The decision by the United States Supreme Court last week upholding the use of arbitration agreements to prohibit class-action lawsuits generated widespread cheering in the business community.
But employers would be well advised to hold their applause.
That’s because this Supreme Court decision is unusual in that it does not draw a bright line making it clear what employers may or may not do. It simply opens the door for employers to pursue mandatory arbitration as an option.
Most importantly, the decision does not allow employers to use arbitration agreements to escape the “onerous” aspects of legally established remedies.
The court has made clear that while arbitration involves a change of forum from the courts to the private arbitration arena, and an elimination of class actions, it does not change workers’ substantive rights. Arbitrators must apply the same law that a court would apply and award the same substantive remedies for proven violations.
Employees will still be able to file a claim for nonpayment of wages, sexual harassment, or other adverse consequence at work. They just won’t be able to do it as a class action.
The best advice to employers any time they face a new legally justified option - take time to weigh the options before moving ahead.
The Supreme Court ruled that companies may use arbitration clauses in employment contracts to prohibit workers from banding together to take legal action over workplace issues. The vote was 5 to 4, with the court’s more conservative justices in the majority. The court's decision could affect some 25 million employment contracts.
Writing for the majority, Justice Neil M. Gorsuch said the court’s conclusion was dictated by a federal law favoring arbitration and the court’s precedents. If workers were allowed to band together to press their claims, he wrote, “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.”
The ruling does not necessarily invalidate Massachusetts law on the topic of arbitration.
For example, a Massachusetts case from a few years ago centered around an arbitration waiver agreement that prohibited plaintiffs' recovery of multiple damages in any arbitration proceeding - a provision that directly conflicted with the Massachusetts mandatory treble damages law.
In 2013 the Massachusetts Supreme Judicial Court (SJC) declared the waiver of multiple damages in the arbitration agreement unenforceable, ruling that the FAA (Federal Arbitration Act) did not preempt the SJC from holding that waiver of multiple damages in these circumstances is void as contrary to Massachusetts public policy.
Given that arbitration is really a procedural strategy, there are many questions you should consider before adopting a change in your company’s practices. Some questions to ask yourself as a company include:
- How will arbitration be a benefit to us?
- How much will it cost to use it?
- What is the potential cost vis-a-vis the likely benefit?
- Will we be better off as an employer with such a policy in place?
- If so, how?
- How often do we get sued?
- What issues do we get sued for? Wages? Discrimination?
- If or when we do get sued, what is our success record under the current rules?
Consider that in discrimination cases filed at the Massachusetts Commission Against Discrimination (MCAD), the agency found “Lack of Probable Cause” (i.e. the case was dismissed) in 87 percent of the cases filed, according to its most recent annual report. Are you likely to do any better with an arbitrator?
One other thing to keep in mind is that federal and state administrative agencies, such as the Equal Employment Opportunity Commission (EEOC) or MCAD, are not bound by private arbitration agreements; they are able to sue over statutory rights where private claimants may not bring a case.
Before jumping on the bandwagon of arbitration, you need to engage in due diligence to see if it makes sense for your company.