Arbitration Wins at the High Court
Liberals—in the media, Congress and the courts—have been mounting an assault on arbitration agreements, and on Monday they lost a big one at the Supreme Court. Justice Neil Gorsuch’s opinion for the 5-4 majority in Epic Systems v. Lewis reinforces the separation of powers by interpreting laws as Congress wrote them rather than the policy preferences of judges or executive agencies.
In 2012 the Obama National Labor Relations Board ruled that arbitration clauses in contracts that ban class actions violate Section 7 of the 1935 National Labor Relations Act. The novel ruling conflicted with even the board’s own general counsel’s opinion in 2010 that the validity of arbitration agreements “does not involve consideration of the policies of the National Labor Relations Act.”
And before 2016 federal courts had never held otherwise thanks to the clarity of the Federal Arbitration Act, which says arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
The Supreme Court has narrowly applied exceptions in cases of fraud, duress or unconscionability, but none of these circumstances existed in the three cases before the Court. Instead, the NLRB argued that its interpretation of Section 7 subverts the Federal Arbitration Act. In other words, the NLRB is king.
Under the Court’s long-established principles, one law cannot displace another absent clearly expressed Congressional intent. As Justice Gorsuch explained, “Respect for Congress as drafter counsels against too easily finding irreconcilable conflicts in its work. More than that, respect for the separation of powers counsels restraint.”
Section 7 focuses strictly on the rights of workers to organize and bargain collectively. It makes no mention of class-action lawsuits, the alternative to arbitration that didn’t even come into use until decades after Congress adopted the National Labor Relations Act. The NLRB’s “interpretive triple bank shot,” as Justice Gorsuch put it, would overrule resolution procedures defined by several laws, not only the Federal Arbitration Act.
“It’s more than a little doubtful that Congress would have tucked into the mousehole of Section 7’s catchall term an elephant that tramples the work done by these other laws; flattens the parties’ contracted-for dispute resolution procedures; and seats the Board as supreme superintendent of claims arising under a statute it doesn’t even administer,” Justice Gorsuch wrote.
The four liberal Justices rallied behind Ruth Bader Ginsburg’s dissent that warned of a return to the Lochner era during the early 20th century when the Supreme Court regularly struck down labor protections. But here the liberals want to impose their policy preferences. “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives,” Justice Gorsuch replied. “That, we had always understood, was Lochner’s sin.”
A 5-4 ruling the other way would have abrogated hundreds of thousands of employment contracts and sent trial lawyers to the races. What a difference a single Justice makes.
Appeared in the May 22, 2018, print edition.