• A recent Supreme Court decision means employees, including restaurant workers, bound by certain types of arbitration agreements are not allowed to join class-action lawsuits or group arbitration proceedings.
• Arbitration agreements bar employees’ access to courts, whether individually or as a class.
• If restaurants violate wage or other labor laws, employees will only be able to bring claims up individually, in arbitration.
• This case is seen as a victory for employers because it could significantly reduce the number of claims brought against them, and because historically, cases in arbitration favor the employer over the employee.
• As a result of this decision, federal and state wage and hour laws may become underenforced.
Violations related to unpaid wages, overtime, or tip theft are rampant in the restaurant industry, which is also plagued by persistently low pay. Restaurant staffers have had few resources to hold their employers accountable when employers break the law: They could file complaints with a state Attorney General or government agency like the National Labor Relations Board (NLRB), which could choose to pursue legal action on behalf of employees; they could pay for a lawyer to sue the company or management directly (an expensive and risky option); or they could band together in a class-action suit or group arbitration against an employer or parent company.
Class actions have historically held more weight in court — there’s power in numbers, and a greater chance of a decision in the employees’ favor. Plus, costs are offset by larger expected settlements or payouts.
Unfortunately, the latest SCOTUS decision effectively eliminates that last option, with few exceptions (including suits related to discrimination and sexual harassment), for any employee bound by an arbitration agreement. On the one hand, this ruling helps restaurateurs dealing with rising rent and labor costs; the decision means their legal costs, at least, will likely go down. On the other hand, it will make it difficult for restaurant workers to hold their employers accountable.
Jean R. Sternlight, Saltman Professor at the UNLV Boyd School of Law, says that decision will harm restaurant workers. “The highest court in the land,” she says, “has now made clear that restaurants can force their workers to relinquish their right to bring wage and hour claims in court, and through class actions.” This means that if employers violate wage and hour laws, employees will only be able to bring claims individually, in arbitration, which is rarely either practical or successful.
Today, most employees — and consumers — in the U.S. are bound by arbitration agreements which force employees to give up the judicial system for one that, opponents say, has an inherent bias against them. Arbitrations can be more costly for employees than court cases because in addition to attorney’s fees, the parties themselves have to pay for the salary of private arbitrators. Group arbitrations, where employees can share the costs, are therefore more accessible and preferable for employees.
Generally, judges have called arbitration agreements a sort of “get out of jail free” card for employers, “because it is nearly impossible for one individual to take on a corporation with vast resources,” according to the New York Times. “While the federal and state wage and hour laws may remain on the books they will become largely unenforceable,” Sternlight says. Long critical of mandatory arbitration, she predicts that “more and more restaurants will now force their employees to agree to individual arbitration.”
The Supreme Court’s Decision
In a 5-4 decision handed down in the Epic Systems Corp v. Lewis case on May 21, the Court sided with Epic, the employers. Justice Gorsuch, writing for the majority, held that the Federal Arbitration Act (enacted in 1925) overrules the National Labor Relations Act (enacted in 1935): In practical terms, that means class-action waivers found in arbitration agreements, as well as other clauses that require employees to arbitrate their claims individually, are enforceable and do not violate the NLRA.
Additionally, the Court ruled that arbitration agreements can be considered valid under the FAA even if employees didn’t even sign them. In one case, employers sent emails providing that if its employees continued to work there, they would be deemed to have accepted the arbitration agreement and its class action waiver, regardless of whether they actually signed it.
In her powerful dissent (joined by Justices Kagan, Sotomayor, and Breyer), which she read from the bench, Justice Ginsburg called the majority opinion “egregiously wrong,” and predicted that “the inevitable result of [the] decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Not only would Ginsburg have upheld the employees’ right to a class action, she would have also held that the arbitration agreements, as written, were unlawful. She urged Congress to correct the court’s elevation of the Federal Arbitration Act over workers’ rights.
What’s next for restaurant workers
While it’s unclear just how many restaurant workers have signed arbitration agreements with waivers, McDonald’s, the largest food-service employer in the U.S., requires its employees to sign an arbitration agreement that also waives class rights. A study by the Economic Policy Institute shows that 56 percent of nonunion private-sector employees are currently subject to mandatory individual arbitration procedures (roughly 60.1 million American workers), and of those, 30.1 percent have signed agreements that include class-action waivers.
