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A growing number of companies are including forced arbitration clauses in their contracts. What consumers and job seekers give up when they unknowingly waive their right to sue.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. A growing number of companies are including mandatory arbitration clauses in their contracts. Often, consumers and job seekers are not aware they are waiving their right to sue. Joining me in the studio: Alan Morrison of George Washington University Law School, Andrew Pincus of Mayer Brown law firm, Christine Hines of Public Citizen's Congress Watch, and Richard Naimark of the American Arbitration Association.
MS. DIANE REHMThroughout the hour we'll take your calls, 800-433-8850. Join us by email to email@example.com or on Facebook or Twitter. Good morning to all of you.
MR. ALAN MORRISONGood morning.
MR. ANDREW PINCUSGood morning.
MR. RICHARD NAIMARKGood morning, Diane.
MS. CHRISTINE HINESGood morning.
REHMGood to have you here. Christine, if I could start with you, talk about the kinds of companies that are using these arbitration clauses in their contracts.
HINESThank you, Diane. Yes, forced arbitration clauses are in all types of consumer contracts, including for credit cards, cellphone contracts, home construction contracts, payday loans, student loans, nursing home admission agreements, gift cards, even terms of services for video games.
REHMEven services for video games. And, Richard Naimark, what does mandatory arbitration mean for consumers?
NAIMARKWell, the term mandatory arbitration refers to the fact that the contract for the purchase of services or a product has a clause in it which says, in the event that we have a dispute, the dispute must go through an arbitration process. And there are a number of different versions of those. So the question then becomes essentially a qualitative one -- what is the quality of the arbitration clause? What does it permit? What does it not permit? -- and whether there are safeguards for due process built into the process.
REHMSafeguards for due process even though the contract says you will not sue, you will undergo arbitration.
NAIMARKYes. When this activity started in earnest, I'd say about 12 years ago, the American Arbitration Association assembled a multilateral committee to design essentially what we call due process protocols, the rules of fair play, so that, even if the business is writing the arbitration clause, they can't skew it in favor of themselves or anybody else. And the due process protocols do a number of things. For instance, they say that any remedy that the consumer could get in court has to be available in arbitration.
REHMHmm. Alan Morrison, do you think people know what they're signing when they sign these contracts?
MORRISONAlmost certainly, they don't know. Or if they do know, they can't do anything about it anyway because these contracts are on a take-it-or-leave-it basis. And if you get to the arbitration clause, it's down at the bottom. Sometimes the contract, for example, or the product you purchased over the Internet comes with a computer, and you have to turn the computer back to the manufacturer if you want to get out of the arbitration clause. And almost nobody would do that.
REHMBut how about in an employment situation, for example?
MORRISONWell, the -- most of the employment contracts are basically take-it-or-leave-it. They had a case in the Supreme Court a few years ago with Circuit City. A man walks into Circuit City, wants a job. He wants a job, and they say, do you want the arbitration clause? Otherwise, if you don't want the arbitration clause, you can go someplace else.
MORRISONIn addition, the court has also ruled that unions can bargain for arbitration, not only for their contract discussion, debates with the company, but also on behalf of the employees for all their civil rights violations, can require all of them to go arbitration as well instead of going to the federal court.
REHMAnd, Andrew Pincus, you argued before the Supreme Court in the AT&T Mobility-Concepcion case. What was the case, and what was the impact of the decision?
PINCUSWell, the question in the -- the case involved a claim by an AT&T wireless customer who said -- which involved his entering into an agreement with AT&T for cellphone service. And as in many cases, I think we all know, you go to the cellphone store, and they say, well, the cellphone is free if you sign up for service for a certain amount of time. And there were ads saying free cellphone with a guaranteed contract length of time service.
PINCUSAnd what the Concepcion said is they were misled because they didn't realize they'd have to pay California sales tax on the price of the phone. And so their argument was, we were misled by you, AT&T, because you said free. We didn't realize we'd have to pay sales tax. Now, California law actually requires that sales tax be paid, be charged, even when the phone is being thrown in as part of the package.
