With arbitration case, SCOTUS can protect both federal law, workers’ rights

When the Supreme Court’s term opened last Monday, the Court began with a case that will potentially affect the rights of every American.

The question in Murphy Oil v. NLRB was whether the National Labor Relations Board can prohibit employers from requiring employees to resolve work-related claims in arbitration, where employees are barred from joining together to enforce their rights. The Supreme Court in past cases has shown a strong preference for arbitration. But the type of agency regulation in Murphy Oil is crucial to ensuring that arbitration does not undermine federal statutes that are enforced through private litigation, and a careful look at the history of the relevant statutes shows that the labor board’s ruling was a lawful exercise of the power that Congress granted to it.

The Supreme Court should uphold the board’s ruling.

{mosads}The backdrop to Murphy Oil is an explosion in the use of arbitration over recent decades. Courts have always allowed parties to resolve some cases in arbitration, where claims are heard by a private party instead of a judge and jury. But beginning in the 1980s, the Supreme Court reinterpreted a 1925 statute known as the Federal Arbitration Act to greatly expand the claims that could be arbitrated.

Under the court’s new interpretation, claims to enforce regulatory statutes as well as business and commercial disputes were eligible for arbitration. The court also held that arbitration need not provide procedures such as class actions, which encourage private attorneys to seek out and prosecute violations of the law.

For many corporations, the opportunity to lower the cost of litigation while denying plaintiffs access to class actions proved irresistible. Today, contracts governing every area of life, from employment agreements to end-of-life care, mandate arbitration.

But channeling claims to arbitration can weaken or undermine federal laws that are enforced through private civil litigation. For example, the arbitration clause in Murphy Oil bars employees from joining together to assert legal claims, even though the National Labor Relations Act (NLRA) has recognized employees’ right to engage in “concerted activities … for mutual aid and protection” since 1935.

Arbitration clauses in nursing home admission contracts insist that proceedings be kept confidential, preventing state and federal regulators from learning about nursing home abuse from lawsuits. By blocking access to class actions, arbitration clauses in financial companies’ customer agreements remove the only cost-effective mechanism that many retirement-plan investors have to enforce their legal rights under federal securities and retirement laws.

In Murphy Oil, the labor board ruled that the employer’s arbitration agreement violated the right to engage in concerted activity under the NLRA. In its challenge to that decision, the employer claimed that the labor board could not override the Federal Arbitration Act’s command that arbitration agreements are “valid, irrevocable, and enforceable,” because the National Labor Relations Act does not authorize the labor board to regulate arbitration in so many words. But that position misunderstands how the statutes work.

The arbitration act establishes a baseline rule: parties can commit to arbitrating legal disputes. But as Justice Kagan observed at oral argument, hundreds of other statutes qualify that rule. An arbitration agreement that instructed the arbitrator to discriminate against women would not be enforceable, for example, because it violates state and federal anti-discrimination law.

The NLRA is one of the laws that qualifies the arbitration act. And the argument that the NLRA must specifically authorize the labor board to regulate arbitration misunderstands the interaction between the two statutes. When Congress enacted the NLRA in 1935 and amended it in 1947, there was no reason for lawmakers to specifically address the board’s authority to regulate arbitration, because the Supreme Court had yet to expand arbitration to its current limits.

But Congress knew how to handle new developments that undermine federal worker protections. In the NLRA, Congress directed the board to enforce the rights created in the statute and gave the board authority to apply the law to new circumstances. The Board’s ruling in Murphy Oil simply applies that authority. Employers are free to require arbitration, the board said, but they must respect employees’ right to engage in concerted activity.

The labor board is not the only federal administrative agency that has regulated the use of arbitration. Agencies including the Centers for Medicaid and Medicare Services, Consumer Financial Protection Bureau, and Department of Labor have regulated uses of arbitration that undermine laws they administer, though the Trump administration is attempting to roll back some of these regulations.

Murphy Oil provides an opportunity for the Supreme Court to clarify that these are valid uses of the authority that Congress granted to these agencies. There are good reasons for companies to prefer arbitration to litigation, but it can also be used to evade or undermine statutes enforced through private litigation. When arbitration is used this way, agencies need the power to respond.

David Noll is an associate professor of law at Rutgers Law School, where he teaches civil procedure and administrative law.