The Decade Class Actions Were Gutted

These suits used to be a major recourse for the powerless against the powerful. Why has the Supreme Court been so determined to stamp them out?

Photo illustration of people congregated at the entrance to a corporate-looking building.
Photo illustration by Slate. Photos by Getty Images Plus.

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If you use a credit card or work at a large corporation, chances are you have surrendered your right to take either company to court. It does not matter if you were illegally overcharged or if your employer sexually harassed you. It does not matter if your company discriminates against you or lies or cheats or brazenly defrauds you. If you are wronged, you cannot join your fellow victims to sue the wrongdoer. You probably can’t even sue at all. Instead, you’d have to defend your claim individually through a process called forced arbitration—in a venue chosen by your employer, where there will be no judge or jury, no real court system. You are, in every sense, on your own.

For many years, class-action suits have helped workers and consumers unite to recover damages when they’ve been harmed. Take Shores v. Publix, in which female workers banded together to win back $81.5 million from an employer that discriminated on the basis of sex. Or Martinez v. Allstate, in which car owners got $42 million from insurance companies that overcharged them. Class actions have also deterred big businesses from breaking the law in the first place. But today, hundreds of millions of Americans are legally prohibited from bringing or joining class-action lawsuits. Over the past decade, the use of forced arbitration has spiraled out of control—and the class-action suit, as a recourse for the powerless against the powerful, has been mortally wounded.

In 1992, only 2 percent of private sector, nonunion employees were covered by these clauses. By 2018, that number had shot up to 55 percent, or about 60 million workers. Experts believe that this number will exceed 80 percent by 2024. Many major corporations have also adopted forced arbitration to insulate themselves from legal consequences when consumers are, for instance, scammed or gouged. Amazon, American Express, AT&T, Best Buy, Citigroup, Comcast, Ford, General Electric, Home Depot, Verizon—they all use forced arbitration. A 2019 study found that 81 companies in the Fortune 100 now impose forced arbitration on consumers.

The Decade Class Actions Were Gutted: 2011, AT&T v. Concepcion and Walmart v. Dukes are decided.
Getty Images Plus, AT&T, and Walmart

It’s no secret why employers and corporations love arbitration: The process is a raw deal for the little guy. The arbitrators who preside over these cases may not be bound by substantive law, meaning victims can’t get the damages they’d get in actual court. Nor are arbitrators constrained by the procedural safeguards of the judicial system. The company accused of wrongdoing generally gets to choose the venue, which may be far away from the victim’s home. Victims must pay their own way, not just for travel but for legal representation. Arbitration outcomes are frequently confidential, but all available data suggests that victims fare poorly.

Recognizing that the deck is stacked against them, countless victims do not even attempt to arbitrate when they’ve been swindled. This choice, sadly, might be a rational one. Individually, employees’ injuries may not amount to much—a few hundred dollars, say, in a typical case of wage theft, when an employee claims an employer failed to pay them money they were owed. A class-action lawsuit would be the most logical way to recoup that money, in light of how small the individual claims are.Who would spend thousands of dollars in legal fees to recover hundreds of dollars in backpay? And that, of course, is the point. Companies know that if you can’t sue collectively, you probably won’t file claims at all.

The original sin here is a law called the Federal Arbitration Act or, more accurately, the Supreme Court’s misinterpretation of the FAA. Congress initially intended this measure, which was passed in 1925, to help speed up commercial disputes between businesses. Scholars have persuasively demonstrated that the law was never meant to apply to employment or consumer contracts, or to curb states’ ability to regulate these contracts.

But beginning in the 1980s, corporate attorneys began to persuade courts that the law was, in fact, a loaded gun aimed at class-action litigation and access to the courts. A young lawyer named John Roberts spearheaded this effort, so it is no surprise that, as chief justice of the United States, he has helped enshrine this warped conception of the FAA into law. In an early case, 1984’s Southland Corp. v. Keating, the court began to reinvigorate the FAA; it threw out a class-action lawsuit brought by 7-Eleven franchisees against their parent company for fraud, ruling that the FAA supplants state law. The court built upon that flawed decision in 2001’s Circuit City v. Adams, allowing Circuit City to force its workers into arbitration if they tried to sue.