PINCUSAnd, in fact, the form, the contract with the print-out reflected the fact that sales tax was being paid and, in fact, charged the Concepcion's credit card, but they felt they didn't know what was happening. The question -- so they brought a class action. There was a arbitration clause in the contract, and the question was: Could that arbitration clause be enforced? Twenty-two states had said, yes, we'll enforce that clause because AT&T's clause -- and I'll be happy to talk about it later -- has some special fairness provisions in it for small claims like this one.
PINCUSCalifornia said, we don't care how fair your arbitration system is. We won't enforce it if it means precluding class actions. And that was the question before the Supreme Court, and the Supreme Court said, no, federal law provides protection for arbitration clauses. California, what you're doing will eliminate arbitration, and, therefore, you can't be an outlier state and ban this arbitration clause.
REHMTell me how widely this mandatory arbitration is being used these days.
PINCUSWell, I think companies are increasingly turning to it. And I think it's important to recognize that it's one aspect of our dealings with these big nationwide companies that have millions and millions of customers. As Alan said, it's a take-it-or-leave-it basis. But so are all the rest of the terms of the transactions, whether it's with AT&T or with your employer, or even the contract that we signed when we came in today to come on your show, has form provisions that people agree to.
PINCUSAnd what happened is as our economy has developed, the courts have said, we recognize that these forms are basically take-it-or-leave-it. And so we will, as courts, supervise the fairness of them and not enforce provisions that are unfair. And that's why, as Richard said, in the early days of arbitration, some companies tried to say, not only -- you'll have your claim decided by an arbitrator, not a court, but you'll give up your right to get more than a certain amount of damages.
PINCUSAnd courts have said, no, no, no. Arbitration will only be enforced if you can get the same remedies that you can get in court.
REHMChristine Hines, you want to add to that?
HINESSure. I think what makes forced arbitration clauses different from the other terms in the fine print of consumer and employment contracts is that you need -- consumers need access to the courts to vindicate their rights if they're violated pursuant to the other terms of the contract. If you don't have that right to vindicate -- to go to court, then the other terms of the contract are really useless.
REHMBut, for the most part, people don't understand that at the get-go.
REHMNow, just to clarify, that form you sign when you came in here allows us to continue to broadcast, to stream, to reproduce this particular conversation. If you, Andrew Pincus, decided not to sign it, we wouldn't do it. So you have the controlling option. That's very different, Alan Morrison, from what Alan (sic) is talking -- from what Andrew is talking about.
MORRISONYes. And there was no arbitration clause in this situation. If we get into a dispute with Andy or me, we can go to court, or you can go to court.
MORRISONThe other thing I want to say is that, that Andy said, that you get all of the remedies you have, except, of course, you don't have class action remedy. And the Concepcion case, either AT&T was right that they had given millions of people adequate notice, or they were wrong and the results should be the same as a matter of law. But by precluding the class actions, they basically said, for the $30 in this case, you have to go to arbitration. And nobody is going to do it.
REHMI thought it was $37.50.
PINCUSI think it was about $33.08 or something like that.
REHMYeah. OK. OK.
PINCUSBut I think that the difference with the AT&T clause -- and one of the things that both of the lower federal courts in the case said, the Concepcions have a better chance of getting their rights protected under the AT&T arbitration clause than in a class action because what AT&T has said is, we recognize small claims might not, by themselves, be sufficient to give people the right incentive to go to arbitrations. So we're going to give people a special incentive.
PINCUSIf we bring -- if someone brings a claim, first, there's a -- we can have the option of settling it. And so, for example, if AT&T had said to the Concepcions, we don't think your claim is worth anything, we're not going to offer anything, they'd gone to arbitration and won, they would get a minimum of $10,000, even though their damages were only $30, plus double attorney's fees. So if people think they have a legitimate claim, that's a huge incentive to bring it forward.
