A 'Yellow Dog Contract' And Other Jabs During Supreme Court Opening Arguments

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Whose ox is being illegally gored? That was the question in the first case argued Monday at the U.S. Supreme Court, the first of the new 2017 term.

The case may sound technical — a clash between two federal statutes. But at stake are the rights of tens of million private-sector nonunion employees.

A study by the left-leaning Economic Policy Institute shows that 56 percent of nonunion private-sector employees are currently subject to mandatory individual arbitration procedures under the 1925 Federal Arbitration Act, which allows employers to bar collective legal actions by employees.

Employees contend that such waivers are illegal because a federal law enacted 10 years later, the 1935 National Labor Relations Act, specifically protects the rights of workers to band together to challenge allegedly illegal actions by their employer.

Three cases, which alone affect tens of thousands of employees

Before the court on Monday were three cases — potentially involving tens of thousands of nonunion employees — brought against Ernst & Young LLP, Epic Systems Corporation and Murphy Oil USA, Inc.

Each required its individual employees, as a condition of employment, to waive their rights to join a class action suit. In all three cases, employees tried to sue together, maintaining that the amounts they could obtain in individual lawsuits were dwarfed by the legal fees they would have to pay as individuals to bring their cases under the private arbitration procedures required by the company.

For instance, the lead plaintiff for the Ernst & Young employees who sought to bring a class action had a case in arbitration that cost $200,000 in legal fees, although the possible recovery for unpaid overtime was only $1,800 to the individual.

The employees contended that their right to collective action is guaranteed by the National Labor Relations Act. The employers countered that they are entitled to ban collective legal action under the Federal Arbitration Act, which was enacted in 1925 to reverse the judicial hostility to arbitration at the time.

By 2011, the legal worm had turned, and at the Supreme Court there was a conservative majority hostile to class actions and favoring individual arbitrations.

Until now, however, the cases before the court have involved consumer class actions, and there was little uproar over the court's upholding binding arbitration for consumer disputes, or even its rejection of class actions in arbitration for consumers.

But Monday's cases involved the rights of employers to require employees to sign away rights that many employees think of as near and dear. Namely, the right to band together to file class action lawsuits either in federal court or at minimum, to arbitrate such claims as a group. The claims can vary from disputes over wages to disputes of alleged discrimination based on race, gender, religion or national origin.

From wages to discrimination

On the steps of the Supreme Court labor lawyer Michael Rubin stressed the importance of Monday's cases, noting that the outcome will have repercussions far and wide in the workplace.

"These employer rules at issue apply to every type of case — discrimination no less than wage and hour," he said. If the companies prevail, Rubin said, class action waivers will become even more ubiquitous and will "prevent any worker from joining with any other worker to pursue any type of workplace illegality in arbitration or in court."

Inside the courtroom, the scene was more than a bit odd. The Obama administration had sided in the court with the employees, but the Trump administration switched sides, leaving the National Labor Relations Board on its own to defend the NLRB's stated policy against class action waivers.

Lawyer Paul Clement, representing the three companies, and the Trump administration's Deputy Solicitor General Jeffrey Wall, who was also supporting the companies, got quite a grilling from the court's four liberal justices.

A "yellow dog contract"

The class action waivers that employees are being forced to sign have all the essential features of the classic "yellow dog contract," said Justice Ruth Bader Ginsburg. That is, there is no real "liberty of contract" for employees. Instead, the employer says, "You want to work here, you sign this." And that, added Ginsburg, is exactly the kind of "imbalance" in negotiating power that the National Labor Relations Act was intended to correct by protecting the ability of employees to act collectively.

Justice Stephen Breyer said he could not see how the employers could win their case without "changing radically" what the law has been, going "back to the New Deal."

But Ginsburg and Breyer have been in the four-justice minority in most of these cases, joined by Justices Elena Kagan and Sonia Sotomayor, and outvoted by the court's five conservative justices, who have sided consistently with the business community.

If the liberals had any hope, it looked as though it likely was dashed when Justice Anthony Kennedy repeatedly opined that employees with similar problems could all go to the same lawyer, and that he saw no problem with any excessive costs created by requiring multiple separate individual hearings.

A decision in this case is expected later in the Supreme Court term.