Weisblatt Law Firm, LLC $1000.00 Scholarship Winner Tiffany Lo
Subject: “Businesses often protect themselves from the high costs of litigation by including arbitration clauses and waivers of the right to a jury trial in their terms and conditions. Do you believe that this trend benefits our country? Support your position.”
When considering what is best for our country, the interests of hundreds of millions of people residing here should come first. They rely on private companies for employment, goods, and services. Nowadays, arbitration clauses and waivers of the right to a jury trial, often called mandatory arbitration clauses, are commonly found in employment and consumer contracts. A 2017 survey published by the Economic Policy Institute found that 60 million American workers are stripped of their access to the courts due to these clauses. [1] The trend of mandatory arbitration clauses heavily favors businesses and is clearly unbeneficial to our country. It is first important to distinguish between arbitration as a chosen alternative dispute resolution and mandatory arbitration as an imposed contracting condition. The former is an alternative to trial and is encouraged before litigation, so that disputes may be resolved without expending more resources. The parties voluntarily enter the process, submitting their evidence and arguments to a neutral third party, who makes a binding decision on the resolution of the matter. Arbitration is favored as it lessens the burden of the civil justice system by resolving issues in a quicker and less expensive manner out of court. This is important for expanding and facilitating access to justice. Professor Peter Rutledge, a proponent of this practice, note that because of these advantages, it is easier for an individual to retain an attorney or represent themselves in an arbitration hearing. [2] Arbitration is an important facet of our civil justice system and it works very effectively in many disputes.
With mandatory arbitration, the key word is the modifier “mandatory.” The chief problem is that arbitration and waiver clauses compel employees and customers to resolve any legal claims and disputes in arbitration. Their access to the courts is completely severed. Arbitration, as previously explained, is useful and valuable since both parties make the free choice to submit to the process. They understand what it entails and believe it to be the best method for resolving their dispute. Mandatory arbitration clauses, however, remove from one party this crucial ability to choose, often resulting in an uneven relationship between the contracting parties. Sometimes, employees and consumers are not even aware of mandatory arbitration clauses in their contracts, let alone the implications. Zev Eigen found in his 2008 study of the electronics retail company Circuit City that a majority of its employees did not know they had signed arbitration agreements or understand their significance. [3] The many advantages of freely-chosen arbitration dissipate when a party’s participation in the hearing is not voluntary, but mandated by a signed contract. Describing the ubiquity of mandatory arbitration in employment contracts, employment attorney David Gottlieb says, “our judicial system is…being privatized in a way that only favors one side, the employer.” [4]
With mandatory arbitration, multiple factors and practical concerns tip the scale toward businesses at the expense of everyday citizens and aggrieved plaintiffs:
1. Arbitrary Procedures and Unfair Outcomes
Arbitration is a forum with no judge, no jury, and little government oversight or procedural guidelines. Given this, the arbitrator can conduct proceedings liberally. The arbitration process can vary from one individual to another, and from one arbitration firm to another. Considering this flexibility, it is no surprise then that businesses are able to game the system and are far more likely to win. Dean and Professor Colvin at the Cornell University Industrial and Labor Relations (ILR) School found that the employee win rate in arbitration is a mere 21.4%, lower than the rate reported in employment litigation trials. The amount of damages, when awarded, are also much lower in arbitration than in litigation. [5] Especially meriting discussion is the “repeat player effect.” This was a term coined in 1997 by Professor Lisa Blomgren Amsler, whose research showed that workers are nearly five times less likely to win if the arbitrator had resolved past disputes with the same employer. [6] Her finding has been confirmed by many subsequent studies. In 2011, Cornell found that where one arbitrator is involved in many cases with the same employer, employees have lower win rates as well as smaller awards. [7] There is a clear incentive for the arbitrator to decide favorably for the business, so that they will be hired for the next arbitration case. When the outcome is unfavorable for the employee or consumer, there are limited options to appeal the decision. In court, appeals can be requested and granted for procedural irregularities, whereas the decision in arbitration cannot be overridden, even despite blatant arbitrator bias.
2. Resource Imbalance and Claim Deterrence
The Cornell ILR School found strong evidence of a repeat employer effect, wherein employee win rates and award amounts are significantly lower when the employer is involved in many arbitration cases. [8] This is attributable to the fact that larger companies have more resources, experience, and expertise. They often have the support of a legal team or external counsel that can anticipate issues and prepare extensively. On the other hand, individuals have limited resources. Mandatory arbitration is particularly effective in its ability to suppress claims from being brought in the first place because the aggrieved individual cannot find legal representation. Professor Colvin found that lawyers are less willing to take on clients who are subject to mandatory arbitration policies due to the lower probabilities of success and smaller awards. [9] While arbitration does not require legal representation, few individuals can bring successful claims without the advice of a professional, especially against a formidable and organized opponent.
