(Bloomberg) -- A divided U.S. Supreme Court ruled that employers can force workers to use individual arbitration instead of class-action lawsuits to press legal claims. The decision potentially limits the rights of tens of millions of employees.
The justices, voting 5-4 along ideological lines, said for the first time Monday that a 1925 federal law lets employers enforce arbitration agreements signed by workers, even if they bar group claims. The majority rejected contentions that a separate law guarantees workers the right to join forces in pressing claims.
The ruling builds on previous Supreme Court decisions that let companies channel disputes with consumers and other businesses into arbitration. The latest decision applies directly to wage-and-hour claims, and its reasoning might let employers avoid class action job-discrimination suits as well.
"The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written," Justice Neil Gorsuch wrote for the majority.
Arbitration supporters say that forum is cheaper and more efficient than traditional litigation. Critics say companies are trying to strip individuals of important rights, including the ability to band together on claims that as a practical matter are too small to press individually.
Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented. Ginsburg called the ruling "egregiously wrong."
"The inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers," Ginsburg wrote.
Ginsburg called on Congress to pass legislation to override the court’s decision. Ginsburg successfully issued a similar call a decade ago, urging Congress to bolster the rights of women to press equal-pay lawsuits.
The ruling shows the impact of the 14-month battle over the seat left vacant when Justice Antonin Scalia died unexpectedly in 2016. President Donald Trump filled the opening with Gorsuch last year after Senate Republicans blocked a vote in 2016 on then-President Barack Obama’s nominee, Merrick Garland.
Chief Justice John Roberts and Justices Clarence Thomas, Anthony Kennedy and Samuel Alito -- all Republican appointees and members of the court’s conservative wing -- joined Gorsuch in the majority.
About 25 million employees have signed arbitration accords that bar group claims, a lawyer for the workers in the case told the court.
The workers said the National Labor Relations Act guarantees them the right to press claims as a group, either in arbitration or in court. The 1935 law protects "concerted activities" by workers, without explicitly mentioning lawsuits.
The majority said that language wasn’t specific enough to overcome a separate law, the 1925 Federal Arbitration Act, which says arbitration agreements must be enforced like any other contract.
That provision "focuses on the right to organize unions and bargain collectively," Gorsuch wrote. "It may permit unions to bargain to prohibit arbitration. But it does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act."
Ginsburg sought to limit the impact of the ruling, saying its logic shouldn’t prevent workers from banding together to press broad discrimination claims under the 1964 Civil Rights Act.
"It would be grossly exorbitant to read the FAA to devastate Title VII of the Civil Rights Act of 1964 and other laws enacted to eliminate, root and branch, class-based employment discrimination," she wrote.
The high court ruling is a victory for three companies involved in the fight. The group includes the accounting firm Ernst & Young LLP, which was fighting allegations that it misclassified thousands of employees to make them ineligible for overtime pay.
The court was also considering an appeal from Epic Systems Corp., a health-care software company that was sued by Jacob Lewis, an employee who says the company misclassified him and other technical writers so that they wouldn’t be eligible for overtime pay.
The third case involved a Murphy USA unit fighting allegations that it underpaid four employees at its gas station in Calera, Alabama. The National Labor Relations Board had concluded the company engaged in an unfair labor practice by refusing to let the workers pursue their claims together.
Although the Trump administration backed the employers, the National Labor Relations Board took the side of the workers during arguments in October. At the time, the board’s general counsel was a Democratic appointee.
Chamber of Commerce
The ruling drew cheers from business advocates, who said it will reduce costly litigation.
"Today’s decision is a victory for everyone but lawyers," said Andrew Pincus, a Washington lawyer who filed a brief for the U.S. Chamber of Commerce. "Employees and businesses will continue to have access to a quick, less expensive, and fair system for resolving claims."
Some civil rights advocates suggested the ruling will undermine class action discrimination lawsuits, even though the court didn’t directly address that issue.
“The Supreme Court has taken away a powerful tool for women to fight discrimination at work," said Fatima Goss Graves, president of the National Women’s Law Center. "Instead of banding together with coworkers to push back against sexual harassment, pay discrimination, pregnancy discrimination, racial discrimination, wage theft and more, employees may now be forced behind closed doors into an individual, costly -- and often secret -- arbitration process."
Still, the impact on civil rights claims is likely to be a subject of future court fights. Raymond Audain, senior counsel at the NAACP Legal Defense and Educational Fund, said that "we agree with Justice Ginsburg that the decision does not apply to discrimination claims."
The cases are Epic Systems v. Lewis, 16-285; Ernst & Young v. Morris, 16-300; and NLRB v. Murphy Oil USA, 16-307.
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