In a series of recent arbitration suits brought before them, the Supreme Court has consistently ruled in favor of employers and businesses. While positive for these entities, a large and dark shadow now looms over employees and consumers, whose ability to speak out in the face of wrongdoing has been drastically diminished.
What is an arbitration clause and why do contracts include them?
Disputes happen. They need resolution. The litigation process is often slow, long, unpredictable, and expensive. An average civil litigation proceeding takes 2 to 5 years and hundreds of thousands of dollars in time and resources. While attorneys are digging through piles of evidence, writing briefs, interviewing witnesses, and presenting the case to a judge, neither disputing party can move forward.
Arbitration, on the other hand, is advertised as a fast, organized, and significantly cheaper alternative to court. In an arbitration, the two disputing parties bring the issue in front of a third-party individual called an arbitrator; both sides present their evidence, and the arbitrator decides.
But arbitration is not always the “easy” answer it’s marketed as.
How do arbitration clauses affect employees and consumers?
If you are an employee bound by an arbitration clause, no matter how egregious the dispute with your employer, the agreement to arbitrate prevents you from choosing between litigation and arbitration. Instead, arbitration is mandatory because of the arbitration agreement. As the Economic Policy Institute wrote earlier this year, these mandatory arbitrations include issues such as employment discrimination, sexual harassment, protections under the Americans with Disabilities Act, rights to maternity leave and medical leaves based on the Family and Medical Leave Act, and entitlements to minimum wages and overtime under the Fair Labor Standards Act.
Beyond the nature of the dispute itself, an issue arises when the parties disagree as to the arbitrability of an issue, which means whether or not an arbitrator has the authority to rule on a particular issue. As an example: if an employee brings a claim of fraud against an employer, the employee may want a court to decide if the arbitrator has the right to rule on the issue or if the alleged violation should be presented in front of a judge and jury. On the other hand, the employer will almost definitively be a proponent of resolution through immediate arbitration.
This disagreement rapidly becomes problematic when you look at the language of arbitration clauses, as the clauses often limit one or both parties’ ability to voice an opinion on arbitrability (again, whether or not an arbitrator has jurisdiction to rule on the issue). Boilerplate arbitration clauses leave very little wiggle room to stretch. They leave even less room to raise your hand if you object to an arbitrator resolving the dispute. Administrative bodies, like the American Arbitration Association (AAA), and arbitration regulations, like the Federal Arbitration Act (FAA), have essentially written in the answers to their own test questions. If the contract says that an arbitrator decides all matters, that language must be abided.
A consequence of this is that if the language in the contract bars an employee’s access to a court proceeding, it is much harder to spur long-term, symbolic, and imperative action and change. Sure, monetary relief may dull the toll of the dispute for the injured party. But taking away the ability to address fraud before a court or, as a further example, to raise a class-action lawsuit, has consequences. In this latter example, without the right for employees to ban together to address unlawful conduct, employers have no motive to change the policies and practices that reinforce the afore-mentioned forms of discrimination.
Industries across the board, including the legal profession, are affected by arbitration clauses. The Pipeline Parody Project, a group of law students working to end discrimination and harassment in the workplace, recently published an article about their efforts to fight the presence of forced arbitration and nondisclosure agreements at law firms. First and foremost, they are laying the pressure on firms to notify potential employees about these clauses, so that if an individual is offered the position, they are able to make an informed decision.
Though the Project’s efforts provide a shimmer of hope, the recent Supreme Court rulings are likely to disincentivize many employees from filing complaints at all, as it seems there is more working against them than for them.
How did we get here?
As mentioned, recent arbitration suits brought before the Supreme Court have guided the changes that will affect millions of people. Most recently, the Court addressed a dispute between a distributer of dental equipment and a competitor in a case titled Henry Schein, Inc. v. Archer & White Sales, Inc.
When the Plaintiff, Archer & White Sales, Inc. sued Defendant Henry Schein, Inc. seeking monetary damages and injunctive relief for alleged violations of federal and state antitrust law, Schein pulled out the parties’ contract and pointed to the Disputes clause of their agreement:
Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein] ), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [ (AAA) ].
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 528, 202 L. Ed. 2d 480 (2019)
Referencing this language, Schein pointed out the parties’ agreement to resolve disputes in binding arbitration. Archer asserted that in this case, the issue at hand was outside the jurisdiction of an arbitrator because seeking injunctive relief is stated as an exception to the above clause, and they were, in part, seeking injunctive relief. Archer argued that a court could resolve the arbitrability question and dismiss Schein’s motion to compel. The district court and the Fifth Circuit Court of Appeals agreed with Archer.
On January 8th, 2019, the Supreme Court reversed this finding.
Unanimously and unsurprisingly, the Supreme Court’s ruling on Henry Schein Inc. v. Archer & White Sales, Inc. held to inhibit federal circuit courts’ capacity to resolve disputes about arbitrability. As Kavanaugh’s opinion reinforces, “Under the [Federal Arbitration] Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Rent–A–Center, 561 U.S., at 67, 130 S.Ct. 2772. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529, 202 L. Ed. 2d 480 (2019)
The relevant language of the referenced Federal Arbitration Act (FAA) says:
“A written provision in … a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.
Prior to this ruling, it was common that if the parties disagreed about the arbitrability of the issue at hand, as in the instant example, a court could resolve this. Ultimately, this gave lower-level courts the ability to validate or nullify the arbitrator’s role. No longer. With the Supreme Court’s ruling, whether the disputing parties agree or disagree on the arbitrability of the issue at stake is inconsequential – so long as the language is in the clause, the arbitrator will decide if the dispute is within his or her purview. It is a court’s responsibility to uphold that agreement the same way that they would uphold the assignment of an arbitration: “When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 528, 202 L. Ed. 2d 480 (2019)
This recent ruling is consistent with that of the Court’s past. Last year, in a 5-4 decision on the case of Epic Systems Corp v. Lewis, the Supreme Court upheld that employers may require employees to settle collective disputes in individual and private arbitration, which eliminates the risk of employer’s having to deal with class-action lawsuits. In other words, employees may not arbitrate collectively.
These recent decisions sustain the Court’s existing line of thought in terms of textual and linguistic analysis and interpretation. As Justice Kavanaugh wrote in his opinion, “We must interpret the [Federal Arbitration] Act as written, and the Act in turn requires that we interpret the contract as written.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529, 202 L. Ed. 2d 480 (2019).
Arbitration clauses favor employers and corporations over employees and consumers. As Justice Ruth Bader wrote in her dissent of the Court’s ruling in Epic Systems Corp v. Lewis, “the inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1646, 200 L. Ed. 2d 889 (2018)
In conclusion, employees, clients, consumers: beware. While the offer of a new job and its compensation, benefits, and title may dangle alluringly, charming you into a signature, stop to acknowledge the existence of any dispute and arbitration clauses within the agreement. Given the power bestowed upon employers by the Supreme Court’s recent rulings, you are likely to find boilerplate clauses that resist flexibility, and your employer may not be willing to budge. But having the power of knowledge regarding your own agreement’s arbitration clause can at least give you an awareness of your vulnerability.