Robert A. Levine and Erika Jacobsen White, Esq.
In the wake of recent Supreme Court rulings, it came as no surprise when the Roberts Court made another big business friendly ruling in American Express Co. v. Italian Colors Restaurant. This time the Supremes, led by Justice Scalia, concluded that contractual class action bans in arbitration are permissible under the Federal Arbitration Act even when the plaintiff’s cost of individually arbitrating the claim exceeds the potential recovery. In other words, if you entered into an arbitration agreement, consumers and employees – and in this case, small businesses — can forget about bringing a class action.
Arbitration clauses that are inserted into contracts between individuals and corporations prevent disputes from being resolved through the court system. Instead, these contracts force individuals to use arbitration as a means of resolving conflicts and disagreements with corporate entities – often eliminating consumers’ and employees’ right to bring class action or mass action lawsuits. In arbitration, the aggrieved do not have the right to a jury trial, and instead, conflicts are resolved by a hired judge, who receives compensation for managing the case. Let us say that again: the aggrieved do not have a right to a jury trial – not even in civil rights, wrongful death, or other extreme cases – and instead a hired “judge” will decide the outcome of the case. While this may insulate corporations from expensive litigation that can impact their bottom lines, it also undermines individual rights when a plaintiff has a valid case against a corporation that cannot be argued before a jury. Put simply, it is the outsourcing of democracy.
With little public discussion about the issue, arbitration clauses are increasingly included as a condition of employment — even for minimum wage employees, in purchase agreements by consumers for various types of goods, in financial arrangements between customers and brokers, in contracts between banks and consumers, and so forth. Most often, consumers and employees do not know that they are waiving their constitutional right to a jury trial when they become bound by these agreements. In addition, these contracts can be lengthy and are typically composed in legalese that the average person does not understand. Further, such arbitration clauses may be in the fine print that is overlooked by consumers.
Far from being negotiated between the parties, arbitration clauses are generally part of “adhesive contracts” that consumers are bound to without signing a thing. In such a case, the consumer is considered to have agreed to waive their right to bring a lawsuit in the courts if they are injured or even killed by a product, simply by purchasing and using of the product.
Likewise, arbitration “agreements” are frequently offered to employees on a “take it or leave it” basis, requiring the employee to accept the company’s terms or forfeit their right to work. Drafted by the corporate attorneys to expressly benefit the companies, these arbitration “agreements” are often sold to workers as “employee benefits,” when in reality, the employees are waiving their right to a jury trial and guaranteeing themselves a smaller judgment, even if it is a favorable one. Employees are rarely afforded a true opportunity to negotiate or even seek counsel, and generally could not obtain counsel if they were. Indeed, most workers in this economy are not in the position to turn away a job even if they did not wish to agree to forgo their right to a jury trial in some abstract future case.
Significantly, in the largest empirical study to date examining outcomes in employment disputes with the American Arbitration Association (“AAA”) – one of the nation’s largest private providers of arbitration services – Professor Alexander Colvin of Cornell University concluded that employment arbitration cases administered by AAA resulted in lower employee win rates, and substantially lower awards for employees than when cases proceeded to trial, and that the results provide strong evidence of what he labeled a “repeat player effect.” Such a “repeat player effect” is not surprising when one considers that the arbitration “judges” who are tasked with resolving the dispute are generally paid by the company/employer – usually the defendant in the action. As a result, arbitrators tend to “split the baby” in terms of liability or damages in ways that serve the interests of the company, increasing the likelihood that the company will hire them again in future legal proceedings.
Another way this presents a barrier to justice is that civil attorneys are increasingly turning away consumers and employees who need representation when they are in arbitration because the outcomes are so skewed. Attorneys working on a contingency fee basis simply cannot afford to take these cases to verdict, as they front the costs of the litigation and take all the risk. Working on a
contingency basis, these attorneys also cannot afford to take cases without merit, as they will receive no compensation if their clients lose.
The Seventh Amendment of the Constitution guarantees a right to a jury trial in civil cases which has gradually been taken away from American citizens by the Federal Arbitration Act, corporate contracts, and business-friendly Supreme Court rulings. The pendulum has swung in favor of corporate interests over individual rights. Balance needs to be restored.
Resurrecting Democracy
www.robertlevinebooks.com
Political junkie, Vietnam vet, neurologist- three books on aging and dementia. Book on health care reform in 2009- Shock Therapy for the American Health Care System. Book on the need for a centrist third party- Resurrecting Democracy- A Citizen’s Call for a Centrist Third Party published in 2011. Aging Wisely, published in August 2014 by Rowman and Littlefield. Latest book- The Uninformed Voter published May 2020