This Supreme Court Case Puts 25 MILLION Employment Contracts At Stake

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Kevin Daley Supreme Court correspondent
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The U.S. Supreme Court, convening Monday for the first time since June, heard a labor relations case whose outcome could affect the status of 25 million employment contracts around the United States.

At issue in the case is a provision common to millions of contracts that requires employees to settle disputes with management on an individual basis. Several justices said these provisions compromise the legal legacy of the New Deal during Monday’s arguments, since they inhibit workers from organizing class action law suits to secure better contracts.

Though the Federal Arbitration Act (FAA) provides that a contract provision requiring arbitration must be enforced, the National Labor Relations Act (NLRA) establishes the right of workers to engage in “concerted activities” to secure mutual aid and protection. At issue in Monday’s case was whether the NLRA allows employers to enforce contracts requiring case-by-case arbitration.

Paul Clement of Kirkland & Ellis, a seasoned Supreme Court advocate representing three companies involved in the litigation, argued that NLRA makes no reference to arbitration specifically, meaning it cannot be used as the basis for invalidating mandatory individual arbitration provisions.

“I’m worried what you’re saying overturns labor law going back to FDR,” Justice Stephen Breyer replied. He later called the NLRA, and the provisions allowing concerted activities to enhance contracts “the heart of the New Deal.”

Justice Ruth Bader Ginsburg shared Breyer’s concerns, arguing the NLRA recognized that robust dispute resolution mechanisms are essential for fair contracts. Ginsburg said employees often have no choice but to sign contracts requiring individual arbitration, since employers simply would not hire them otherwise. She compared such contracts to so-called “yellow dog” contracts, which prohibited workers from joining unions as a condition of employment.

The Department of Justice staged something of an about-face in the case after the Trump administration took power. Though the Obama Justice Department was involved in the case on the side of the National Labor Relations Board (NLRB), the Trump administration tacked a new course in June and backed the companies. It is not unprecedented for the Justice Department to flip positions in a case as a consequence of an election, though it is never received well by the Court.

Principal Deputy Solicitor General Jeffrey Wall, arguing for the administration, echoed Clement’s argument, telling the justices that the FAA unambiguously requires enforcement of mandatory arbitration provisions, while the NLRA is rather imprecise on the matter. Therefore the FAA must prevail, he said, since a clear command cannot yield to a vague command as a matter of statutory interpretation.

Clement and Wall further argued that mandatory individual arbitration provisions only prevent workers from cooperating as a formal matter. Though a contract may forbid class actions, they do not forbid multiple employees from sharing information and strategizing with the same lawyer, who would then represent each of them in their individual arbitrations. Justice Elena Kagan quickly countered that a right cannot be curtailed just because alternatives are available. She said, for example, leafleting cannot be prohibited just because a leafleteer could write an opinion editorial in a local newspaper instead.

Chief Justice John Roberts and Justices Anthony Kennedy and Samuel Alito appeared sympathetic to the companies, while Ginsburg, Breyer, Justice Sonia Sotomayor, and Kagan appeared intensely skeptical of their position.

Justice Neil Gorsuch, the Court’s newest appointee, was silent for the extent of the argument, as was Justice Clarence Thomas, who rarely intervenes in oral arguments. A decision could come before the end of the year.

Disclosure: The writer’s fiancee is employed by a firm involved in this litigation. 

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