Cliff Palefsky of McGuinn, Hillsman & Palefsky disputes the assertion that sending a case to arbitration has no impact on substantive rights; that faulty premise, he contends, underlies much of the Court’s arbitration jurisprudence.

The Supreme Court has told us repeatedly that judges do not create public policy. Public policy, they say, must emanate from the Constitution or a statute passed by Congress. Docket clearing is not a public policy and the FAA did not and could not create a public policy that conflicts with the express mandates of the Constitution.

But if the goal of the Supreme Court’s jurisprudence on arbitration was to fulfill its judicially created public policy of “docket clearing,” it has failed.  In the past few Terms the Supreme Court has heard at least eight significant arbitration cases. Courts of appeals across the country are inundated with arbitration issues and trial courts are hearing contested motions to compel arbitration on a daily basis.  The reasons are obvious. Arbitration was always intended to be a voluntary process, or as the Court itself has declared, a matter of “consent and not coercion.”  It says that but it doesn’t really mean it. And parties who do not want to arbitrate and who do not trust the forum designed and imposed on them by a stronger party will use all available legal tools to avoid it. The mere act of forcing an arbitration program that you designed on an adverse party is inconsistent with the confidence in the process any justice system needs to succeed.  As a result of failing to distinguish between voluntary and coerced arbitration in its jurisprudence, the Court has actually dramatically increased the workload of the appellate courts and done serious damage to the Constitution and many of the most important laws passed by Congress.

But equally important, and ironic, is the fact that by further eliminating the safeguards of a fair arbitration process as the Court did this Term in Concepcion and last Term in Rent-A-Center v. Jackson, the Court has actually undermined the viability and integrity of the arbitration process and in doing so has done great harm to the credibility of all of the effective voluntary forms of ADR which might actually help provide more efficient justice to so many and help reduce the backlog in the courts.

Real consent was always intended to be the only check and balance necessary to ensure fairness and to keep these matters out of the courts. By ignoring and distorting the requirement of consent, the Court has opened the door to every permutation of abusive and unfair arbitration process.  As a fundamental concept, you can’t turn an adversarial system over to one side and invite it to design and control the process. It is thus no surprise that the abuses are getting all the attention and all of the positive attributes of voluntary ADR processes are lost in the noise.

It is easy to identify some of the ways in which the Supreme Court lost its bearings. It is also pretty easy to identify ways to make their future jurisprudence more faithful to the Constitution and restore the promise of voluntary forms of ADR.

It would be malpractice for any lawyer to tell a client that arbitration and our public court system are equivalent fora. Indeed, they are exact opposites in every material defining characteristic – public versus private, free versus costly, full discovery versus limited discovery, obligation to properly apply the law versus legal errors must stand, appeal versus no appeal. Arbitration is not just a change of venue, and it is not “just another forum”. And pretending that it is is the modernday version of “separate but equal”. The assertion that sending a case to arbitration has no impact on substantive rights is simply false as a matter of fact, yet that is the essential underpinning of much of the Court’s jurisprudence.  It isn’t even accurate to describe mandatory arbitration as a ‘justice system” because its goal is finality – not necessarily reaching the correct result. As the Court announced in Hall Street Associates v. Mattel, under the FAA even facially incorrect legal rulings must stand and the parties can’t even agree to expanded review to make sure the laws of Congress are properly applied. In a voluntary context, parties are free to flip a coin to resolve a dispute or agree to be bound by an incorrect ruling. But in a non-consensual setting, the weaker party is being deprived of the ultimate substantive right – the right to have statutes that were passed for its protection interpreted and enforced correctly – in other words, due process. Asserting that arbitration is ‘just another forum” disrespects the very reason for the creation of a public court system and the Supreme Court itself since arbitrators are not even required to properly apply Supreme Court precedent.

An agreement to arbitrate involves the waiver of several constitutional rights:  the First Amendment right of petition, the Fifth Amendment right to due process and the Seventh Amendment right to a jury trial.  And to be sure, there are numerous statutes that expressly provide for the right of access to a federal court, which is obligated to follow the law. But incredibly, the Supreme Court has never acknowledged the waiver of constitutional rights inherent in an agreement to arbitrate and has never specifically considered the constitutionally required standard for such a waiver. In every other context, the waiver of those rights must be ‘knowing and voluntary’.  The Court has repeatedly avoided this required analysis by ignoring the issue of consent entirely or by falsely proclaiming that the FAA requires courts to treat an arbitration clause as it would any other contract.

