Epic Fail and Dynamex’s Glory: Two Cases in Context

Two momentous cases for workers have come out in the last month: one permits corporations to force workers to waive their right to sue collectively, and the other makes it harder for companies in California to call their workers “independent contractors.” Both address the growing practice by corporations of requiring their employees to waive their rights in order to get or keep a job.   

The U.S. Supreme Court’s decision in Epic Systems v. Lewis and its companion cases elevates the relatively obscure Federal Arbitration Act over all other employment and labor statutes, extending the FAA far beyond what Congress intended, which was the enforcement of commercial arbitration agreements. 

Showing a disdain for workers and their lack of power in employment matters, the 5-4 opinion, written by Justice Gorsuch, said that the FAA requires enforcement of arbitration provisions as written; this includes terms that prohibit collective or class actions.

In dissent, Justice Ginsburg, joined by the two other women on the court and Justice Breyer, called the majority’s decision “egregiously wrong.” Justice Ginsburg also wrote that
“[t]he inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers,” noting that employers will feel emboldened to break the laws without fear of getting caught as workers forced to go it alone with small claims will not bring them.

According to Professor Alex Colvin’s research in a recent EPI report, 60 million workers are subject to forced arbitration clauses, and 25 million of those have waived their rights to collective action.  These numbers are sure to rise, as corporate attorneys have already begun disseminating “model” waivers for use.  

For the vast majority of non-unionized workers, this will mean a crippling of enforcement of major employment laws. Workers in the U.S. have long understood that when their bosses break the law – whether it is wage theft, discrimination, or sexual harassment – workers have the right to band together to pursue legal action. This is no longer the case. Forced arbitration takes away people’s right to have their day in court. It is a backdoor way of repealing laws on the books. 

As we have seen repeatedly this past year, the president’s promise to put America’s workers first is hollow rhetoric. This administration is eager to let corporations write the rules for the rest of us. 

Dynamex’s ray of hope. 

While Epic’s majority based its decision on the legal fiction that employees have consented to waive their rights to protections under myriad laws that Congress and state and city lawmakers have enacted to protect employees, the California Supreme Court’s decision in late April in Dynamex Operations West v. Superior Court requires a scrutiny of corporate-imposed waivers calling workers “independent contractors.”  

The unanimous decision held that the trial court had properly certified classes of workers seeking unpaid wages under California Wage Orders, arguing that their employer had misclassified them as independent contractors. The California court’s sweeping decision traces the history of the definitions of employment under California law, and found that the “suffer or permit to work” prong of the definition can be interpreted by using a three-part “ABC” test used in many states.   

The court wrote:  

The ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. 

Id. at 64.  

Noting that the ABC test maintains a clear distinction between: (1) employees for whose protection the Wage Orders were adopted; and (2) “traditional independent contractors …, like independent plumbers and electricians, who could not reasonably have been intended by the wage order to be treated as employees of the hiring business,”  Id. at 54, the court noted the test’s objectivity and clarity with approval.  

Dynamex means that companies requiring their workers to sign independent contractor “agreements” will no longer be able to rely on the contracts themselves to carve out employer responsibilities.  Other states can make use of the California ruling, too; more than half of the states have the ABC test in their state unemployment insurance laws, and the vast majority have “suffer or permit to work” in their state minimum wage acts.   

After Dynamex, California employers in industries from construction to homecare and trucking will no longer be able to dodge minimum wage laws by pretending that the workers who form their workforces are somehow not their employees. In particular, businesses in the on-demand economy will no longer be able to push costs and risks downstream to workers.