3. No Discovery
In litigation, discovery is the pre-trial procedure in which the disputing parties can obtain pertinent evidence from each other. They are required to honor reasonable requests and disclose information. Discovery requirements reduce foul play, speculation, and unethical dealings. In arbitration, discovery is much more limited––for good reason––as the process is prized for its efficiency. However, when matters are being resolved under mandatory arbitration clauses, businesses can withhold crucial information that employees or consumers need to make a successful case. A majority of the Federal Circuit Courts have held that under the Federal Arbitration Act (“FAA”), an arbitrator does not have the ability to compel third-party document discovery before the arbitration hearing. [10] For cases that are complicated, or those in which the business is uncooperative or unforthcoming, the discovery process would be a huge asset to the plaintiff. However, the imposition of arbitration puts the business in a starting position with an unfair advantage.
4. No Public Justice
Transparency is lost under the closed-door setting of arbitration. For some individuals, justice for themselves and the larger society is achieved when the business’ misconduct is exposed for public scrutiny. Through mandatory arbitration, businesses can conceal illicit or questionable practices by dispensing with individual complaints secretively. This allows them to continue their offenses and hurt more people.
5. Disproportionate harm across gender and racial lines
The Economic Policy Institute’s survey data found that mandatory arbitration is most prevalent within the education and health industries, with 62.1% of workplaces carrying mandatory arbitration policies. Analysis suggests that female and African American workers are most likely to be subject to mandatory arbitration policies, as they serve in these industries in large numbers. Further, employees who are paid the lowest wages are more subjected to such policies [11]. These conclusions pose a huge concern: groups that are already vulnerable to discrimination and infringements are further barred from seeking relief from the courts.
Businesses revenues benefit a limited number of shareholders and executives, while Americans subject to mandatory arbitration agreements are at risk of losing their savings, livelihoods, and dignity. Individuals are precluded from seeking legal justice for serious allegations such as wage theft, overtime violations, discrimination, sexual assault, product defects, or from gaining reasonable compensation for their suffering. Moreover, the general public is deprived of valuable information about how businesses operate.
Mandatory arbitration clauses are detrimental to our free society and we must work to reverse this trend. There is some movement toward the right direction, such as the decisions of Google, Adobe, and Intuit to end mandatory arbitration for all employment-related matters. [12] Other companies should follow suit and governments should consider passing legislation to the same effect. In 2015, California took the positive step of passing a law that requires arbitration firms to publish data about their cases. [13] This encourages transparency but falls short of addressing the root cause. Much more must be done to achieve the complete elimination of mandatory arbitration.
References:
[1] Colvin, Alexander. “The Growing Use of Mandatory Arbitration: Access to the Courts Is Now Barred for More than 60 Million American Workers.” Economic Policy Institute, 6 Apr. 2018, www.epi.org/publication/the-growing-use-of-mandatory-arbitration-access-to-the-courts-is-nowbarred-for-more-than-60-million-american-workers/.
[2] Rutledge, Peter B., Arbitration – A Good Deal for Consumers (April 15, 2011). U.S. Chamber Institute for Legal Reform, April 2008; UGA Legal Studies Research Paper No. 11-08. Available at SSRN: https://ssrn.com/abstract=1811133 or http://dx.doi.org/10.2139/ssrn.1811133
[3] Eigen, Zev. 2008. “The Devil in the Details: The Interrelationship Among Citizenship, Rule of Law and Form-Adhesive Contracts.” Connecticut Law Review vol. 41, no. 2, 1–50.
[4] Campbell, Alexia Fernández. “Google Will Allow Employees to Sue the Company. Here’s Why That Matters.” Vox, Vox, 22 Feb. 2019, www.vox.com/technology/2019/2/22/18236172/mandatory-forced-arbitration-google-employees
[5] see [1]
[6] Amsler, Lisa Blomgren, Employment Arbitration: The Repeat Player Effect (January 1, 1997). Employee Rights and Employment Policy Journal, Vol. 1, p. 189, 1997. Available at SSRN: https://ssrn.com/abstract=1324411
[7] Colvin, A. J. S. (2011). An empirical study of employment arbitration: Case outcomes and processes[Electronic version]. Retrieved July 8 2019, from Cornell University
[8] see [1] and [5]
[9] Colvin, Alexander J.S. 2014. “Mandatory Arbitration and Inequality of Justice in Employment.” Berkeley Journal of Employment and Labor Law vol. 35, 71–90.
[10] Heindel, Heather L. “Third-Party Document Discovery in Arbitration? Do Not Count On It.” American Bar Association, 5 Dec. 2018, www.americanbar.org/groups/construction_industry/publications/under_construction/2018/Fall2 018/discoveryinarbitration/.
[11] see [1], [5] and [8]
[12] Campbell, Alexia Fernández. “Google Will Allow Employees to Sue the Company. Here’s Why That Matters.” Vox, Vox, 22 Feb. 2019, www.vox.com/technology/2019/2/22/18236172/mandatory-forced-arbitration-google-employees
[13] CA Civ Pro Code § 1281.96 through (2015) Leg Sess
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