NAIMARKYes. I want to go back to your question about the usage of the arbitration clauses. Prior to Concepcion -- and this sort of indicates the importance of the Concepcion decision -- at least in our case load, the number of consumer cases were actually gradually dropping. Post-Concepcion, there's all kinds of signs now that a number of companies are ramping up their use, and the key issue is this very controversial issue of access to class actions.
REHMRichard Naimark, he is senior vice president of the American Arbitration Association. We'll take a short break here. I do invite your comments, questions. Join us by phone, email, on Facebook or send us a tweet.
REHMWelcome back. We're talking in this hour about arbitration clauses. They may be included in everything from your employment to cellphone usage, to buying an iPad, to just about everything these days. Here's a posting on Facebook from James, who says, "This ploy to deprive employees of their right to a trial by jury is simply a form of blackmail. It's being used to keep unions out and the employees beholden to unscrupulous employers that are ready to dump them whenever profits drop." Alan Morrison, what do you say to that?
MORRISONThere's a lot of truth in that. We have many laws -- our federal civil rights laws are intended to protect employees. And it's not at all clear that you can get the same kind of justice or anything approaching it in the arbitration context. In addition, in many of these employment cases, class actions are really essential because the question is, is the group as a whole being treated fairly? And you need much more evidence that you can get from just simply one-on-one, one employee and one employer.
MORRISONAnd so I think there are people who believe that some of the class actions that have been brought will be sustainable despite arbitration clauses in very special circumstances.
REHMRichard Naimark, talk about the American Arbitration Association and to whom, if anyone, the judges, the arbiters are beholden.
NAIMARKThe American Arbitration Association is a not-for-profit organization. We've been around for 86 years, really with the advent of the Federal Arbitration Act. We exist as a 501 (c)(3), an educational and service organization, and we're really primarily dedicated to the proper ethical effective use of arbitration in a variety of contexts. When we started, most of the cases were business to business, and then they developed into labor management.
NAIMARKAnd recently, in, say, last 12 years or so, it's evolved because of court decisions into consumer unemployment. So we've had to adapt as we go along and try to establish proper standards in these very different kinds of dynamics -- dynamic cases.
REHMWho pays your salary?
NAIMARKWell, first of all, American Arbitration Association employees don't arbitrate cases. We find independent third parties who are qualified in the particular area of the dispute to handle those. When the cases are filed, there are filing fees, which parties pay. For consumer unemployment matters, we keep those fees very limited so that the process doesn't become inaccessible to them, and we make -- essentially make the businesses pay the bulk of the fees.
REHMYou make the businesses pay the bulk of the fees. What does that say to the employee, for example, who may be suing an employer and the employer is paying the fees to the arbiter?
NAIMARKWell, the beauty of the system is that the AAA is an independent impartial mechanism that's a buffer. So we're a buffer between the parties and the arbitrator and everybody who's involved in the case. So all payment is arranged through us, and it's -- essentially, there's no money going from a business or a claim -- consumer or an employee directly to an arbitrator.
REHMChristine, does that satisfy your concerns?
HINESNo, it does not. I think it does not address -- the ultimate goal here is to restore the consumer's choice to choose arbitration after the dispute arises. I think that's the element of forced arbitration. Sure, arbitration is fine when the consumer gets the choice. At this point in time, they're being denied access to the courts and their constitutional legal protections.
HINESSo the good intentions of the AAA in terms of protocols and trying to instill fairness does not get at the choice, consumer's choice, as well as the fact that there's no transparency. All arbitrations are generally very secretive. There's no knowledge -- there's no public knowledge of the corporate misconduct. And that creates a disadvantage not just for the consumers involved in that particular issue, but it creates a disadvantage for society at large if it's widespread corporate misconduct.
PINCUSWell, a couple of things. I think, first of all, when you talk about arbitration, I know a lot of the focus is that people are giving up things. But they're getting something, too. They're getting a dispute resolution system that's cheaper and easier to access than the courts. And, really, the question here is if I'm someone who has a small claim...
REHMCheaper for whom?
PINCUSCheaper for the consumer because, in most of these consumer arbitrations, the consumer pays nothing, and the business pays the fees.
