Compulsory Arbitration for Consumer, Employee, and Civil Rights Disputes—Without Reasonable Legislative Intervention, Access to Fair Dispute Resolution Will Continue to Degrade

ANDREA SINNER—Arbitration can be an efficient and effective dispute resolution process in the consumer, employee, and civil rights arenas; it works well for the right disputes when the parties and arbitrators play by the procedural, substantive, and ethical rules.  Compulsory arbitration, where one party is unaware of the agreement to arbitrate or effectively had no choice in the agreement, can substantively limit the effectiveness of arbitration.  The potential negative impacts include no avenue of appeal, lack of objectivity of the arbitrator, limited discovery even when further discovery would support finding a fair outcome, and poor transparency to the substance and process of dispute resolution.  Compulsory arbitration is common in consumer, employee, and civil rights disputes through the use of Pre-Dispute Arbitration Agreements (PDAA’s), commonly inclusive of class action waivers, in related contracts.

There are two primary interests to be served in these disputes.  First, Individuals want an objective and efficient forum in which they can have their grievance heard and resolved. Second, corporations or organized entities (e.g., schools, churches, non-profits) want predictability in how disputes are resolved and limitations on potential liability.  This simple dialogue becomes more complex as the tertiary interests become involved.  Lawyers, both plaintiff and corporate, make a living off these disputes as they serve the interests of their clients.  Lobbyists also make a living as they advocate for their respective group interests.  Government becomes interested when there is an inequity in the playing field, and thus the attempts at legislation from both parties on approaches to mitigate the negative impacts on compulsory arbitration. Courts, in general already overloaded, encourage arbitration as a perceived reasonable means to administer justice, and to manage docket volume.

The market has evolved such that the use of PDAA’s is the new normal.  Though articles on the topic abound, a recent three-part series in The New York Times illustrates the commonality of PDAA’s and their potential risks (Part I – Arbitration Everywhere, Stacking the Deck of Justice; Part II – In Arbitration, a “Privatization of the Justice System”; Part III – In Religious Arbitration, Scripture Is the Rule of Law). What was not presented in the series was an approach to resolution that has a reasonable probability of being enacted, either in the market or in Congress.  The Supreme Court in recent years has been supportive not only of the enforcement of PDAA’s, but also limiting the use of class actions such that plaintiffs with small dollar amount disputes have no viable recourse.¹

The proposed legislative responses are intriguing, and yet arguably propose too little or too much.  The Republican proposal of 2011 addressed only due process issues related to arbitration; the proposal had one sponsor and made no progress in that session of Congress.² The Democrat proposal of 2015 was a repeat of many prior attempts at reform; the proposal had dozens of supporters across both houses of Congress, but with only Democrat and Independent support, it also repeated the prior pattern of no progress.  This Arbitration Fairness Act of 2015, proposed by the Democrats, would make PDAA’s illegal.³ There is a sensible concern that this particular legislation goes too far and risks significant negative unintended consequences.

The market has shown it will continue to make efforts to manage liability for corporations, and subsequently restrict consumer, employee, and civil rights.  The Court has shown it will continue to uphold almost all of these actions.  If Congress cares about correcting the negative trends of compulsory arbitration, then it must put forward legislation with even a moderate chance of success.  That legislation should address transparency, due process, and right of appeal concerns at a minimum.  One former arbitrator presented a balanced and thoughtful suggestion that would focus on four objectives:  “1) Customer choice, but before a dispute arises, 2) Clear, knowing, and voluntary agreement to arbitrate, 3) Establish procedural fairness criteria, 4) Promote web-based arbitration systems.”  Though we have many pressing issues in our country at the moment, we should aspire to stem the current tide which, in the always eloquent words of Notorious RBG from a dissent in 2015, “further degrade[s] the rights of consumers and further insulat[es] already powerful economic entities from liability for unlawful acts.”

¹ See e.g., Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220 (1987) (securities firms can require customers and employees to use arbitration); Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1775-76 (2010) (agreements silent on class arbitration do not provide basis for class arbitration); Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2775-77 (2010) (arbitrator has the authority to determine unconscionability of arbitration clause); AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1746-47, 1753 (2011) (class arbitration waivers not per se unconscionable); Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013) (no laws require the court to “reject the waiver of class arbitration”); DIRECTV v. Imburgia, 136 S. Ct. 463 (2015) (upholding class action waivers).

² Fair Arbitration Act, S. 1186, 112th Cong. (2011).

³ Arbitration Fairness Act, S. 1133, 114th Cong. § 402 (2015) (“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, antitrust dispute, or civil rights dispute.”)

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