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“Forced” Arbitration Under Fire

Alternative Dispute Resolution (ADR) in the employment arena has been a hot topic for a couple of decades now.  ADR, of course, comes in a variety of flavors – mediation and arbitration are a couple of them.  But essentially, the ADR concept is to find ways other than a lawsuit in court to resolve claims more quickly and with less expense.  That, at least conceptually, is a good thing, since court fights can take many years to work their way through the system.  And, as the old legal maxim goes: “justice delayed is justice denied.”

But, too much of a good thing can be bad.  That’s the take away from a bill introduced in Congress by Representative Hank Johnson (D – Ga.) and Senator Richard Blumenthal (D – Conn.) in late February.  The FAIR Act (it stands for the Forced Arbitration Injustice Repeal Act, since Congress likes coming up with silly names for bills), H.R. 1423/S. 635 would amend the Federal Arbitration Act (FAA) to preclude forced arbitration clauses in employment, consumer, and civil rights cases.  It would permit consumers and employees to agree to arbitration only after a dispute arises.  The House bill has 147 cosponsors; the Senate bill has 34 cosponsors.  This is the second year the bill has been introduced.

I will refrain from discussing the commercial arbitration implications of the bill other than to say this:  I am certain that each time I click “accept” on terms of service for virtually any product there’s a mandatory arbitration clause somewhere in the thousands of words I did not read.  The FAIR Act would end that sort of thing.

The Supreme Court has three arbitration cases on its docket this term.  It recently decided two:

  • First, in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), the Court held that the “wholly groundless” exception to the general rule that courts must enforce contracts that delegate threshold arbitrability questions to an arbitrator, not a court, is inconsistent with the FAA and Supreme Court precedent.
  • Second, in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019), the Court held that arbitration was not appropriate under the FAA for a wage and hour dispute brought by an independent contractor of a trucking company.

Oral argument was held on October 29, 2018 in the third case, Lamps Plus, Inc. v. Varela, No. 17-988, which asks whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements. (For context, the Supreme Court previously held in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), that a party cannot be compelled under the FAA to submit to class arbitration, absent a contractual basis for concluding that the party had agreed to do so.).

So, what about employment arbitration?  The #MeToo movement has brought to light the fact that some employers, particularly those who face lots of media attention, have required employees to sign mandatory arbitration agreements.  Also, and primarily as a result of #MeToo, it has come to light that some BigLaw firms require partners and associates – and even summer associates – to sign mandatory arbitration agreements.  This requirement has been met with boycotts when the firms are recruiting at top law schools, Harvard being the most vocal.

Most employers I have worked with over the years are not huge fans of mandatory arbitration.  First, the law basically requires that the parties agree to the same terms for proceeding and recovery as litigation in court, i.e., discovery and damages.  The only difference is that the decider is not a jury or a person wearing a black robe.  Second, and because of this, though arbitration doesn’t take as long as litigation, it does take a long time.  Third, and perhaps most importantly, it is nearly impossible to get judicial review of an adverse decision from an arbitrator.   Finally, with arbitration, you are going almost certainly going to get your trial.  Motions practice – the way most employment disputes are addressed in court – is minimal.

We will see whether the FAIR Act gets any traction in Congress this year. And, for those of you wondering – yes, there’s a carve out for mandatory arbitration in collective bargaining agreements.  Apparently the adherents of the “compelled arbitration is bad” view don’t feel that way where the compelled arbitration is a result of being unionized.

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