On May 7, 2013, Sen. Al Franken (D-MN) and Rep. Hank Johnson (D-GA) introduced S. 878, the “Arbitration Fairness Act of 2013.” It currently resides in the Senate Judiciary Committee, under the safekeeping of Chairman Sen. Patrick Leahy (D-VT). The current political climate leaves him little choice but to stow it away, as it would surely never pass. (Can anything pass? Oooh a bill for better sunscreen sure can! Way to go, Congress!)
This is unfortunate, since the Arbitration Fairness Act would eliminate forced arbitration from consumer, civil rights, and employee contracts, stating that “no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment dispute, consumer dispute, antitrust dispute, or civil rights dispute.” Forced arbitration has significantly eroded access to justice for consumers and employees, and it has done so right under almost everyone’s noses.
First a little background. The Federal Arbitration Act (“FAA”) was enacted in 1925. Its early history was not very exciting. By 1959 it had been cited in cases a grand total of 5 times in any state court. In the past thirty years however, it has radically altered the landscape of consumer and employee dispute resolution. It is the “tort reform” battle that has already been lost by consumers and employees.
There is a very enlightening (and sad, considering where we are now) history of the FAA in the dissent of Justice John Paul Stevens from the Supreme Court case of Gilmer v. Interstate/Johnson Lane Corp 500 U.S. 20 (1991). In it, Justice Stevens notes that “There is little dispute that the primary concern animating the FAA was the perceived need by the business community to overturn the common-law rule that denied specific enforcement of agreements to arbitrate in contracts between business entities.” (Emphasis mine.) The American Bar Association (the ABA) drafted the Act and actually testified during hearings on the Bill in 1923 that the FAA “is not intended [to] be an act referring to labor disputes, at all. It is purely an act to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it. Now that is all there is in this.” (Emphasis mine, again.) This was perhaps to allay the fears of many that the Act would be interpreted precisely as it is today, and would essentially gut the rights of employees and consumers in situations where they have absolutely zero bargaining power. Take, for example, the prescient comments of Senator Walsh of Montana, at these same hearings:
“The trouble about the matter is that a great many of these contracts that are entered into are really not [voluntary] things at all. Take an insurance policy; there is a blank in it. You can take that or you can leave it. The agent has no power at all to decide it. Either you can make that contract or you can not make any contract. It is the same with a good many contracts of employment. A man says, ‘These are our terms. All right, take it or leave it.’ Well, there is nothing for the man to do except to sign it; and then he surrenders his right to have his case tried by the court, and has to have it tried before a tribunal in which he has no confidence at all.”
The hostility in 1923 to the potential scope of the act was, perhaps, why the following was added to the version of the FAA passed in 1925: “[N]othing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.
Seems pretty straightforward. Businesses wanted knowledgeable arbitrators familiar with the vagaries of their industry, rather than potentially disinterested and hard to predict juries. Workers were carved out because it seemed unfair to make someone waive their right to a jury trial in a take it or leave it context, and juries and courts were more than apt to decide employment disputes since these involved regular people just like them. Bill passes, everyone’s happy.
This was, in fact, how the FAA was interpreted for the first half of the century. Circa 1956, three appellate courts had held that the FAA did not apply to contracts of employment.
What a difference the last 60 years or so have made. The FAA is now, clearly and unmistakably, enforceable against employees and consumers alike, via take it or leave it contracts that hardly anyone ever reads. (What’s the point? You don’t have a choice.) Buy a different product, you say? 95% of credit card agreements are subject to mandatory arbitration. Cable and internet? Time-Warner, Comcast, and AT&T all have mandatory arbitration agreements. Buying stuff online? Paypal has one. Amazon has one. Do you put money in a bank, maybe? Basically every bank has one. Do you listen to music? Apple’s iTunes has one. Popular media and video game vendor Steam has one. Reading this on Windows? Microsoft has one. Netflix? Check. Hulu? Check. Google any major business and “arbitration” and you will see they have one, and you probably signed it without even knowing about it. (Google’s Terms of Service do not have an arbitration clause as of the date of this post. Hooray! But I only checked their all encompassing TOS, not any individual ones for Google Wallet, Play, and so on, which may be different.)
Almost every single national service or product supplier or employer has one. You cannot escape them, because why would any company let you escape mandatory, binding arbitration? It is well documented that in both consumer and employment arbitration agreements, the consumers and the employees usually lose, or do not win as much as they could in court. Problems like the repeat player effect are well discussed by people way smarter than me, such as in Lisa Bingham’s excellent study “The Repeat Player Effect” (1997).
But it is not just the repeat player effect, at least not the simplified one many people argue about. (I.e., Joe Employee vs. the oft-sued Employer who happens to pay for the arbitrator’s mortgage thanks to the repeat business.) I am arguably a Plaintiff’s “repeat player” and even I dislike arbitration. That’s because in my not so humble opinion, the problem is not just the whims of an arbitrator who knows where his or her bread is buttered. I know and trust lots of skilled employment arbitrators and mediators. The problem is that the process is tailored to these companies. This system is built and paid for by companies and employers and other large business entities with a vested interest in its success. (Like the National Arbitration Forum, which stopped performing consumer arbitration in 2009 after it was revealed they were owned by the very same debt collectors who forced consumers to use them.)
There is legally zero oversight or accountability over an arbitration proceeding. It is almost impossible to overturn an arbitration award. Unlike a Judge, there is no real appeal. There is no public record. You cannot ask a higher court to review a particularly harmful pre-trial ruling on a motion. Discovery–far more critical for consumer and employee Plaintiffs than businesses and employers–is restricted, such as a de facto 1 deposition limit absent good cause (JAMS) or rules limiting paper discovery (AAA). The “spirit of arbitration” (the phrase that I hear defense counsel crow when they think I am serving too much discovery) often works against the Plaintiff by design. And of course, most importantly, the employee or the consumer loses the right to make their employer or the business that wronged them face a jury of their peers.
Arbitration is a major international business, and these companies have a vested interest in making sure the product they sell is wanted by their customers. Their customers being, of course, businesses and employers who choose them as providers for their arbitration clauses. This is not how it should be. We need our courts back. Call your congressperson and tell them to support the Arbitration Fairness Act. More on this in subsequent blog posts.
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