In yesterday’s 5-3 Supreme Court decision in American Express Company v. Italian Colors Restaurant, the Court held that it was just fine to enforce a contract requiring merchants to arbitrate their claims and waiving their rights to come together to challenge the contract’s terms in federal court. Never mind that as a result of the Court’s decision, the merchants’ legal claims against Amex under the federal antitrust laws are dead on arrival, without any determination of their merits ever being made. This is because the expense of proving their claims is totally unaffordable for the individual merchant, and only becomes affordable when spread across the class of those who were allegedly harmed.
While this case arose in the consumer context, no doubt some will argue that it gives courts free rein to enforce arbitration clauses with class-action waivers in employment contracts as well, despite the recent holding by the National Labor Relations Board (more on this below) to the contrary.
Here’s what happened: Italian Colors, a small restaurant, brought a class action on behalf of itself and other merchants alleging that behemoth Amex used its monopoly power in the corporate charge card market to force merchants to agree to pay 30% higher fees than they pay for accepting other credit cards. The total damages a merchant might have recovered in this case were a significant amount: $38K. But the total cost to that same plaintiff of presenting the economic analysis (central to practically every antitrust case) to establish a violation of the antitrust laws would have run from a few hundred thousand to one million dollars. That’s roughly 10 to 25 times more than the potential recovery to an individual merchant.
Taking on this expense would be, as Justice Kagan noted in her dissent, “a fool’s errand” for an individual business. And thus, the merchants decided to band together to challenge Amex through a class action in federal court. The Court’s decision to block their efforts effectively locks them out of the courthouse while allowing Amex to go on its merry way, violating federal law willy-nilly, if it so chooses.
Because the little guys (and gals) lack bargaining power for negotiating form contracts like the one in this case, behemoths like Amex can make them a condition for doing business. No one has the power to refuse a big corporation like Amex that controls so much of the market. Indeed, that was the exact claim that the plaintiffs wanted to make in this case — that Amex is abusing its monopoly power.
As Justice Kagan made plain in her dissenting opinion, by enforcing the arbitration clause the Court is “choking off a plaintiff’s ability to enforce congressionally created rights.” Doing so violates the “effective-vindication rule” established by the Supreme Court, which means, in short, that arbitration clauses cannot be enforced when doing so would make it impossible to vindicate federal statutory rights.
What is the majority’s take on having eviscerated the plaintiffs’ federal statutory rights? Justice Kagan described it as: “Too darn bad.” It is too bad. There is little value in a right without a remedy. But that is all that is left for the plaintiffs in yesterday’s case.
This case arose in the consumer context. Last year in the employment arena, the NLRB held in D.R. Horton that an arbitration agreement containing a class action waiver violates workers’ most basic rights under the National Labor Relations Act to come together as a group to negotiate their terms and conditions of employment. And an Administrative Law Judge for the NLRB reiterated this conclusion in Mastec Services, Inc., decided just two weeks ago, invalidating another arbitration agreement containing a waiver of employees’ rights to pursue their claims through class actions. Unfortunately, plenty of federal courts have declined to follow D.R. Horton and have instead enforced arbitration agreements with class action waivers in employment contracts. D.R. Horton is currently on appeal to the 5th Circuit, and is among the decisions whose validity is being called into question following the D.C. Circuit’s recent decision that NLRB commissioners’ recess appointments were unconstitutional.
At the National Women’s Law Center we represent the interests of women working in low-wage jobs, who make up nearly 60% of the low-wage workforce and two-thirds of those earning the minimum wage or less. These workers are among those who are most vulnerable to discrimination and harassment. They can also least afford to suffer the retaliation that too often goes along with standing up to unlawful employer practices. By banding together, they are far less likely to be retaliated against for fighting back than when they stick their necks out alone. Further, for most of these workers, hiring their own attorney to pursue an individual claim, whether through arbitration or in court, is simply unaffordable. Luckily, some attorneys are willing to take class cases representing workers on contingency, meaning that the attorneys only get paid if the plaintiffs win. Workers joining together can also share in the burdens of litigation, which can be lengthy and time-consuming.
Moreover, class actions are crucial to deterring employers from discriminating against their workers. While employers may view the expense of defending any individual suit as endemic to the cost of doing business, employers realize the stakes are much higher if they are challenged for discriminating against a class of workers. With the number of workers in low-wage jobs growing and the quality of those jobs rapidly deteriorating, now is the time to shore up workers’ ability to band together to challenge unlawful employment practices. Commonsense solutions like the Equal Employment Opportunity Restoration Act would remove some of the obstacles to ordinary Americans coming together to seek justice. Yesterday’s Supreme Court decision provides an important moment for us to remember that there is strength in numbers, and that we must respond swiftly and forcefully to efforts to sap that strength.