that. And then in [1925] Congress passed a law called the Federal Arbitration Act … Congress expressed a judgment that people should arbitrate their disputes. It made a judgment, policy judgment in favor of arbitration, because it’s quicker, cheaper, easier for people.”

Gorsuch’s reading of history is, as we shall see, doubtful; but he was echoing orthodox conservative legal thought. The Federal Arbitration Act, many conservatives believe, is a kind of super-statute, a legal big bang that was intended to transform the court system, changing the very meaning of “Seventh Amendment and all that.” When originally enacted, the FAA was applied mostly to enforce agreements among businesses to settle their disputes out of court. But with the appointment of Justice Antonin Scalia, the Supreme Court’s view of the FAA has expanded. Over the past 30 years, the Court has interpreted the FAA to encompass consumer and financial-services contracts. Those decisions have deprived many small litigants—the kinds of people who buy cellphones, run restaurants, or pay home mortgages—of their day in court against giant corporations.

Now, the court is poised to apply the FAA to employment contracts in a way that may cripple employee challenges to wage, hour, working-conditions, and job-status disputes.

News coverage of labor matters at the Court has mostly focused on Janus v. American Federation of State, County, and Municipal Employees, a challenge to public-employee unions that the Court will hear Monday. But the FAA case, Epic Systems Corp. v. Lewisthe very first case the Court heard this term—is also a potential blockbuster. While Janus will affect one set of unions, Epic Systems may harm millions of Americans who work for wages, whether they belong to unions or not.

The issue in Epic Systems is whether employers can, as a condition of employment, require their employees to submit all work-related disputes to arbitration—and not simply to arbitration, but to individual arbitration, with no class or collective actions allowed. Indications are that the court will say that such employment contracts are allowed.

It will be a curious holding.

First, the FAA doesn’t actually announce a “policy judgment in favor of arbitration”—or any policy statement at all. The act says only that contracts requiring arbitration of disputes “shall be valid, irrevocable, and enforceable, save up such grounds as exist at law or in equity for the revocation of any contract.” In other words, if two parties agree to settle contract disputes by arbitration, one party can’t later back out—as long as the original contract was valid.

It will also be curious because such a decision would apply the FAA, passed in 1924, to override the National Labor Relations Act, passed in 1935. Usually, in statutory cases, the later statute prevails over the earlier. Finally, the FAA’s text doesn’t contain a “policy judgment”—but the  NLRA’s does: in 29 U.S. Code § 151 (“Findings and declaration of policy”) “[i]t is hereby declared to be the policy of the United States to eliminate the causes of certain substantial obstructions of the free flow of commerce [by which the drafters meant labor disputes leading to strikes and lockouts] … by encouraging the practice and procedure of collective bargaining … ”

The use of arbitration clauses in employment contracts has exploded. A September report by the Economic Policy Institute estimated that mandatory arbitration clauses now cover 60.1 million workers nationwide, and 24.7 million of them are covered by “class action waivers” like the ones at stake in Epic Systems. Until last year, the federal government opposed “class action waiver” arbitration provisions in employment contracts. The National Labor Relations Board is a party to Epic Systems, and a government brief last year asked the Supreme Court to hold the waiver clauses illegal.

But then came Trump; in June, the Solicitor General’s office filed a new government brief taking the employers’ side. In other words, the government filed a brief specifically arguing against its own earlier brief, and refused to argue on behalf of the NLRB before the court. The government’s new brief proposed a new, narrow reading of the NLRA. Its protection of employee collective action extends only to “self-organization, association with labor unions, and collective bargaining,” the government argued.

If adopted, this interpretation would narrow the scope of the NLRA almost to the vanishing point. The language of the act, in fact, goes far beyond union-related matters. Section 7, the heart of the act, says, “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection … ” One such “concerted activity” would be collective arbitration; another would be use of the courts to pursue “collective actions.”

The tenor of oral argument suggests that a majority of the justices think the FAA sweeps aside the language of the NLRA. Why? I suspect it is a failure of historical memory. Judges in general tend to think they know a lot of history; judges in general, alas, usually know little and understand less. When the subject is American labor history, judges are at least as ignorant as the average American.

The Federal Arbitration Act was passed and signed in 1925, during the Coolidge Administration—a time hailed by many conservatives as a golden era of small government, big business, and an expanding economy. The National Labor Relations Act was a New Deal measure—product of a time conservatives regard as dark, disastrous, and illegitimate.

The two statutes thus arose from very different historical moments—but both have their roots in Manhattan’s strike-torn Garment District. Beginning in 1909, New York’s garment workers—many of them first-generation immigrants from Eastern and Southern Europe—rebelled against the industry’s sweatshop conditions. The workers’ embrace of socialism terrified owners and also worried Progressive reformers, who saw an urgent need to teach them “American” ways of thought.

Under the leadership of future Supreme Court Justice Louis D. Brandeis, Progressive reformers created the “Protocol of Peace,” which designated expert private commissions to resolve labor disputes and also to regulate the industry as a whole. By adjusting prices, pay, and conditions in the “public interest,” the “protocol” structure would, these reformers thought, prevent “destructive” competition among owners—and dangerous militancy among workers. “To many outside of the rank and file,” historian Richard Greenwald wrote in his book The Triangle Fire, the Protocols of Peace, and Industrial Democracy in Progressive Era New York, “the Protocol was a magic bullet, an inoculation against class disruption and an ‘uncivilized’ economy.”