Given the number of employees covered by these waivers, and the fact that the restaurant industry landscape is a minefield of overtime and minimum wage violations, the consequences of this decision are even more alarming. Recent payouts in wage and hour lawsuits against major restaurant groups top the million dollar mark. Earlier this year, Mario Batali (who is in the process of divesting from his company following criminal investigations into allegations of sexual misconduct), Joe Bastianich, and Lidia Bastianich, along with five of their NYC restaurants, agreed to pay out about $2.2 million in a class-action lawsuit. One study quoted by Ginsburg in her dissent estimated that in Chicago, Los Angeles, and New York City alone, low-wage workers lose nearly $3 billion in legally owed wages each year. And as Ginsburg writes, “fear of retaliation may also deter potential claimants from seeking redress alone.”
Patricia Smith, senior counsel for the National Employment Law Project, concurs. To combat labor violations that will no doubt continue to take place, she expects more cases to be brought before public enforcement bodies such as the Attorney General, state labor commissioner, or the wage and hour division, who can then bring a complaint against a particularly egregious employer to court. “While a restaurant worker can no longer get her co-workers together to file an arbitration as part of a class, she can bring her complaint to a public entity,” explains Smith. “Then that government body can investigate it en masse, and issue an order that applies to everyone in the company.”
The problem with this course of action is that government agencies are stretched thin, a fact that Ginsburg referenced in her dissent.
To hold employers accountable, Smith says some lawyers may bring an avalanche of single arbitrations against an employer at one time, costing them significant time and money. Saru Jayaraman, co-founder and co-director of the Restaurant Opportunities Centers United, agrees that new tactics will become necessary. “Workers will always organize, whether it’s in ways we used to or different ways,” she says. “We will bring multiple charges in same place at the same time and have it function as a collective action even though it’s not a class. It’s not about whether we are a class action or not; it’s about workers coming together asserting their rights, in whatever form we have to.”
How this decision will affect restaurateurs
Nantiya Ruan, an author and law professor at the University of Denver Sturm College of Law, predicts that employers are more likely to force employees to sign waiver agreements like the one at McDonald’s. And Justice Ginsburg writes that employers, aware of the difficulties to pursue individual complaints, “will no doubt perceive that the cost-benefit balance of underpaying workers tips heavily in favor of skirting legal obligations.”
Glenn Grindlinger, partner at one of NYC’s largest restaurant-focused law firms Fox Rothschild LLP — which represents clients like Danny Meyer and is counsel to the New York Hospitality Alliance — disagrees.
He says the decision provides stability for employers by spelling out the legality of binding arbitration provisions. He also believes that things are not as bad as they seem for workers, arguing that sole workers can do quite well in individual wage and hour arbitrations. “I have dealt with individual wage and hour claims and class-action claims in arbitration,” he says. “And in most cases, the class-action lawyers did very well, but the individual didn’t fare any better as a member of a class.”
Grindlinger says he doesn’t have any plans to push mandatory arbitration clauses on his clients for their new hires. “I think you may see some employers having their employees sign arbitration agreements, but at the same time arbitration is not a panacea,” he says. “There are lots of costs for an employer in arbitration, especially if they lose and are stuck paying attorney’s fees and arbitration costs. If an employer has not complied with the law, they may be better off getting it over with in one lawsuit rather than 20 arbitrations,” Grindlinger says, echoing Smith and Jayaraman’s ideas for how employees can still fight wage violations together: by filing dozens of individual arbitrations at once, they’ll overload a business’s legal team.
He does concede that the decision may make it more difficult for restaurant workers to find representation; many lawyers are not willing to represent just one claimant. “There is less incentive for plaintiffs lawyers now because they will not get their big class-action paydays. I think what this ruling does is hurt the plaintiff’s bar.” In other words, the ruling hurts lawyers who specialized in representing classes of employees with the same complaint.
Grindlinger has a point; but without a lawyer to represent them, employees cannot have their grievances heard at all. That lack of representation silences an entire class of people in low-wage jobs.
“To us, this decision represents the latest evidence of the Court and Trump administration’s war on workers and workers’ rights,” Jayaraman says. “This decision diminishes workers’ ability in all industries to speak up when being abused or exploited. And it is particularly harmful to restaurant employees where we see arbitration agreements being used to dissuade workers from speaking up when rights are being violated.”