Symposium: Justice Ginsburg’s anachronistic dissent in Epic Systems runs afoul of the Rules Enabling Act

Richard Samp is chief counsel of the Washington Legal Foundation, which filed an amicus brief in support of the employers in Epic Systems Corp. v. Lewis.

The majority and dissenting opinions in Epic Systems Corp. v. Lewis adopted starkly competing visions of two federal statutes, both nearly a century old. The majority held that the Federal Arbitration Act’s policy favoring enforcement of arbitration agreements trumps Section 7 of the National Labor Relations Act, which confers on employees the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” In contrast, Justice Ruth Bader Ginsburg’s dissent argued that the rights conferred by Section 7 take precedence over the FAA and prohibit enforcement of agreements calling for one-on-one arbitration of employment disputes.

But a major flaw in Ginsburg’s statutory analysis was her reliance on class-action rights created by Rule 23 of the Federal Rules of Civil Procedure, a rule not adopted in its modern form until many decades after passage of both the FAA and the NLRA. The linchpin of her dissent was her contention that filing wage-and-hour claims on a class or collective basis is among the employee “concerted activities” protected by Section 7 of the NLRA. That contention is not plausible, given that collective actions of that sort were unknown when the NLRA was adopted. This is not to say that the definition of protected “concerted activities” is incapable of expansion over time. But the adoption of federal procedural rules is not one of the permissible means of carrying out an expansion of substantive rights.

No interference with wage-and-hour claims

Each of the three consolidated cases before the Supreme Court involved employee claims that their employers had failed to provide adequate overtime pay. Importantly, no one disputed the right of employees to assert such claims or that employers are prohibited from retaliating against those who assert overtime claims. The only issue in Epic Systems was the permissible procedures for asserting claims. The employees had all signed pre-dispute contracts agreeing to individualized arbitration of future employment disputes. All parties agreed that the contracts were enforceable to the extent that their employers insisted that the overtime disputes be heard by an arbitrator. The employees contended, however, that Section 7 of the NLRA granted them the right to insist in turn that any arbitration be conducted on a collective basis.

Thus, there was no claim that the arbitration agreements required employees to forgo any substantive wage-and-hour rights under the Fair Labor Standards Act. Indeed, the Supreme Court’s 1991 Gilmer v. Interstate/Johnson Lane Corporation decision established that the FAA requires enforcement of agreements to arbitrate rights created under federal employment statutes and that agreements as to dispute-resolution procedures do not interfere with substantive rights.

Finally, there was no claim that employers interfered with employees’ rights to act collectively other than by seeking to enforce the arbitration agreements. For example, employees remained free to pursue their FLSA claims in a “concerted” manner by assisting each other with the filing of individual arbitration claims.

The creation of collective litigation procedures

Mandatory arbitration of employment disputes has played a major role for nearly a century in the history of American labor relations. Until very recently, neither the National Labor Relations Board nor labor organizations contended that individualized arbitration proceedings interfered with employee rights to engage in Section 7 “concerted activities.” Indeed, for at least 30 years after adoption of the NLRA, no procedures existed for adjudicating employment disputes on a class-action basis.

The modern class action did not come into existence until the 1966 amendments to Rule 23. Only after 1966 was it possible for a litigant to file monetary claims not only on behalf of himself but also as a representative of others possessing claims raising common issues of fact and law. The drafters made clear that Rule 23 was a procedural rule adopted to increase efficient handling of federal lawsuits and did not create any substantive rights. The no-substantive-rights understanding of Rule 23 calls into question Ginsburg’s reliance on the modern class action as the basis for her expansive definition of the substantive rights protected by Section 7 of the NLRA.

Rules Enabling Act limitations

Indeed, reliance on modern Rule 23 as a grounds for expanding the definition of protected “concerted activities” runs afoul of the Rules Enabling Act, 28 U.S.C. § 2072(b). The act states that procedural rules adopted by the Supreme Court shall not “abridge, enlarge, or modify any substantive rights.” Ginsburg readily conceded that class or collective action rights of the sort asserted by the Epic Systems plaintiffs did not exist at the time of the NLRA’s adoption in 1935 — and thus class actions could not have been among the Section 7 “concerted activities” that Congress intended to protect. Any assertion that the protected “concerted activities” now include the right to litigate claims on a class or collective basis is properly categorized as use of Rule 23 to “enlarge” a substantive right, in violation of the Rules Enabling Act.

The Supreme Court warned against such use of Rule 23 in its 2013 American Express Co. v. Italian Colors Restaurant decision, which directed that arbitration agreements should be enforced without regard to the cost-effectiveness of pursuing individual arbitration proceedings. Citing the Rules Enabling Act, the court stated: “[C]ongressional approval of Rule 23 [does not] establish an entitlement to class proceedings for the vindication of statutory rights. … [I]t is likely that such an entitlement, invalidating private arbitration agreements denying class adjudication, would be an ‘abridg[ment]’ or ‘modif[ication]’ of a ‘substantive right’ forbidden to the Rules.”

Ginsburg’s dissent includes no reference to the Rules Enabling Act. She argues that Congress in 1935 essentially gave the NLRB a blank check to create new Section 7 rights “to adapt the Act to changing patterns of industrial life,” and notes that the NLRB since 2012 has sought to recognize employees’ rights to litigate on a class or collective basis. But neither she nor the NLRB has identified any “changing patterns of industrial life” that might justify creation of new substantive litigation rights. The only change they identified was the adoption of modern Rule 23.

It is, of course, possible that Congress may ultimately conclude that employees’ rights to engage in “concerted activities” should include class-action rights, and Ginsburg has already begun her lobbying effort: “Congressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert is urgently in order.” But it is up to Congress to make any such decision.

A long history of reliance on labor arbitration

The dissent’s aversion to enforcement of arbitration agreements in the employment context is particularly puzzling because of the long and successful history of reliance on mandatory arbitration in the labor context. As Justice William Douglas wrote for the Supreme Court in a famous 1960 decision upholding enforcement of arbitration agreements, “The present federal policy is to promote industrial stabilization through the collective bargaining agreement. A major factor in achieving industrial peace is the inclusion of a provision for arbitration of grievances in the collective bargaining agreement.”

Indeed, it is a well-accepted and common practice for a union to waive all of its members’ Section 7 rights — including the right to strike — in return for an employer’s acceptance of a collective-bargaining agreement that mandates arbitration of all issues arising under the CBA. That practice is so well-accepted that the Supreme Court has upheld an employer’s right to an injunction against a strike (over an issue subject to arbitration) undertaken in violation of a CBA’s no-strike clause. If a union is permitted to waive Section 7 rights of all employees within its bargaining unit — even employees who are not members of the union — there can be little justification for refusing to grant individual employees a similar waiver right.

The Supreme Court’s decision no doubt will cause financial hardships for the plaintiffs’ bar. But it in no way interferes with the ability of workers to act collectively to enforce payment of overtime wages or other employee rights.