The Supreme Court’s decisions on mandatory arbitration typically range from bad to atrocious. For decades, conservative justices have routinely used this tactic to stop workers and consumers from vindicating their rights in court while crushing class actions, leaving victims of corporate malfeasance without any meaningful remedy. So it was a bit gobsmacking when, on Monday, the court issued a unanimous decision against mandatory arbitration, overturning an absurdly unfair rule that stacked the deck against plaintiffs. The court’s ruling in Morgan v. Sundance won’t heal all the wounds inflicted by awful precedents. But it does bring real justice to an otherwise perverse area of the law.
Monday’s case started when a Taco Bell franchise allegedly began engaging in wage theft to deny overtime pay for its employees. One worker, Robyn Morgan, accused the franchise manager of recording extra hours under the wrong week to avoid triggering overtime. Morgan filed a federal lawsuit on behalf of herself and other wronged employees, and Sundance, the franchise owner, defended itself in court for nearly eight months. Then, suddenly, the company announced that it would force Morgan to arbitrate her claim individually. As it turned out, her employment contract had a mandatory arbitration clause, which Sundance had ignored until the parties and the judge were already deep into the litigation.
Morgan didn’t want to arbitrate, because arbitration is terrible for employees and consumers: It prevents them from making their arguments to a judge or jury, instead forcing them to convince an arbitrator in a private proceeding. (This arbitrator is often hand-picked by, and biased toward, the defendant.) The plaintiff may have to travel across the country to a location chosen by the defendant. Very few plaintiffs bring claims, and even fewer prevail, since the entire system is slanted toward defendants. The handful who do win receive far smaller payouts than they would have gotten in a real court.
Because arbitration allows powerful companies and employers to crush their victims’ legal claims, it has become wildly popular over the last several decades. The Supreme Court aggressively facilitated this revolution by seizing upon a 1925 law called the Federal Arbitration Act. It has used the law to greenlight mandatory arbitration clauses like Sundance’s—even when state law deems them “unconscionable.”
But what happens when a company delays in enforcing arbitration? Typically, you waive your right to make certain legal arguments if you wait too long to do it. So under the usual rules, Sundance would be out of luck. In this case, however, the 8th U.S. Circuit Court of Appeals changed those rules to spare Sundance from further litigation. The court held that a corporation can ambush plaintiffs with a delayed arbitration demand as long as it did not “prejudice” them by dragging its feet. Proving prejudice can be difficult; it requires “lost evidence, duplication of efforts, use of discovery methods unavailable in arbitration, or litigation of substantial issues going to the merits.” (Eight other circuits, covering most of the country, have adopted this rule, too.) Forcing Morgan to litigate for eight months before pulling the rug out from under her, the court announced, “did not materially prejudice” her.
Morgan appealed to SCOTUS, which was a real gamble in light of the conservative justices’ addiction to mandatory arbitration. Karla Gilbride, a lawyer for Public Justice, represented her, and gave an extraordinary performance during oral arguments. It was one of those rare arguments in which you can hear an advocate changing the court’s mind in real time. (Public Justice also has a strong record of snatching progressive victories from this conservative court.) As Gilbride explained, the special rule demanding proof of “prejudice” is not anywhere in the text of the Federal Arbitration Act. Rather, courts derived it from a supposed “federal policy favoring arbitration.” But, Gilbride argued, no such policy actually exists.
To back up this claim, Gilbride gave the justices a history lesson. Congress passed the Federal Arbitration Act in 1925 because courts were hostile to arbitration agreements and hesitant to enforce them. Lawmakers intended the measure not to elevate arbitration agreements above all other contracts, but to put them on the same plane. Junking the usual rules is just pro-corporate judicial activism at its worst.
On Monday, the court agreed with Gilbride in a concise, unanimous opinion by Justice Elena Kagan. The Federal Arbitration Act, Kagan wrote, doesn’t favor arbitration, but simply puts it “on equal footing with other contracts.” If an “ordinary procedural rule” prevents “enforcement of an arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” Courts may not create “custom-made rules” to “tilt the playing field in favor of (or against) arbitration.”
It’s pretty extraordinary to see these words in a (unanimous!) opinion from this Supreme Court. The truth is that previous arbitration precedents do have loose language discussing a “liberal federal policy favoring arbitration,” which lower courts have expanded to mean “corporations always win.” But Gilbride convinced the justices to walk back this rhetoric by interpreting it as an “equal-treatment principle.” In doing so, they abolished pro-arbitration rules in nine different circuit courts that cover most of the country—a “sea change” in the law, as Justice Sam Alito put it during oral arguments.
Why were all nine justices so receptive to Gilbride’s advocacy? The likely answer is that SCOTUS’s entire arbitration jurisprudence is built on an egregiously atextual and ahistorical reading of the Federal Arbitration Act. Whether you look at the plain text of the law or the congressional intent behind it, it’s impossible to justify the court’s massive expansion of mandatory arbitration. Savvy progressive litigators can occasionally exploit this foundation of sand, centering real text and history to limit the damage of indefensible precedents.
In an email on Monday, Gilbride pointed out the broader ramifications of Morgan v. Sundance. For years, she told me, “corporations would bring up this federal policy favoring arbitration as a justification for why they should be able to do anything they wanted.” Now, though, federal judges may no longer fabricate baroque, bespoke reasons why consumers and employees cannot seek redress before a real judge. The Supreme Court’s decision has, in Gilbride’s words, at long last, “put an end to the arbitration exceptionalism that many corporations have been seeking, and that many courts have been giving them.” And after years of unjust delay, Robyn Morgan should soon get her day in court.