One of the most important leaders of the “protocol” movement was a prominent lawyer named Julius Henry Cohen, who represented the owners; he would later be a major force behind adoption of the FAA—along with another management lawyer in the “protocol” period, Charles Bernheimer.

But many ordinary workers chafed under the paternal rule of the labor “experts”; and some major sweatshop operators refused to join in the “protocol” system. On March 25, 1911, one of those unorganized shops—the Triangle Shirtwaist Factory, occupying three upper floors of a building on Washington Place in Greenwich Village—burst into flames when a stray match ignited poorly stored cotton scraps.

Workers on the ninth floor had been locked in by owners, as an “anti-theft” measure. They suffocated, burned to death, fell to the street from a collapsing fire escape, or jumped to their deaths to avoid the flames.

The death toll was 146, 123 of them women.

After the fire, historian Greenwald explained, the Progressive vision that birthed “protocolism” underwent a fundamental change. Voluntarism, private ordering, and harmony hadn’t worked. It was time for reformers to invoke the coercive power of the state. The state of New York announced a State Factory Investigating Commission, which exposed the callous indifference to worker safety common in the unorganized factories.

The commission’s chair and co-chair were state legislators Robert Wagner and his co-chair, Al Smith. The two, Greenwald wrote, were “obscure Tammany Hall hacks” when named to the commission. The commission’s work, however, transformed both: Smith would be the Democratic presidential nominee in 1928, while Wagner, a labor champion in the U.S. Senate for two decades, sponsored the National Labor Relations Act, known also as the Wagner Act.

The FAA can be seen as a remnant of pre-Triangle fire “protocolism”—born out of the needs of merchant capitalists for a private, voluntary way of resolving disputes over contracts to manufacture, buy, and sell goods. As one proponent explained at the time it was considered, the “fundamental conception is to enable business men to compose their disputes expeditiously and economically … “

During the early ‘20s, the bill’s sponsors repeatedly explained that the act would not cover labor matters.  Stanford  Law School legal historian Amalia Kessler told me, “It’s pretty clear that [Charles Bernheimer, chief lobbyist for the Act and a ‘protocol’ veteran] was not eager to have his organization involved in labor arbitration.” In Outsourcing Justice: The Rise of Modern Arbitration Laws in America, a comprehensive history of the FAA’s drafting, Loyola University law professor Imre Szalai wrote, “The intentions behind the Federal Arbitration Act are clear with respect to labor disputes,” he wrote. Arbitration clauses in employment contracts, he concluded, were not to be covered by the act.

Ten years later, the New Deal 75th Congress passed the Wagner Act. The decade between the two measures was a dark one: Coolidge-era prosperity collapsed into the Great Depression. Unemployment, about 4 percent in 1925, soared to nearly 25 percent in 1933, then subsided only to about 20 percent in 1935. Wages fell and working conditions deteriorated. Workers still on the job demanded union representation, better job security, and higher wages—and representation was often the hardest-fought issue. Electrical workers shed blood in the streets of Toledo, Ohio; longshoremen on the San Francisco waterfront paralyzed the nation’s Pacific ports; and a Teamsters strike in Minneapolis-St. Paul was so turbulent that the state’s governor placed the cities under martial law. Some sober observers worried that the United States was swirling into revolution or dictatorship.

Congress’s response did not envision wise “experts” and avuncular harmony between capital and labor. Instead, the NLRA sought “labor peace” by requiring owners and workers to meet at the bargaining table. The Act, Georgetown University labor historian Joseph A. McCartin told me, was born out of “20 years of struggle around this issue”—the demand of workers that owners deal with them as a unit represented by a union they chose, not one by one. Wagner and the other sponsors, he added, “had an idea of what caused the Depression. … [I]t was inequality of bargaining power” between workers and owners. For that reason, the Act itself recites that

The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other forms of ownership association substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries.

It’s pretty clear that the workers in the current cases don’t have “equal bargaining power” with their employers. In the three cases consolidated as Epic Systems, the companies made clear that the employees could sign the form contract or forget their jobs. There was no “bargaining,” collective or individual.

To be clear, the employees in these cases aren’t opposed to arbitration as such. They don’t even oppose individual arbitration—if required by contract reached through collective bargaining. But, they argue, the NLRA means that employers don’t have the unilateral right impose such contracts on them. Unless validly bargained away, they argue, class or collective actions are among the “concerted activities … for mutual aid and protection” the NLRA protects.

A win for the employers will impact all workers, unionized or not. But organized labor and its advocates are taking the potential threat seriously.

“A decision adverse to the employees will cripple enforcement of all federal and state minimum standards legislation that depends on private enforcement, including the Fair Labor Standards Act, Title VII (prohibiting employment discrimination), the Age Discrimination in Employment Act, and the Americans With Disabilities Act, etc.,” Craig Becker, a former member of the National Labor Relations Board who is now general counsel of the AFL-CIO, told me in an email. “Every well-counseled employer will require that its employees sign waiver agreements.”

*A previous version of this piece stated that Amalia Kessler is a professor at UCLA; she is at Stanford. We regret the error.