Laws mean nothing if they cannot be enforced against people who violate them, which is why there is an entire branch of government — the judiciary — whose job is supposed to be applying the law to individual cases. But at least when it comes to employment law, the Supreme Court has spent the last two decades permitting most employers to immunize themselves from lawsuits through a practice known as “forced arbitration.”
Forced arbitration allows an employer to order its workers to sign away their right to sue the company, or lose their jobs. Instead, any disputes must be resolved in a private arbitration process that gives extraordinary advantages to corporate parties over individuals. (Forced arbitration is also very common in ordinary consumer transactions, but your bank or cellphone company can only refuse to do business with you if you refuse arbitration. Your boss can most likely fire you.)
In the final two weeks of March, the Supreme Court will hear three cases asking just how much power companies have to force their workers into arbitration.
The first two, Morgan v. Sundance and Viking River Cruises v. Moriana, are fairly narrow. But the third case, Southwest Airlines Co. v. Saxon, involves one of the original sins of the Court’s forced arbitration jurisprudence. The Federal Arbitration Act of 1925, the statute the Court relies on in forced arbitration cases, explicitly exempts “workers engaged in foreign or interstate commerce.” But, in Circuit City v. Adams (2001), a 5-4 Court held that most workers engaged in foreign or interstate commerce can be forced into arbitration.
The issue now before the Court in Saxon is whether workers who load and unload cargo from airplanes count among the rare workers who are not vulnerable to forced arbitration under Circuit City. Under existing law, answering this question is needlessly complicated — although it is worth noting that a Trump-appointed judge wrote the lower court’s opinion holding that these workers are not subject to forced arbitration.
But if the Court actually followed the text of the Arbitration Act, then this wouldn’t be a difficult case at all. Indeed, if the Court cared about what the Arbitration Act actually says, none of its decisions enabling forced arbitration would apply to workers.
Forced arbitration hurts workers
Congress enacted the Arbitration Act to, in the late Justice Ruth Bader Ginsburg’s words, permit “merchants with relatively equal bargaining power” to resolve disputes through private arbitration. And, when used by parties with relatively equal power, arbitration is benign and can even be beneficial. Resolving a dispute through arbitration can be quicker and less expensive, and merchants within a particular industry can select an arbitrator who is more familiar with that industry than most judges.
Starting in the 1980s, however, the Court started to read the Arbitration Act to permit companies to require ordinary consumers and employees to agree to arbitration as a condition of doing business with that company. Under Circuit City and Epic Systems v. Lewis (2018), an employer can order an employee to agree to forced arbitration or else immediately be fired.
Employers, moreover, have powerful incentives to do so. A 2015 study of forced arbitration in the workplace, for example, found that workers are a little more than half as likely to prevail before an arbiter as they are to prevail in litigation against their employer.
And when workers do prevail in arbitration, they are typically awarded about a fifth as much money as a worker who prevails before a judge.
There may be some instances where workers would prefer arbitration to litigation. Arbitration is common in unionized workplaces, for example, in part because the union can help ensure that a fair and impartial arbitrator will be selected to hear a dispute. And opponents of forced arbitration typically do not object to agreements to arbitrate a dispute after that dispute arises — a new federal law prohibiting forced arbitration in sexual misconduct cases, for example, targets “predispute” arbitration provisions where workers are often forced to sign away their right to sue before they are even contemplating legal action against their employer.
But there’s a reason many employers try to force workers into arbitration before a dispute arises. When workers are forced into arbitration, their employers are far less likely to suffer meaningful consequences if they break the law.
Circuit City is egregiously wrong
To understand why the Court’s decisions allowing workers to be exploited in this way are wrong, it helps to be familiar with two provisions of the Arbitration Act and a small amount of constitutional history — and specifically how the Supreme Court has changed its interpretation of the word “commerce” over time.
The first relevant provision says that an agreement to arbitrate disputes typically shall be “valid, irrevocable, and enforceable.” Importantly, this provision only applies to contracts pertaining to a “transaction involving commerce.”
The second relevant provision is the one exempting workers from the Arbitration Act. It provides that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Notice that this language also uses the word “commerce.”
The word “commerce” also appears in one of the most important provisions of the Constitution — a provision that permits Congress to “regulate commerce ... among the several states.” This is the constitutional provision that gives Congress much of its authority to regulate private businesses.
But the scope of Congress’s power over interstate commerce, and the proper meaning of the word “commerce” itself, has historically been one of the most contentious questions in American law.
Beginning in the late 1800s, conservative Supreme Court justices started reading the word “commerce” very narrowly. Under this now-discredited reading of the Constitution, the power to regulate interstate “commerce” included the power to regulate the transportation of goods across state lines, but it did not include the power to regulate manufacturing, agriculture, or other methods of producing these goods.