REHMWhat do you think about that, Alan?
MORRISONWell, if it was such a good deal for consumers, consumers would choose it. It's this paternalistic attitude of business that we think this is a better deal for you than going to court, and we've set up these arbitrations. And AT&T's procedures in the Concepcion case may or may not be better for consumers. But, of course, the Supreme Court rule applies regardless of what kind of arbitration procedures there are set up. So this notion that it's all good for consumers when it comes from the business, I take that with more than a grain of salt.
NAIMARKI just want to say, from the standpoint of the American Arbitration Association, this issue of the mandatory or imposed arbitration clause is not something that we advocate for or against. That is not really our issue. What we're in the position of is receiving cases that come in either by agreement of the parties or by a clause.
NAIMARKAnd I do want to say the issue of trying to keep things on an even keel, we, in fact, published on our website the results of consumer and employment arbitrations for the whole country, just recognizing the justifiable concern, just expressed by Christine, the need for some public eyesight on what's taking place.
REHMChristine, you spoke about consumers. What about employers and employees? Can you give me an example of how arbitration comes into question there?
HINESAbsolutely. Well, when an employee has a dispute with an employer, for example, their particular discrimination claims if they feel they've been discriminated against or any other types of disputes that arise, the employee cannot vindicate the rights with the presence of a forced arbitration clause in the employment contract.
HINESIt is as -- it's also very troublesome, again, because, if we're talking about conduct, widespread conduct, if the -- if it's a large employer and it's a habitual practice of the employer to treat all of their employees or a certain number of their employees this way, then that practice will go on because no one -- no other employee will know about it or be able to vindicate the right publicly. And there just will be no answer for the employee in that situation.
REHMAlan Morrison, what did the National Labor Relations Board have to say in class actions cases brought by employees?
MORRISONThey recently had a case, which I'm sure is on appeal -- maybe Andy is taking it up -- which they said that it was an unfair labor practice to require employees to sign a mandatory arbitration clause. That, of course, will be limited to those situations in which the board has jurisdiction. And most employees these days are not part of labor unions, and, therefore, they don't go before the board. But that's on appeal, and whether that will be found to be consistent with the Federal Arbitration Act, I think, we'll have to wait and see.
PINCUSI just want to go back to the question of whether or not arbitration is fair 'cause I think a lot of the concern about mandatory arbitration is, are you forcing people into an unfair system? And I think Richard's explained some of the important protections that are there. But the data also bears out the fact that consumers or employees do as well in arbitration in terms of winning as they do in courts, in some cases, better.
PINCUSThere have been studies of the, for example, the data that the AAA posts on its website that shows that consumers win 50-plus percent of the time. There have been data -- there have been studies of employment claims, and the conclusion was no statistical difference between the two. So I think if the foundation of the opposition is there's something wrong with arbitration, it's not fair, I just don't think the data is there to back it up.
PINCUSAnd I do think what's critical is for small claims -- I'm an employee who feels like I was gypped out of $1,000 in overtime. It was supposed to be in my paycheck, but it wasn't. I can't go to court because no lawyer is going to take my case, and I can't navigate the court system myself. But if there's an arbitration system like the AAA's, where all I have to do is send in a common-sense explanation of what my problem is -- with the forms, with the documents to back it up -- I get in front of a neutral third party who's going to decide.
REHMYou talk about $1,000. Suppose someone is denied a year of employment at a cost of $200,000. That's not small change.
PINCUSIt's not, and that person might be able to get to court. But I think what's important is to look at...
PINCUS...the range of -- without an arbitration clause.
PINCUSBut I think there's no reason to believe the person with the $200,000 claim is going to be treated unfairly in arbitration because the data undercuts that and shows there is fairness.
REHMWhat about that data, Christine?
HINESLet's talk about the -- some of the fairness that's being referred to here. I think when you're talking about some arbitrators, private companies that are running arbitrations, we are talking about repeat business for private arbitrators. The corporations will go to the same arbitrators numerous times while a consumer or an employee will probably see the arbitrator that one time. They get repeat business from the arbitrator. I don't -- and that causes -- that gives some incentive for favoring the corporation in those instances.
