Epic Systems v. Lewis: It’s OK To Calm Down About Arbitration

Yesterday’s 5-4 Supreme Court decision upholding agreements to individually arbitrate wage-and-hour claims was neither surprising nor novel as a legal matter. Nor – notwithstanding the variously breathless, furious, and apocalyptic reactions it has drawn from stage Left – is it objectionable as a matter of policy, or “anti-worker.” It is pro-liberty, pro-contract, and pro-respect for private ordering.

On a practical level, the decision in Epic Systems v. Lewis and two companion cases leaves in place (rather than changing) a by now familiar business practice. Not until 2012 did the National Labor Relations Board embrace the notion that the National Labor Relations Act bans arbitration agreements requiring individual rather than class-action pursuit of wage claims, and that Obama-era position has not been able to maintain the assent even of the full federal government (the current Department of Justice disagrees, and filed against the agency’s position). 

At the level of legal precedent, this is by one count the seventh major Court decision since 1983 confirming (in each case over liberal dissents) that the Arbitration Act’s broad federal policy favoring arbitration agreements is compatible with, rather than ousted by, some other federal law. In fact, in one of those decisions, 1991’s Gilmer v. Interstate/Johnson Lane Corp., the Court had already implied (in interpreting a parallel statutory scheme) that the federal statute directly governing wage and hour suits, the Fair Labor Standards Act (FLSA), does not ban this kind of arbitration agreement.  That foray having yielded nought, advocates came back with a “bank shot” (Justice Neil Gorsuch’s phrase) theory that even if the FLSA doesn’t forestall individualized arbitration of FLSA claims, the National Labor Relations Act does, under a miscellaneous clause that extends federal legal protection to some “concerted” activity by employees that does not consist of union action. But although some labor movement advocates have hoped to use this catchall language as the future engine by which the NLRB would gain power to impose major new regulatory requirements at non-union workplaces – all sorts of on- and off-job interactions between colleagues might be interpreted as concerted activity if you squint at them the right way – it was always doubtful that the current Court would go along with a very broad reading on that. 

The reception of yesterday’s decision in many progressive quarters has been unedifying. NPR, which really should know better, misreported on Twitter that “The Supreme Court in a 5-4 vote has delivered a major blow to workers, ruling for the first time that workers may not band together to challenge violations of federal labor laws,” of which the first eight words count as accurate reporting, the next half-dozen as erroneous opinion, and the remainder as merely false in fact.  

At a popular level on social media, an oft-heard argument is that a contract presented as a take-it-or-leave-it matter, as is typical of employer handbook policies, credit card terms and the like, doesn’t count as a “real” contract and is entitled to no respect as a matter or law or, presumably, from libertarians. Since contracts of this sort typify most of the modern economy, the implication, usually not spelled out, is that modern consumer and workplace relationships have no moral basis in autonomy and should be second-guessed and have their terms freely substituted by one or another entity of the State. Properly evaluating that claim is a task for another occasion, but my colleague Andrew Grossman is surely right when he points out that every hour of the day workers choose to accept overall employment packages including some terms they welcome (health insurance coverage, paid vacations) along with others they may not (some weekend hours required, don’t take staplers home) and that the lack of dickering over individual terms does not mean that they are not voluntary or have somehow been imposed by force. 

Because the legal issues directly at stake in Epic Systems are statutory rather than Constitutional, it is to be expected that battles lie ahead over whether Congress should change the law. When that happens, there should be no doubt that liberty to specify dispute resolution mechanisms including arbitration is vital as a practical and, yes, moral element of contractual liberty.