The Court abandoned this narrow reading of the word “commerce” in 1937, however. Under the modern reading of the Constitution, Congress’s authority to regulate commerce extends broadly to all “activities that substantially affect interstate commerce.”
Recall, however, that the Arbitration Act was enacted in 1925, when the antiquated reading of the Commerce Clause was still ascendant. Thus, as the Arbitration Act was originally understood, it did not apply at all to employment contracts involving workers engaged in manufacturing, agriculture, or anything else other than the transit of goods (and people) across state lines.
Again, the Arbitration Act only extends to contracts “involving commerce.” And in 1925, that word was understood quite narrowly.
This historical understanding of the word “commerce” also explains why the Arbitration Act exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” This provision broadly exempts all workers who were understood to be subject to congressional regulation in 1925.
Indeed, this is the best way to read the Arbitration Act. The Congress that enacted the law in 1925 couldn’t possibly have known that the Supreme Court would shift its understanding of the word “commerce” a dozen years later. And the lawmakers who voted for the Arbitration Act most definitely could not have anticipated that, 76 years after the Act became law, the Supreme Court would abruptly decide to apply it to all workers.
Even if the Arbitration Act is read anachronistically — giving the word “commerce” its modern definition and not the definition that prevailed in 1925 — the law still should be read to exempt all workers.
Under this anachronistic reading, the reference to contracts “involving commerce” must be read quite broadly — broad enough to encompass nearly every workplace in the United States. But, under the modern reading of the word “commerce,” the exemption for “workers engaged in foreign or interstate commerce” must also be read just as broadly to encompass every employee of these workplaces.
The point is that, in either reading of the word “commerce,” the Arbitration Act must be read to exempt all employment contracts. If the Act is broad enough to encompass nearly all workplaces, then so is the provision exempting “workers engaged in foreign or interstate commerce.”
Circuit City’s error is that it did not apply a consistent reading of the word “commerce” to the entire Arbitration Act. It read the provision stating that the Arbitration Act applies to any contract “involving commerce” using the modern understanding of the word “commerce,” extending the scope of the law to nearly every workplace in the nation.
But Circuit City also read the provision exempting “workers engaged in foreign or interstate commerce” using the antiquated meaning of the word, ensuring that only workers engaged in the transit of goods would be exempted.
By changing the definition of the word “commerce” midway through the statute, the Court’s conservative majority effectively rewrote a narrow federal statute with a broad exemption for all workers, and turned it into a broad federal statute with a narrow exemption for only some workers.
Circuit City makes an easy case needlessly difficult
The particular question in Saxon, the case currently pending before the Supreme Court, involves Latrice Saxon, a supervisor for Southwest Airlines who manages workers who load and unload cargo onto airplanes that travel across state lines. Her job also sometimes requires her to load and unload that cargo herself.
Saxon, in other words, does not actually transport goods across state lines. But she does do work that makes it possible for her employer to transport goods across state lines. So, under Circuit City’s mangled understanding of the Arbitration Act, Saxon is an edge case. It is not immediately clear if Saxon qualifies as a worker “engaged in foreign or interstate commerce” under the extremely narrow definition of those words embraced by five justices in Circuit City.
A federal appeals court determined that Saxon does qualify as a worker engaged in interstate commerce under Circuit City — though, notably, the lower court placed great significance on the fact that Saxon herself spends a considerable amount of time loading and unloading cargo. The lower court concluded that this would be a much harder case if Saxon merely supervised other workers who perform the physical act of placing cargo on airplanes and removing other cargo.
And it would be; one of the many reasons the Court abandoned the antiquated definition of the word “commerce” in the 1930s is because it’s really not possible to draw a clear line between workers who transport goods and workers who do other forms of labor.
What about a human resources manager who hires and fires workers who load cargo onto planes, but who never actually loads cargo themselves? How about a dispatcher who assigns truck drivers to transport goods across state lines, but who never actually drives a truck themselves? How about a factory worker who loads goods into crates, so that those crates can then be loaded onto airplanes? What about a corporate executive who oversees a company that earns 2 percent of its profits from transporting goods across state lines? Or an insurance salesperson who sells policies to airlines which insure cargo that travels across state lines?
There aren’t really clear answers to any of these questions under the fabricated legal rule the Court invented in Circuit City. So long as Circuit City remains good law, judges will necessarily have to draw arbitrary lines between workers deemed to be close enough to the transit of goods to keep all their legal rights intact, and workers deemed so far removed from such transit that they are vulnerable to forced arbitration.
This is a bad way to do law. The better approach is to overrule Circuit City, and to interpret the Arbitration Act as it was written.
Saxon offers the Court a chance to do so, although Republican justices have historically been great fans of forced arbitration, so that outcome is unlikely.
There still is a good chance that even this Court will hold that Saxon is not subject to forced arbitration. But if the Court rules narrowly, future judges will undoubtedly be forced to make arbitrary decisions about who is exempt from the Arbitration Act.