Arbitration

  • July 14, 2017
    Guest Post

    by Lauren Guth Barnes, partner at Hagens Berman Sobol Shapiro LLP

    It is 775 pages long. I have not read all of it. But I know this: it is a great win for consumers.

    On Monday, July 10, 2017, the Consumer Financial Protection Bureau (CFPB) issued its final rule banning providers of various consumer financial products and services – credit cards and the like – from using arbitration agreements to bar the filing of or participation in a class action. Arbitration is an alternative form of dispute resolution, almost always held in secret, before an individual paid by one or both sides; the parties forego the right to trial by jury and the protections of an independent judicial system, including a neutral judge, the rules of civil procedure and evidence and the transparency of open proceedings. It may work in some settings, between parties of equal bargaining power and when openly agreed to, after a dispute arises. But when buried in the fine print of contracts, often with a clause preventing any kind of group or class action, forced arbitration serves simply to insulate companies from accountability.

    Say your phone company rips you off to the tune of $30. You will likely be angry. You will complain to some friends. You might even spend a little time on the phone, working your way through the company’s customer service and billing bureaucracy. But when you get no relief there, are you going to file a lawsuit over that $30? Or seek arbitration with the company, either by yourself or with the assistance of a lawyer you may have to pay on an hourly basis? The answer, for the vast majority of Americans, is a resounding “no.”

    Companies count on that. They bank on the fact that it is not really worth your time or energy to fight over $30. Or your neighbor’s time. Or the time of the thousands – or maybe millions – of other people they ripped off too. But wow, $30 times thousands or millions of consumers? That is a pretty penny to pocket, all while facing no liability.

  • July 11, 2017
    Guest Post

    *This piece originally appeared on the Economic Policy Institute’s Working Economics Blog.

    by Celine McNicholas, Labor Counsel, Economic Policy Institute

    Yesterday, the Consumer Financial Protection Bureau (CFPB), an independent agency that serves as a watchdog for consumers, issued a rule that would ban companies from using mandatory arbitration clauses to deny Americans their day in court. The rule would restore consumers’ ability to band together in class-action suits. Without the ability to pool resources, many people are forced to abandon claims against financial institutions and other powerful companies. Consider that hundreds of millions of contracts for consumer financial products and services include mandatory arbitration clauses. Yet, The New York Times found that between 2010 and 2014, only 505 consumers went to arbitration over a dispute of $2,500 or less. By prohibiting class actions, companies have dramatically reduced consumer challenges to predatory practices.

    Mandatory arbitration clauses are also used by employers. Employees are forced give up their right to sue in court and accept private arbitration as their only remedy for violations of their legal rights. Private arbitration clauses tilt the system in the business’s favor: the company is often allowed to choose the arbitrator, who will thus be inclined to side with the business; arbitration also cannot be appealed, leaving workers and consumers in much worse shape than if they had access to the courts. As such, employees who bring grievances against their employers are much less likely to win in arbitration than in federal court. Employees in arbitration win only about a fifth of the time (21.4 percent), whereas they win more than a third (36.4 percent) of the time in federal courts.

  • April 3, 2017
    Guest Post

    by Alexandra D. Lahav, Professor of Law at the University of Connecticut and Author of In Praise of Litigation

    The Senate Judiciary Committee is considering a bill – passed along partisan lines in the House – that threatens the way Americans have enforced the law for seventy five years. The bill is called the Fairness in Class Action Litigation Act (FICALA) and its results are likely to strike a major blow against class actions and aggregate litigation. 

    The recent hearings on Supreme Court nominee Neil Gorsuch highlighted the threat that current lawmakers pose to the administrative state – the apparatus that has, since the New Deal, allowed the executive to pass regulations that support our voting rights, clean air and water, workplace safety and more. But in the discussions one thing seems to have been missing: a major way that regulations are enforced in the United States is by individuals and groups bringing lawsuits. Congress has enabled these lawsuits by creating private rights of action in areas as diverse as employment discrimination and internet privacy.

