Epic Distortion

Neil Gorsuch’s ruling on mandatory arbitration clauses doesn’t reflect the reality of American labor relations.

Neil Gorsuch walking into the Capitol
Supreme Court Justice Neil Gorsuch, center, arrives for the State of the Union address at the Capitol in Washington on Jan. 30. Brendan Smialowski/AFP/Getty Images

In 2013, Justice Antonin Scalia wrote a widely condemned opinion holding that federal law allows corporations to insulate themselves from antitrust suits by forcing potential litigants into arbitration, shielding their monopolies from judicial scrutiny. Scalia did not pretend that his ruling helped anybody except monopolists—and in dissent, Justice Elena Kagan wryly commended his candor. Thanks to that ruling, she wrote, “the monopolist gets to use its monopoly power” to deprive “its victims of all legal recourse.” The upshot, she explained, is “admirably flaunted rather than camouflaged: Too darn bad.”

On Monday, Justice Neil Gorsuch issued a sequel to Scalia’s infamous decision that took the opposite rhetorical tack. Writing for the majority in the Supreme Court’s 5–4 ruling in Epic Systems v. Lewis, Gorsuch presented mandatory arbitration clauses—which prevent employees from suing employers collectively in court—as genuine “agreements” that workers enter into freely and may even favor. This framing is wrong and dishonest. It ignores the reality of labor conditions, falsely implying that workers have real bargaining power to reject arbitration clauses. And it seems to rest on a discredited theory of economic freedom that underpins the Supreme Court’s most notorious pre–New Deal decisions, rulings that purported to safeguard workers’ liberty while undermining their ability to protect their own rights.

Under mandatory arbitration, employees forfeit their right, as a condition of employment, to sue their employers collectively in court. Instead, they are obligated to pursue their claims one by one in a private setting. That’s a hindrance for two key reasons. First, a group of employees may have individual claims that are fairly small and not worth pursuing on their own; their only shot at redress is to join together in a class action, which their arbitration clauses forbid. Second, arbitration strongly favors the employer and is often too expensive for a wronged worker to navigate alone.

These provisions are a relatively new phenomenon. In 1992, 2 percent of nonunionized employers in the United States used them; today, more than half do, meaning about 25 million American workers are barred from participating in class action suits. In private practice and on the bench, John Roberts has played a critical role in the corporate attack on class actions. As a corporate lawyer, Roberts helped craft the legal defense of mandatory arbitration clauses by citing the Federal Arbitration Act, a 1925 law designed to speed up disputes between businesses. As chief justice, he has repeatedly cast his vote to let corporations shield themselves from lawsuits by deploying arbitration clauses. Now he has a partner in Gorsuch, who seems more than happy to translate Roberts’ dubious theory of arbitration clauses into law.

In Epic Systems, the court brazenly favors corporations over employees while assuming the mantle of neutrality. The ruling kills off three class actions brought by employees who believe they were illegally underpaid, since they had all been forced to agree to arbitrate their claims. Yet here is how Gorsuch articulates the key question presented by the case:

Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?

Gorsuch’s assertion that “employees and employers” “agree” upon arbitration does not comport with reality. Later, he put forward another farcical claim, claiming that an employer and employee may agree to “individualized arbitration procedures of their own design.” And throughout his opinion, he maintained the fiction that both employers and employees are free “to contract for bilateral arbitration” in order to spare them both the expense of litigation.

As Justice Ruth Bader Ginsburg pointed out in dissent, it’s absurd to argue that employers and their employees are equal partners here. When Epic Systems decided to introduce mandatory arbitration agreements, for instance, it blasted out an email containing a statement stipulating that all employees had relinquished their ability to sue collectively. “I understand that if I continue to work at Epic,” the statement read, “I will be deemed to have accepted this Agreement.” That is how Epic employees “agreed” to mandatory arbitration: They were given the option of assenting or quitting. This “Hobson’s choice,” as Ginsburg put it, does not give employees any agency at all. (An Epic employee told me on Tuesday that he would “never have agreed to resolve disputes through one-on-one arbitration” if he had any say in the matter.)

Gorsuch’s total disregard for the power imbalance between labor and management harkens back to the Supreme Court’s own dark history. In the early 20th century, the court routinely struck down minimum wage and maximum hours laws under the theory that they violated the “liberty of contract.” Workers, the court reasoned, had a constitutional right to “sell labor,” just as employers had a right to “purchase” it. By forcing employers to pay a minimum wage, the state had deprived employees of their right to work for even less than that.

This period in the court’s history, the so-called Lochner era, was named after Lochner v. New York, in which the Supreme Court struck down a law that prohibited bakeries from forcing employees to work more than 60 hours a week. That case illustrates one of the court’s chief sins during this period: its comically inaccurate assumption that employees had true bargaining power to set the terms of their employment. In truth, employers extracted as much work out of their employees for as little money as possible, and employees had no leverage to improve their conditions. They could either allow themselves to be exploited or quit.

Gorsuch’s opinion in Epic Systems weakly disclaimed any semblance to Lochner, protesting that the Lochner court had erred by “substitut[ing] its preferred economic policies for those chosen by the people’s representatives.” But that is only half the story; the court also stumbled by overlooking employers’ ability to manipulate workers by threatening to fire them if they didn’t do as they were told. And Gorsuch’s fantasy of employers and employees coming together to agree upon an arbitration clause sounds suspiciously similar to the Lochner court’s description of workers freely negotiating their own exploitative contracts.

Hours after Gorsuch handed down his opinion, the management law firm Ogletree Deakins launched “an innovative new product” to help employers “quickly and conveniently generate arbitration agreements with class action waivers.” Thanks to Epic Systems, these clauses are poised to proliferate through the labor market, stripping millions more Americans of their right to sue collectively. Gorsuch may claim that workers voluntarily agree to mandatory arbitration when they’re told to either accept it or quit. But the rest of us have no obligation to pretend that these coercive “agreements” are anything other than a gun to the head.