REHMGo ahead, Richard Naimark.
NAIMARKYes, just to address the so-called repeat player effect and the cases that go through the AAA, when an arbitrator, who is an independent expert in the field, is appointed to a case -- go through a very stringent disclosure process. So any previous contact or issue that looks like it might be reason -- cause of concern about their neutrality is presented to the parties, and they're given an opportunity to object to the arbitrator.
NAIMARKAnd if there's an objection, then we remove an arbitrator and look for another one who's acceptable to the parties to keep the process evenly balanced. The arbitrators in our consumer caseload virtually never see the same parties.
MORRISONWell, of course, that assumes that AAA is getting the business. There's lots of arbitration forms that don't go through AAA. I just want to say, Diane, that I've had recent occasion to look at arbitrations in connection with the Kaiser Health plan in California, and it's quite interesting. They have 6 million customers who all are subject to mandatory arbitration because Kaiser not only provides the money, but they provide the doctors in the hospitals.
MORRISONAnd the consumers seem to be reasonably well-satisfied with this, and so do the lawyers and the arbitrators. They do studies and surveys. So it's not that -- with the exception of the class action problem, the arbitrations can't work properly. It's just that they don't always work that way.
REHMAlan Morrison. He is associate dean for public interest and public service at the George Washington University Law School. And you're listening to "The Diane Rehm Show." We have many callers who want to chime in on this issue. Let's go first to Tulsa, Okla. Good morning, John. You're on the air.
JOHNGood morning. Thank you for taking my call.
JOHNI'm an employee of AT&T, and I'm a management employee. And, recently, we were sent an email, just after the first of the year, that mandatory arbitration would go into effect unless we took positive action to exempt ourselves from that by Feb. 6. And, to me, I couldn't see an advantage to -- without knowing anything about any circumstances of, you know, some sort of future conflict that needed to be resolved -- why I would give up my right to take this to court.
JOHNAnd the -- you know, in talking to other employees, they were all -- seem to be of the opinion that what this did was make arbitration available to us, not to preclude going to court. And absolutely that was not the way that I read it. Anyway, I exempted, but I'm thinking that, you know, the vast majority of my fellow employees did not, and probably for the wrong reasons. I just wanted to hear some comments about, you know, what your panel might think of that practice, and whether or not I was correct in my assumption.
MORRISONI've not heard very many of these opt-out opportunities for employees, maybe because you're a management person, John, that you got the benefit of this. But lower-level employees surely don't get that kind of chance.
JOHNWell -- and the lower-level employees for our company naturally, are, you know, for the most part, curbed by union contracts.
MORRISONAnd most of those union contracts now include mandatory arbitration not only for contractual disputes, but also civil rights violations and anything else that might come up: minimum wage, overtime, things like that as well.
PINCUSWell, I think the question, in evaluating these kinds of agreements, is what kind of dispute are you going to have? If you think that the only kind of dispute you might have with AT&T is one that's going to involve so much money that you can definitely get a lawyer to take your case and go to court, that's fine. But if it's a dispute that may involve some smaller amount of money, you're not going to be able to vindicate your rights because there's no way to go to court.
PINCUSAnd that's why I say arbitration really provides a lot of people, who would have no access to justice, access to justice for most of the claims we have -- my toaster doesn't work, I have a $300 overcharge on my phone bill -- and still provides fair justice for the larger claims.
REHMYou know what? It just feels constricting. It feels as though you're taking something away from me rather than painting this as an opportunity to ensure that I am dealt with fairly. I understand on the small claims issue, but I would assume that many prospective employees, if they look at that and say, I'm not signing away my rights, as far as this employer is concerned. And then, as you say, Alan, good luck. You're going to not get that job. You know, it feels constricting, Christine.