    For the last thirty years, the Supreme Court has been eroding these regulations by creating barriers to suit: forced arbitration has been repeatedly upheld (even when it goes against state contract law), requirements for bringing a claim have increased and collective actions are harder to certify. If most of the enforcement of the law is left up to us, through the courts, the process of shutting the courthouse door also means that regulations will not be enforced. Now Congress is taking its turn to shut the courthouse door.

  • March 23, 2017
    Guest Post

    by Imre S. Szalai, Judge John D. Wessel Distinguished Professor of Social Justice, Loyola University New Orleans College of Law

    During Judge Neil M. Gorsuch’s Senate confirmation hearings, Sen. Al Franken (D-MN) asked Judge Gorsuch about his reaction to the eye-opening New York Times series on forced arbitration. (The Times series – Beware the Fine Print, can be found here, here, and here.)  Judge Gorsuch replied, “[The series] made me think about a little bit of history.”  Unfortunately, Judge Gorsuch’s understanding of history is flawed. 

    Gorsuch described the main federal statute governing arbitration, the Federal Arbitration Act, as follows: “What it [the statute] did was to favor arbitration. Congress expressed a preference that people should arbitrate their disputes. It made a judgment, policy judgment, in favor of arbitration because it’s quicker, cheaper, and easier for people.”

    Judge Gorsuch’s statements demonstrate a lack of understanding of the history of arbitration law in America. When enacting the Federal Arbitration Act during the 1920s, Congress never expressed a preference in favor of arbitration. I challenge Judge Gorsuch to explain the basis for his perception of such a Congressional preference. He will not find such a Congressional preference in the history or text of the statute. Congress never expressed a preference for people to arbitrate their disputes instead of litigating their disputes in court; Congress never expressed a preference in favor of arbitration. Instead of expressing a preference in favor of arbitration, Congress simply recognized in the Federal Arbitration Act that if merchants willingly agreed to arbitrate, a court would recognize and enforce their mutual promise to arbitrate. In other words, the Federal Arbitration Act reflects a policy-neutral view regarding arbitration. If parties agree to arbitrate, they will arbitrate. But if parties choose to litigate, they will litigate.  In enacting the FAA, Congress made no value judgment in favor of arbitration over litigation, or that one system of dispute resolution is superior to another system. In enacting the Federal Arbitration Act, Congress was simply recognizing the right and freedom of parties to choose for themselves whatever system of dispute resolution they desired. 

  • November 14, 2016
    Guest Post

    by Arthur Bryant, Chairman, Public Justice

    While everyone waits to see how the election changes the Supreme Court, one thing is clear: workers’ rights hang in the balance. The Court is soon going to have to decide whether employers can use mandatory arbitration clauses in employment contracts to ban—and eliminate—workers’ collective and class actions.

    Four cases now up for review raise that question. All involve employees claiming they were cheated out of overtime pay—and employers arguing they cannot be sued because mandatory arbitration clauses in their employment agreements prohibit collective and class actions.

    Two federal circuits held employers can ban those actions. Two ruled they cannot. If the Court does not review any of these decisions, more are on the way. Suits raising the question are pending in five more federal courts of appeal.

    The four cases now before the Court show the arguments and the issues.

    In National Labor Relations Board v. Murphy Oil USA, Inc., the NLRB says the Fifth Circuit made an enormous mistake when it held the employer could use its mandatory arbitration clause to bar all workers at over 1,000 stores in 21 states from pursuing collective actions against it under the Fair Labor Standards Act and class actions in federal and state court. The clause says each worker has to proceed individually and alone.

    The NLRB insists that violates section 7 of the National Labor Relations Act, which gives employees “the right to…engage in…concerted activities for the purpose of…mutual aid and protection.” The Supreme Court previously said these “concerted activities” include actions pursued in “administrative and judicial forums.” Because the NLRB is charged with enforcing America’s labor laws, its interpretation is entitled to substantial deference. That interpretation stresses the importance of what is at stake: “the right to engage in collective action – including collective legal action – is the core substantive statutory right protected by the NLRA and the foundation on which the Act and Federal labor policy rest.”