The FAA contains no such mandate, nor could it. It is a mere statute and does not have the power to reduce the constitutionally required standard for the waiver of constitutional  rights. When Congress passed the FAA in 1925 its express intent was to “permit” courts to enforce voluntary and otherwise valid arbitration agreements as they would other contracts. It certainly did not, and could not, mandate them to enforce involuntary and non-consensual waivers of constitutional rights. The FAA is only constitutional to the extent the underlying agreement is knowing and voluntary. Aside from the magical preemptive powers over state laws bestowed upon it, the Court has also granted it the power to trump the most fundamental dictates of the U.S. Constitution.

The surest way to fix much of what is wrong with the Court’s arbitration jurisprudence is to acknowledge that the order compelling arbitration and the entry of judgments obtained in arbitration are forms of state action in the performance of a traditional “public function.”  The Court needs to distinguish between truly voluntary agreements and “adhesion contracts,” which are really just a privilege extended to businesses to facilitate the inclusion of normal and customary commercial terms into a routine transaction. Adhesion contracts, especially in the employment context, are simply not sufficiently voluntary to support the waiver of constitutional and statutory rights. Adhesion contracts in most contexts are considered “procedurally unconscionable”. “Procedurally unconscionable” is the opposite of knowing and voluntary, and although an adhesion contract might be a vehicle for setting normal commercial terms, it can’t be an appropriate device for the forfeiture of constitutional and statutory rights.

The employment relationship is unique. The NLRA, the Norris LaGuardia Act, and numerous other federal statutes acknowledge both expressly or impliedly that agreements between companies and individual employees required as a condition of employment are not really voluntary. Indeed, most of these laws were passed because of the failure of the free market to protect workers.

It is interesting to compare the Court’s concern with the newly required “knowing” consent to class arbitration in Stolt-Nielsen S.A. v. AnimalFeeds International and Concepcion (when the issue is whether or not the corporation that created and crafted the arbitration agreement agreed to class arbitration), with its total lack of concern with consent when it is a consumer or employee objecting to the forced arbitration.  Similarly, the Court doesn’t hesitate to declare that arbitration is favored and ‘just another forum” with no impact on rights when it is imposed on a consumer, but at the same time to declare it a wholly arbitrary and inadequate process for the resolution of class actions – as Justice Scalia wrote in Concepcion.

Legal historians and academics are already looking at the Court’s arbitration jurisprudence as one of the low points in the Court’s history. And in that review, Concepcion will certainly be the lowest point . . . so far. In Concepcion, the Court spent most of its time explaining that it was improper to force a company to arbitrate a class action because of the deficiencies of arbitration – even though the lower court had done no such thing, but had instead merely held that the class action should proceed in court. The Court violated the express terms of the FAA and preempted state law protections of general application against unconscionable and unfair arbitration agreements and replaced them with nothing. It shockingly expressed concern for the unfairness to corporate defendants of having to be bound by an incorrect result while inflicting that unfairness on consumers and employees without any concern whatsoever.

Mandatory arbitration is a cancer in our justice system based on a phony public policy and legal and factual fictions.  In recent years Congress has passed numerous statutes prohibiting mandatory arbitration in many different contexts – for example, whistleblower claims under Sarbanes-Oxley, Title 7 claims against defense contractors, military lending agreements, auto dealer and farm contracts – while also expressly empowering the SEC and the new Consumer Financial Product Agency to prohibit mandatory arbitration clauses to protect investors and consumers.  Those, along with the Constitution, are the real contemporary public policies.  Public policy may encourage the truly voluntary use of alternative processes but it does not favor coerced and mandatory arbitration.  Never did and never will, no matter how many times they say it.

This post originally appeared on the SCOTUS Blog on September 14, 2011. Reprinted with permission.

About the Author: Cliff Palefsky is a nationally renowned employment and civil rights lawyer who has argued cases before the Supreme Court and testified before National and State legislative committees. He has been described as a “force of nature” due to his involvement in many of the leading cases and legislation that have come to define the field of employment law. Mr. Palefsky has contributed his knowledge and expertise to drafting the first pieces of legislation concerning worker privacy, drug testing and lifestyle discrimination laws. He is the founder of the National Employment Lawyers Association. Today, Mr. Palefsky serves as a partner to the San Franciscio Bay Area firm McGuinn, Hillsman & Palefsky.