HINESI agree. It is very constricting, and especially you mentioned the small claims. And I think that small claims and arbitration is one thing for an individual. But when you're talking about a small claim -- for example, a $30 overcharge by AT&T -- we're talking about a small claim for one person, but that's -- we're talking about millions of consumers who are receiving that charge and that benefit for AT&T.
REHMChristine Hines of Public Citizen's Congress Watch. Short break. When we come back, more of your calls and comments.
REHMAnd we're back, talking about arbitration, especially where class action suits are involved, but also right down to the individual who, perhaps, takes on employment, doesn't realize that there is arbitration, an arbitration clause in that employment contract. Let's go to San Antonio, Texas. Andre, you're on the air.
ANDREHi, Diane. Thank you for having me on your show. My name is Andre.
ANDREI'm an attorney here in San Antonio and a graduate of the University of Texas School of Law. I have a feeling that the real issue is not so much whether or not the arbitral forum is adequate but whether or not the class action is an actual remedy. I guess Scalia has gone on to say that class actions are not remedies. They are procedural mechanisms through which we justify or we redeem our substantive rights.
ANDREAnd I think that notion is very illuminating in this context because shouldn't we be trying then to obtain class action procedural mechanism as a substantive right at some point in the political process? And wouldn't that solve this whole problem that we're dealing with as far as the adequacy of the arbitral forum for consumer claims?
MORRISONWell, Congress surely has it within its power to change the Federal Arbitration Act, either generally for class actions or to provide in specific context, such as employment discrimination cases, that the arbitration provision of law does not apply. It has not shown any inclination to do that yet. And given the current composition of Congress, I wouldn't hold my breath expecting that to happen any time soon. But programs like this that educate people about the problems with no class actions may well have some impact down the road.
REHMAll right. To Manassas, Va., good morning, Ron.
RONYes, hi. Good morning, Diane.
RONIn the last three years, I've applied for a lot of jobs, a lot. Almost all the applications that you have to apply for -- of course, you have to apply online -- say you have to agree to arbitration. Once, I decided not to just to see what happens, and, immediately, I was no longer applying for that job. Now, my right's taken away before I even apply for a job, and I think just because you keep calling it just doesn't necessarily make it just. I'm curious. What are the statistics for employees going through arbitration with employers? What is the statistics of those who won and those who have not won?
REHMYeah. We talked a lot about class action, but in the case of an employee who goes against an employer, what are the stats? Does anybody have them? Andrew Pincus.
PINCUSSure. There was a study in 2003, I think, based on AAA data, and it found that the win rates for employees and the level of recovery were indistinguishable between claims in arbitration and claims in court. And there's another forum that's useful to study. You know, the financial -- the broker industry has long used mandatory arbitration, and there's a lot of published data on their decisions. And that's a place where employees and people in brokerage accounts routinely get multimillion-dollar rewards.
REHMRichard Naimark, tell me how arbitration works.
NAIMARKArbitration is typically a simplified hearing process where the parties make a statement of claim, and if there's a response, they make a statement in response. Typically, there's a hearing of some sort, either in person or in small claims. We have the capacity to do it online or by telephone or whatever is convenient for the parties. An arbitrator hears the claims and the supporting evidence from the parties and then makes a written decision, which is enforceable and final.
REHMChristine, are you satisfied with that approach?
HINESI'm not satisfied with the approach because, again, we're not addressing the direct problem, which is the consumer's and the employee's ability to choose whether they can go to arbitration after the dispute arises. It does not address that core problem which a number of your callers have mentioned. They have mentioned the ability to choose and that they just don't have that. Whether or not the AAA or any other arbitration company has particular protocols, it does not get to the core of their ability to go to court when they choose to.
REHMHere's a posting on Facebook from Connie, "We recently passed on buying a synthetic stucco house we adored after learning the warranty company, the only one offered for these particular stucco homes, mandated binding arbitration as the sole remedy for any issues with the company or contract and, if ruled against us, we have to pay their legal fees." Alan Morrison.