Even after these decisions, before the start of this decade, a majority of states still prohibited or limited forced arbitration clauses by regarding them as unlawfully coercive. But this all ended with 2011’s AT&T v. Concepcion. In that case, the court threw out a lawsuit brought by individuals who were allegedly overcharged $15 per phone. AT&T’s contract demanded arbitration, but a lower court found this clause to be “unconscionable” under California law. The Supreme Court ruled that the FAA overrides any state law that attempts to shield citizens from abusive arbitration clauses. In one fell swoop, the conservative justices replaced 50 states’ consumer protection laws with a sweeping federal rule demanding arbitration.

2013: Italian Colors v. American Express is decided. In 2018, SCOTUS decided Epic Systems v. Lewis.
American Express and Epic

A few months later, the Supreme Court issued Walmart v. Dukes, which made class actions extremely difficult to win for employees who were still able to bring them. In a 5–4 ruling, the court’s conservatives let companies accused of sexism kill class actions so long as sexism was not embedded in their official policies. Walmart had policies that allowed individual stores to pay women less than men. But SCOTUS would not allow women to sue as a class since Walmart did not have a formal companywide rule that women must be paid less.

Then in 2013’s Italian Colors v. American Express, the Republican-appointed justices ruled that corporations can use forced arbitration to thwart class actions, even when it means granting themselves immunity from federal claims. As Justice Elena Kagan noted in dissent, “Amex has insulated itself from antitrust liability,” using “its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.” And what was the majority’s response? “Too darn bad.”

Five years later, Epic Systems v. Lewis dealt a death blow to employee class actions. One day, a company sent around an email announcing that, by continuing to work there, employees agreed to mandatory arbitration. Workers filed a class action alleging that the company had illegally denied them overtime pay. They argued that the arbitration “agreement” was invalid under the National Labor Relations Act, a crown jewel of the New Deal that broadly protects workers’ ability to band together for “mutual aid or protection.” By a 5­–4 vote, the court rejected this argument, claiming with little textual support or historical evidence that the law somehow excluded collective lawsuits.

2019: Lamps Plus v. Varela further limits employees subject to arbitration clauses.
Getty Images Plus

The court’s more liberal wing consistently dissents from the court’s arbitration decisions. (In her dissent to the most recent arbitration ruling, Lamps Plus v. Varela, Justice Ruth Bader Ginsburg wrote to “emphasize once again how treacherously the Court has strayed” from the law.) Yet when progressives critique the Supreme Court, they rarely mention these cases. Many liberal advocacy groups embrace attorneys who advance progressive causes in their pro bono work, even if those attorneys turn around and undermine those causes in their day jobs. One predictable result is that the liberal legal community focuses on objectives like reproductive rights and LGBTQ equality, which corporate America already supports. Consumer welfare and workers’ rights are put on the backburner, partly to avoid alienating superstar litigators—and deep-pocketed law firms that provide financial support to progressive law firms.

The swift decline of class actions over the last decade is regularly framed as an access-to-justice issue. But it is also a threat to the rule of law. America’s regulatory regime relies on victims of illegality to join together and sue wrongdoers, punish them for their misdeeds, and win compensation in the process.

And that regulatory regime has proved pretty easy to game. Tech companies have pioneered exploitation of independent contractors, ushering in a “gig economy” that takes advantage of workers while purporting to liberate them. Uber and Amazon misclassify employees to avoid paying them benefits and minimum wage, and to shunt them into arbitration when they demand fair pay. As corporate profits have surged, wages have remained worrisomely stagnant. As workers’ productivity has soared, their compensation has plateaued. The Trump administration has little interest in addressing the nation’s income inequality, which has risen to historic levels.

Corporations have not been more powerful, or less accountable, since the Gilded Age. Class actions at least gave everyday Americans a fighting chance at justice when big business screwed them over. The Supreme Court has enabled rich companies to play by a different set of rules than the rest of us, picking winners—CEOs, bank executives, white-shoe law firms—and losers.

Read the rest of Slate’s coverage of the end of the decade.