Lochner v. New York is one of the Supreme Court’s great anti-precedents. Typically taught in law schools as an example of how judges should not behave, Lochner rested on a fabricated “right to contract” that, in effect, gave employers broad license to exploit their workers. The so-called right invented in Lochner and similar cases later formed the basis for decisions striking down the minimum wage and laws protecting workers’ right to organize.
Speaking at Brandeis University last Thursday, Justice Ruth Bader Ginsburg offered a warning that Lochner may not be as much of a relic of the past as it is often presented in legal textbooks.
I was reminded of Lochner reading some decisions of the Court concerning workers, consumers, credit card holders who signed agreements saying “if you have a dispute with us, you can bring it only in arbitration — not in court — and you cannot use the class action device. You must sue for your individual claim, which might be 30 dollars, and that’s it.” And that has also been described as tied to liberty of contract.
The cases Justice Ginsburg refers to concern a common practice where companies refuse to do business with consumers — or threaten not to hire a worker — unless the worker or consumer agrees to sign away their right to bring any disputes against the company in a real court, and instead submit to a private arbitrator.
In 1925, Congress enacted the Federal Arbitration Act which, as Ginsburg explained in a recent dissent, was intended to allow “merchants with relatively equal bargaining power” to agree to resolve disputes through arbitration instead of potentially costly litigation. Yet, beginning in the 1980s, the Court started reading this law expansively to allow businesses to force their workers and customers to submit to arbitration before the company would agree to do business with them.
In many of these cases, the Court reached conclusions that are difficult to square with the Federal Arbitration Act’s text. The Court’s 5-4 decision in Circuit City v. Adams, for example, held employers could require workers engaged in foreign or interstate commerce to sign arbitration agreements even though the arbitration act explicitly exempts “workers engaged in foreign or interstate commerce.” Similarly, the Court’s 5-4 decision in AT&T Mobility v. Concepcion permitted companies to tack bans on class action lawsuits onto arbitration agreements, even though the Federal Arbitration Act is silent on the subject of class actions.
As research by the Economic Policy Institute demonstrates, the growth of arbitration clauses has drastically diminished the ability of workers to assert their rights when those rights are violated by their employer. Private arbitrators are more likely to side with employers over workers, and when they do side with workers they typically award far less in damages than federal judges:
In fairness, the Court’s arbitration decisions are distinct from Lochner in the sense that they do not directly forbid progressive legislation. Lochner and subsequent cases applying this decision held that many laws protecting workers are actively forbidden, while the Court’s arbitration decisions leave these laws on the books — albeit while simultaneously shunting workers and consumers into forums that are much less likely to vindicate their rights. As a practical matter, however, it is unclear how much this distinction matters to a worker forced into a rigged arbitration system, for what use is a law if it cannot be enforced?
(HT: Mike Sacks)