24 April 2019

The U.S. Supreme Court Virtually Eliminates Class Action Arbitrations

The United States Supreme Court has a long history of favoring arbitration to a degree unmatched anywhere else in the world, and a strong aversion to class action litigation. 

As a result, today's 5-4 decision in Lamps Plus v. Varela, No. 17-988 (U.S. April 24, 2019), along the usual conservative-liberal lines, holding that class action arbitrations may only be conducted if an arbitration clause expressly and unambiguously provides that class action arbitrations are permitted, is not very surprising.  As the New York Times notes: "In earlier 5-to-4 decisions concerning fine-print contracts with consumers and employment agreements, the court ruled that arbitration provisions can require disputes to be resolved one by one."

Since almost no arbitration clauses expressly and unambiguously permit class action arbitrations and many prohibit class action arbitrations expressly, this ruling is effectively a death knell for arbitrations structured as class actions.

In the abstract, this doesn't seem surprising, but the problems are manifest when you consider situations like the currently pending 12,501+ arbitration claims brought by drivers against Uber challenging the classification of Uber drivers as independent contractors rather than as employees, an issue that really ought to be resolved just once (and which could be resolved just once in the ordinary court system with or without class action lawsuits). Handling those claims on a case by case basis has caused the process to break down as Uber has failed to meet its obligations under this clauses, such as its duty to pay the $1,500 filing fee in each one of those cases. As of December of 2018 when there were 12,501 claims pending:
Under the terms of the contract that Uber crammed down these drivers' throats, it must now pay $1,500 per driver to JAMS, the arbitration service it uses -- a total of $18.7m 
But Uber has only paid the filing fees for 296 of these drivers; and of those, only 47 have had arbitrators appointed to them. Uber has paid the retainers for only six of those arbitrators.
So, as it stands, Uber can easily have conflicting determinations, none of which are binding precedents, over whether its drivers are employees or independent contractors, that are binding on any individual driver, even if it can manage the immense administrative burden that it has abjectly failed to adhere to so far.

There are about 25 million employees (a little more than one in six) in the United States with arbitration clauses in their contracts, out of about 144 million people in the U.S. workforce who are not unemployed, according to USA Today in turn quoting a court opinion. Another source states that there are more than 60 million employees covered by such contracts (with higher rates at larger employers). More specifically, it finds that (as of April 6, 2018):
In reviewing the existing literature on the extent of this practice, I found that the share of workers subject to mandatory arbitration had clearly increased in the decade following the initial 1991 Court decision: by the early 2000s, the share of workers subject to mandatory arbitration had risen from just over 2 percent (in 1992) to almost a quarter of the workforce. However, more recent data were not available. In order to obtain current data for this study, I conducted a nationally representative survey of nonunion private-sector employers regarding their use of mandatory employment arbitration.
This study finds that since the early 2000s, the share of workers subject to mandatory arbitration has more than doubled and now exceeds 55 percent. This trend has weakened the position of workers whose rights are violated, barring access to the courts for all types of legal claims, including those based on Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Family and Medical Leave Act, and the Fair Labor Standards Act.
The Supreme Court is currently considering a case challenging the inclusion of class action waivers in arbitration agreements. Class action waivers bar employees from participating in class action lawsuits to address widespread violations of workers’ rights in a workplace. The Court will rule on whether class action waivers are a violation of the National Labor Relations Act; their decision could have wide-reaching implications for workers’ rights going forward.
Key findings of this report
  • More than half—53.9 percent—of nonunion private-sector employers have mandatory arbitration procedures. Among companies with 1,000 or more employees, 65.1 percent have mandatory arbitration procedures.
  • Among private-sector nonunion employees, 56.2 percent are subject to mandatory employment arbitration procedures. Extrapolating to the overall workforce, this means that 60.1 million American workers no longer have access to the courts to protect their legal employment rights and instead must go to arbitration.
  • Of the employers who require mandatory arbitration, 30.1 percent also include class action waivers in their procedures—meaning that in addition to losing their right to file a lawsuit on their own behalf, employees also lose the right to address widespread rights violations through collective legal action.
  • Large employers are more likely than small employers to include class action waivers, so the share of employees affected is significantly higher than the share of employers engaging in this practice: of employees subject to mandatory arbitration, 41.1 percent have also waived their right to be part of a class action claim. Overall, this means that 23.1 percent of private-sector nonunion employees, or 24.7 million American workers, no longer have the right to bring a class action claim if their employment rights have been violated.
  • Mandatory arbitration is more common in low-wage workplaces. It is also more common in industries that are disproportionately composed of women workers and in industries that are disproportionately composed of African American workers.
  • Among the states, mandatory arbitration is especially widespread in California, Texas, and North Carolina, but in all of the 12 largest states by population over 40 percent of employers have mandatory arbitration policies.

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