Recently, forced arbitration clauses have spread into a wide variety of contracts that regular citizens ordinarily enter into. These include both consumer contracts, such as those for cellular phone service plans, and employment contracts signed at the start of a new job. Obstacles to fair and impartial dispute resolution are manifold in this coerced dispute resolution process. The largest issue is that the arbitration forums rely on the repeat business brought in by the companies who use their services. As result, there is a systemic disincentive to rule in favor of consumers and employees if companies can choose another arbitrator if they deliver multiple rulings adverse to the corporation. Beyond this, there are frequently problems with the technical details of how disputes are resolved. High fees involved in the arbitration process often dissuade employees and consumers from bringing their cases at all. Arbitrators, unlike judges, are not bound to follow any legal precedent and discovery is much more limited in arbitration.
The usual solution to corporate malfeasance on a large scale is a class action lawsuit. However, most forced arbitration clauses contain language banning class actions. Public Justice recently litigated this issue to the Supreme Court in the AT&T Mobility v. Concepcion case, arguing for the right of consumers and employees to join together in spite of arbitration agreements that forbid class action suits. The plaintiffs in the original case were supported by a California law that prohibited class action bans in contracts, but in a 5-4 vote the court ruled in favor of AT&T and held that the Federal Arbitration Act of 1925 preempts state laws that prohibit contracts containing forced arbitration clauses. However, as Public Justice has pointed out, the ruling does not necessarily mean the end of all class action lawsuits when forced arbitration is involved.
In some factual situations, it is arguable that the AT&T Mobility v. Concepcion decision is not applicable. In the context of the insurance industry for example, many courts have held that the Federal Arbitration Act does not affect state laws which ban arbitration of disputes in this area (which would prevent Concepcion from being considered relevant precedent). The National Arbitration Forum, previously listed in many forced arbitration clauses, has been banned from arbitrating consumer disputes. As a result, many courts have simply eliminated the requirement of arbitration where the National Arbitration Forum is specified in the clause. Additionally, the Concepcion decision does not apply in cases where there is no contract involved, since there is no clause to require forced arbitration.
The AT&T Mobility v. Concepcion decision is also limited in several general ways. Consumers and employees can still bring a class action lawsuit under a federal statute (like an antitrust law), even when confronted with a forced arbitration clause. Furthermore, it’s possible that the ruling will not be applicable in state courts since Justice Thomas has expressed a belief that the Federal Arbitration Act does not apply in these forums (and one vote on the divided court would change the ruling on this issue). Also, a key part of the reasoning of the court in the Concepcion decision was the idea that the law at issue would require AT&T, without its consent, to arbitrate disputes filed against the company on a class action basis. However, there are some situations in which both parties do consent to a class action, thus creating a precedential distinction away from Concepcion (see Public Justice’s brief on the issue in Schnuerle v. Insight Communications). Finally, the state law struck down in Concepcion was of a broad nature, and did not take into account whether individuals had a meaningful prospect to pursue their claims in spite of the contract ban on class action suits.
Although forced arbitration is a troubling issue, it is not an unsolvable problem. Legislation can be used to conclusively forbid the practice, something Congress has done on several occasions within certain areas. In the recent economic stimulus bill (Section 1553 of the American Recovery and Reinvestment Act, H.R. 1), Congress forbade contractors or state and local governments who received stimulus funds from requiring pre-dispute forced arbitration for whistle-blowing employees (with the exception of cases that occur under a collective bargaining agreement). Within the Department of Defense Appropriations Act for 2010 (H.R. 3326), the Franken Amendment prohibited contractors or subcontractors receiving these funds from using forced arbitration to resolve Title VII or sexual assault tort claims.
Although there has been some success in Congress in reducing forced arbitration, legislation to eliminate the practice generally has not yet been enacted. The Arbitration Fairness Act was introduced in 2007 and 2009 to curtail the use of such clauses, but failed to pass. The Act was recently introduced again in Congress in response to the AT&T Mobility v. Concepcion decision by Senator Al Franken (D-Minn.), as well as Senator Richard Blumenthal (D-Conn.) and Representative Hank Johnson (D-Ga.), to prevent the use of binding forced arbitration clauses in consumer and employment contracts. Entitled the Arbitration Fairness Act of 2011, it is an effort by Congress to try and curb the practice of pre-dispute forced arbitration by amending the Federal Arbitration Act directly to prohibit the practice. The Act adds a new chapter in Title 9 of the United States Code, with section 402(a) of the bill succinctly describing the purpose of the legislation: “In General – Notwithstanding any other provision of this title, no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment dispute, consumer dispute, or civil rights dispute.”
When a contract clause can be used to take away the power of non-union employees to protect something as basic as their civil rights in open court, it should give pause to both judges and Congress. Forced arbitration can eliminate perhaps the most essential tool an ordinary citizen has in seeking justice: a fair and impartial court system. Its spread must be halted through both legislative and judicial action, to protect the right of consumers and employees to have their day in court.
About the Author: Andrew Laine is a law student and intern at Workplace Fairness.