One of the hottest topics in alternative dispute resolution these days involves mandatory arbitration requirements in consumer and employment contracts. The fairness of forcing consumers and employees to forego their day in court for arbitration and how such arbitrations are conducted is a question being addressed by legislators, jurists, consumer advocates, corporate America, and almost every ADR provider organization, often involving fierce debate.
The issue is complex. Those supporting mandatory arbitration clauses argue that arbitration provides a better process for small dollar amount claims than does litigation, that the “right to sue” is illusory in such matters and that arbitration actually provides a better chance to have a claim heard by a neutral party in an expedited, cost efficient manner. Detractors claim second-class justice, that the deck is stacked in favor of the corporation and that numerous unfair procedural obstacles prohibit any sense of fairness and level playing field.
However, even those who support mandatory arbitration decry specific practices which appear on their face to be unconscionable. Who could defend an arbitration procedure requiring a consumer to travel long distances to arbitrate a minor claim? Or requiring the expenditure of thousands of dollars in arbitration fees for a small dollar claim? Or requiring submission of a claim to someone selected by the very company being challenged?
Over the past several decades, substantial thought and energy have gone into identifying practices promoting fairness to the consumer or employee claimant. Administering organizations have developed due process protocols to insure procedural fairness. Examples are the American Arbitration Association (AAA) protocols dealing with arbitration selection, training and diversity of panel members and the Judicial Arbitration and Mediation Service ( JAMS) Minimum Standards of Procedural Fairness in Employment Arbitration matters.
One would think that over a period of time, corporations would have hit upon mandatory arbitration practices which would withstand judicial and legislative scrutiny and meet basic due process standards.
And yet, courts continue to be confronted with ever-changing practices introducing new twists and imposing new conditions on the employee or consumer.
A recent case from the U.S. Court of Appeals for the Ninth Circuit illustrates some of the mandatory employment arbitration issues troubling the courts. The case involved a claim by an employee of a grocery company.
The Ninth Circuit upheld a district court decision denying the company’s motion to compel arbitration, finding the provisions of the company’s arbitration policy to be both procedurally and substantively unconscionable.
Among the objectionable arbitration policy provisions were:
• A prohibition on utilizing AAA or JAMS for administration of the arbitration. (Both services, as pointed out above, have due process protocols.) Unless otherwise agreed to by the parties, the universe of potential arbitrators was limited to retired state and federal judges.
• An arbitrator selection process, which according to the court’s analysis, would always end up with an arbitrator proposed by the employer in an employee initiated proceeding.
• A requirement that the arbitrator — at the outset of the arbitration process — apportion arbitrator’s fees between the employer and the employee, regardless of the merits of the claim. The district court had concluded that this practice served as a “model of how employers can draft fee provisions to price almost any employee out of the dispute resolution process.” The employer represented that the fees for a qualified arbitrator would range from $7,000 to $14,000 a day, thus exposing the claimant to a daily obligation of $3,500 to $7,000. The claimant had worked as a deli clerk for several months and was seeking payment for rest and meal breaks as required by California law, presumably a sum far exceeded by the arbitration costs and rendering the arbitration prohibitively expensive.
• The process was presented on a take it or leave it basis with no opportunity for negotiation. Moreover, the terms of the provisions were not provided to the employee until three weeks after she had agreed to be bound by them. (All the employee received at the time of signing was a notice of the policy, not the actual four-page, single-spaced document itself.)
• The court stated that the arbitration policy allows the employer to unilaterally modify the policy without notice to the employee.
The court quickly dispatched the employer’s argument that the provisions of the arbitration policy did not always favor the employer as well as the argument that the Federal Arbitration Act preempted the invalidation of the arbitration policy. The employee also sought to advance claims on behalf of a proposed class and this matter may ultimately be decided by the Supreme Court.
In the coming year, the issue of mandatory consumer and employment arbitration clauses will be hotly debated in Congress as well as by regulators. Learned legislators, scholars, and policy wonks will argue one way or the other.
When all is said and done, what may very well carry the day will not be lofty or erudite public policy arguments but simply the story of an employee who just wanted to state a claim but couldn’t get around the obstacles stacked before her.
Perhaps the most convincing argument will be the tale of the deli clerk who just wanted to be heard.•