New Battles and Battlegrounds for Mandatory Arbitration After Epic, New Prime, and Lamps Plus

Abstract

The Supreme Court’s recent decisions interpreting the Federal Arbitration Act (FAA) in the employment context generally prioritize arbitration over workers’ labor law rights. The majority in Epic Systems upheld mandatory individual employment arbitration agreements despite their conflict with the labor law right to act in concert. The same majority in Lamps Plus presumed that the parties intend individual arbitration absent reference to group arbitration. However, in a rare unanimous decision, the Supreme Court in New Prime exempted transportation workers from FAA coverage, even where the workers are independent contractors rather than employees. These decisions resolved some disputes about the breadth of the FAA but other questions remain unresolved. For example, do the confidentiality provisions so often associated with arbitration provisions unlawfully interfere with employees’ federal labor law rights? Are state laws on employment arbitration subject to preemption?

Some state courts and legislatures continue to seek ways to protect workers who are disadvantaged by mandatory individual arbitration provisions, and others outline procedures for arbitration even for those transportation workers who are categorically exempt under the FAA. State laws regulating employment arbitration may fail in the face of preemption arguments, as the Court’s slim conservative majority appears intent on upholding individual arbitration provisions at all costs. Nevertheless, California persists in allowing representative suits under its Private Attorney General’s Act (PAGA) and state courts continue to consider traditional contract defenses such as lack of mutual assent and unconscionability as arguments to bypass onerous arbitration provisions. The Court’s New Prime decision will reinvigorate the battle over what it means to be “engaged in interstate commerce” to qualify for the FAA’s transportation worker exemption, with workers for Uber and Lyft leading the charge as they seek to avoid mandatory individual arbitration. In contrast, businesses will undoubtedly argue that even transportation workers who are exempt under the FAA still must arbitrate under state law provisions that do not exempt transportation workers.

The authors recommend that Congress amend the FAA to exclude all workers affecting interstate commerce, and clarify the role of state law regulating employment arbitration. State legislation should provide guidance on what makes arbitration truly voluntary and fair, as well as afford employees a real choice on collective action and forum, and whether to maintain confidentiality about the dispute.

Keywords: Mandatory Individual Arbitration, Employment Agreements, Confidentiality Provisions, Voluntary, Federal Arbitration Act, Transportation Exemption, Independent Contractor, Employee, National Labor Relations Act, Protected Concerted Activity, Workers in Interstate Commerce, State Arbitration Laws

JEL Classification: K12, K19, K20, K22, K23, K31, K40, J41, J48, J52, J53, J58, J83