MORRISONWell, one of the things about binding arbitration is that you don't know what the rules are going to be if and when you have to go to arbitration. It simply says in the contract everything will be settled by mandatory arbitration. It could be the AAA, or they could change the processes along the way, giving you fewer rights than you thought you have. You may not have the opportunity to what lawyers say as take discovery, that is gather information from the other side. There's no right of appeal if you lose the case.
MORRISONIf there's an important legal proposition at issue here, for example, as in the AT&T-Concepcion case, as to whether that was lawful or not, that never gets decided as a matter of law. So there are lots of things about the arbitration process that are significant trade-offs from our other system. And my own view is that the Congress really needs to think about this thing a lot harder than it's thought about it since 1925 when this law was passed. And as Andy said and Richard said, this was basically between two businesses back then. It's very different than it is now.
REHMAnd, what, 93 percent of employers now using this?
MORRISONWell, if I were an employer, there was certainly no reason not to use it. There's no downside whatsoever. Indeed, in some of these contracts, the employer retains the right to sue the individual, but the individual does not retain the right to sue the employer.
REHMAs an employee of George Washington University Law School, are you subject to mandatory arbitration?
MORRISONI confess that I do not know, and it wouldn't matter if I did.
REHMIt wouldn't matter.
MORRISONNo. I took the job anyway because I like the job, and I like the university. If it was mandatory arbitration, I wouldn't have turned it down for that reason.
REHMHere's a tweet, "Employers already have at-will protection of the law to fire people without just cause. The last thing they need is more protection." Christine.
HINESI agree with that comment that employers need more protection. I think what employees need is their rights restored.
REHMAnd to Andrew.
PINCUSWell, about the prior Facebook posting about the contract that said you have to pay the other side's attorney's fees, in many -- in most states, that arbitration clause would be illegal, and I think that's an important point about fairness. We don't have to -- everyone should have the rules of the AAA. But if there's an employment clause that doesn't, state courts and federal courts will step in and say, this is invalid.
PINCUSAnd it's quite clear that that kind of clause is invalid, a clause that says that arbitration is one way, the employee has to arbitrate, but the employer doesn't. Those kinds of clauses are invalid, so fairness is policed very closely by the courts.
REHMHow closely, Alan?
MORRISONI'm not at all sure. The Supreme Court would say in the context of arbitration that the fee-shifting arrangement of the kind you described here is illegal. I didn't think they were going to say that about employment contracts. I didn't think they're going to say that about class actions, and I was absolutely wrong. This court loves, loves, loves arbitration. And anything that makes it harder to do arbitration is not going to find favor with this court.
NAIMARKYeah. I have to say that if the fee-shifting clause came to the AAA, we would not administer that. That's prohibited under our due process protocols. And given that, I think, the Facebook comment -- their decision not to sign the contract probably made sense.
HINESI think I want to comment on one element of what the Supreme Court is doing, and that is basically decreasing the value of a lot of state consumer protection statutes. Just recently, the West Virginia Supreme Court tried to protect elderly residents in a nursing home, and, because there was an arbitration clause in the nursing home admission agreement, the case went to the Supreme Court, and the Supreme Court reversed it.
HINESHere we have a West Virginia Nursing Home Act where the state wanted to protect its elderly residents, and the court tried -- the West Virginia Supreme Court tried to protect its residents. And the U.S. Supreme Court reversed that decision. So states -- and it also occurred in California with a recent payday lending case where the California -- the 9th Circuit basically just said, well, Concepcion rules here. And the payday lending case was forced into arbitration.
PINCUSWell, again, I think there's a little bit of misapprehension. Lawyers like to think that the court system is cost-free and everyone can use it and everyone gets justice. The reality, unfortunately, is quite different. Courts are under severe budget constraints, and it's a real burden for individuals to navigate that system. On the other hand, I think people like to say arbitration is so unfair. People have to give up rights. I think we have to look at the reality of both, which is different than those fantasies.
PINCUSAnd the reality of the court system is, for lots of kinds of claims, really hard. For lots of kinds of claims in arbitration, it's people's only chance for justice. And I think the question is what gets the most justice for the most people.
