Supreme Court decision will likely make arbitration clauses more common

Well over 1 million Minnesotans are likely already subject to mandatory arbitration of workplace grievances, if the state mirrors the rest of the nation, and that number is almost certain to rise after a U.S. Supreme Court decision last week.

The court, on a 5-4 vote, affirmed employers' right to enforce individual arbitration clauses and ban class-action lawsuits by employees. Legal sources on every side of the issue say the ruling, written by the newest justice, Neil Gorsuch, ensures that more people will be required to settle workplace disputes in binding private hearings run by company-picked and company-paid adjudicators.

"It's a difficult time for people with claims," said University of Minnesota law professor Carol Chomsky, co-author of a book on contract law. "These arbitration clauses are everywhere. People don't know that they are signing them."

Arbitration clauses exist in tens of millions of employment and consumer finance contracts, and some business groups say they enable faster, less expensive resolution of disputes. For workers, the Supreme Court decision comes with an implied but serious warning: Read the fine print.

No law in Minnesota compels employers to verbally disclose the existence of an arbitration clause in an employment contract. "If it's in there in clear language and you sign the contract," Chomsky explained, "you're bound by it."

Terry Fleming, who works in corporate law at Fredrikson & Byron's Minneapolis office, said Gorsuch's arbitration decision is written so strongly that it leaves virtually "no chance of more relief through the courts."

"It's a significant advantage for employers to have these [arbitration agreements]," Fleming said. He predicted that more companies will adopt mandatory individual arbitrations. "They are fast, efficient and less costly for both sides," he said.

"Employees lose out," said employment lawyer Nancy Erika Smith.

The decision especially hurts low-income employees who are exploited by workplace violations, such as informal business practices that cheat workers of overtime, Smith said. The court decision means those employees will not be able to respond through class-action suits to unfair practices that affect them all.

Smith helped Minnesotan Gretchen Carlson find a way around an arbitration clause when the Fox News TV host accused Fox News founder and CEO Roger Ailes of sexual harassment.

Carlson sued Ailes individually, not Fox News, and the suit was settled for $20 million. Carlson has since been a vocal opponent of individual arbitration clauses, saying the frequent use of nondisclosure agreements enables companies to hide cultures of abuse.

Chomsky said the validation of nonpublic individual arbitration hearings with undisclosed outcomes could stymie the nascent #MeToo movement, which encourages women and men in all industries to come forward with complaints to root out sexual misconduct in the workplace.

Business groups such as the U.S. Chamber of Commerce say the decision merely solidifies the legal status of mandatory arbitration to what it was before a 2012 National Labor Relations Board (NLRB) ruling that led to the Supreme Court case. That regulatory interpretation found that employers could not prohibit employees from banding together in class actions.

"Employees and businesses will again have access to a fair and reasonable system for resolving their claims," a chamber spokesperson told the Star Tribune in an e-mail, "rather than being effectively barred from getting justice for smaller disputes due to the complexity and high costs of our court system."

Opinion polls have shown that roughly 90 percent of Americans want the right to participate in class-action suits. But Gorsuch, writing for the Supreme Court majority, said, "This Court has never read a right to class actions into the NLRA [National Labor Relations Act] — and for three quarters of a century neither did the National Labor Relations Board."

What Gorsuch saw as a clear matter of law, Justice Ruth Bader Ginsburg, writing for the minority, saw as a miscarriage of justice.

"Employees ordinarily are no match for the enterprise that hires them," Ginsburg wrote. "Employees gain strength, however, if they can deal with their employers in numbers. That is the very reason why the NLRA secures against employer interference" when employees "act in concert for their 'mutual aid or protection.' "

In statements, Minnesota's two U.S. senators, Amy Klobuchar and Tina Smith, both Democrats, decried the court's arbitration finding.

Last week, in a separate matter regarding workplace disputes, the Senate passed bipartisan legislation Klobuchar introduced with Missouri Republican Sen. Roy Blunt that overhauls the way Congress handles sexual harassment complaints from members or staff members. The bill ends mandatory waiting periods and counseling of those who feel victimized. It also requires that those accused of harassment pay settlements instead of using taxpayer money to do so.

Klobuchar called the Supreme Court arbitration decision "a step backward in the effort to protect workers" that leaves employees "more vulnerable when their employers violate important workplace laws intended to protect against things like wage theft or sexual harassment."

Smith said "the ability of every American to have their day in court is a core American value.

"Forced arbitration," she added, can let corporations avoid accountability for "exploitation or harassment."

Bills in the Senate and House that prohibit the application of mandatory arbitration to sexual discrimination claims have never gotten out of committees.

Most people who study the current Republican-run Senate and House expect nothing in the way of a statutory change on mandatory arbitration.

"They're just not going to do it because all the companies jumping on board with arbitration [as a result of the court decision] will be unhappy," said Norm Ornstein, a specialist in congressional affairs at the American Enterprise Institute.

If Democrats take control of the House in the November midterm elections, Ornstein predicted that legislation to change mandatory arbitration "is going to be a priority, at least for disputes involving sexual harassment."