REHMWhat gets the most justice is transparency that seems to be what's lacking here. Alan.
MORRISONI think many of us would feel that, on individual cases, there was more sense of fairness if somebody other than the employer or the arbitration forums, notwithstanding AAA, or somebody else deciding the question of what the minimum due process protections ought to be in that context other than the people who are writing the contract. And I think if we have that, many people would say, well, we can deal with mandatory arbitration at least in the context of an individual, as long as there's basic fairness protections.
REHMTo Birmingham, Ala. Good morning, Hailey.
HAILEYHi. Thank you for taking my call. I lived for many years in Washington, D.C. and worked for the American Arbitration Association in there and then transferred, actually, to California and worked for an office there. Primarily, my first position was working with labor cases. And the reason I called is that your guests haven't, in the portions that I've heard, really haven't helped to explain the difference between labor arbitration and employment arbitration. And this is a real fundamental misunderstanding for people.
HAILEYAnd it was a misunderstanding that I saw when I went from the more unionized East Coast to the West Coast, where I found a lot of ignorance. A union contract that calls for arbitration -- for labor arbitration has been negotiated, has been hard-fought by a union, by a number of people who's done a lot of research, who are there at every step of the way to assert rights for the employees that are unionized.
HAILEYSo there's some balance at that table where you have an employer and whatever, you know, whatever resources they put toward their cases and what it is that they do with their employees. But you have -- each employee is represented by the union. They got people there. So there are special rules that the American Arbitration Association has that recognize that the union is a co-chooser with the employer in arbitrators who may get re-used again and again so that there's balance there, there's fairness.
HAILEYIn -- American Arbitration Association also has a set of employment arbitration rules, which recognizes that employees and individual contracts don't have the same kinds of protections and assertions of rights that somebody in the union has. Unfortunately, this is 20 years ago now. There was an enormous California employer that contracted with AAA to administer their arbitration cases.
HAILEYAnd the way they had their rules written for their employees, those people had to use the voluntary labor arbitration rules, which, of course, assumed massive protections that those employees did not have.
REHMAll right. I thank you for your call. And you're listening to "The Diane Rehm Show." Christine.
HINESYes. I think she's right to distinguish between labor, union, arbitration and the individual -- or employee arbitration, forced arbitration. And the solution here is -- and I think this is one thing we haven't talked about -- is a bill that's currently in Congress, both introduced in the House and the Senate called the Arbitration Fairness Act, which would eliminate these forced arbitration clauses from consumer and non-union employment contracts.
REHMWhat do you think of that, Alan?
MORRISONWell, I think it's not likely to pass.
MORRISONBut I do think, though, in the union context, we do have to recognize that, unfortunately, labor unions have not always been on the side of minorities. And there's a long history of discrimination against both minorities and women in the labor context. And so when you have a labor union negotiating away the right -- to bring employment discrimination claims, that's rather suspect.
PINCUSI think the problem with the Arbitration Fairness Act, it's really going to be the arbitration elimination act because, if you're a large company like AT&T with more than 90 million customers, you can't have two different kinds of dispute resolution systems. You're either going to use arbitration and structure a very fair and generous arbitration system, or just say, OK, we'll just use the court system as it is. And so if there's no certainty one way or the other, that just means the end of arbitration.
NAIMARKThe American Arbitration Association does not necessarily adverse to the idea of some legislation in this field, precisely for the standards we've been talking about. What we've been suggesting is Congress may want to consider requiring something like the due process protocols in all arbitrations across the country.
REHMAnd final Facebook posting from Vanessa, who says, "Mandatory binding arbitration is hugely overlooked. When 93 percent of large corporations are using these, the argument that one can simply refuse to sign the contract and go elsewhere just does not hold up. Calling the practice crooked would be too kind." So, clearly, lots of discussion on this and perhaps congressional action at some point. Thank you all so much for being here.
MORRISONThank you, Diane.
REHMAnd thanks for listening. I'm Diane Rehm.
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