Supreme Court Rules in Favor of Employer on Arbitration Agreements

Posted on June 21, 2010 by Tom Crane

The US Supreme Court issued a ruling in Rent-A-Center West v. Jackson.  The Supremes have found that an arbitrator should resolve issues regarding the enforceability of an arbitration agreement, and not the courts.  See decision.  This is an unfortunate decision.  Simply based on policy grounds, arbitrators earn income by hearing arbitrations.  So, they have ample incentive to find every arbitration agreement enforceable, regardless of the circumstancess of the agreement.  

As the dissent points out, a challenge to the enforceability of the arbitration agreement under the facts in Rent-A-Center would be made by an arbitrator.  Not said is the fact that many arbitrators are not lawyers.  I cannot imagine how a non-lawyer would deal with issues regarding contract issues.  

Arbitration agreements have become very common in the work place.  Arbitrations have many pros and cons, but mostly cons where employees are concerned.  As Workplace Prof points out, the Federal Arbitration Act, passed in the 1940's, was never intended to apply to situations in which the arbitration agreement is not a true arms-length agreement.  See post.  The FAA is being applied to situations in which the parties do not have comparable bargaining power.  See Workplace Prof's description of a case in which bank customers alleged forgery of their signatures on a so-called agreement to arbitrate disputes with a bank.  Yet, the federal court still applied the FAA and ordered the bank customers to arbitration.  

It perverts contract law to force parties claiming fraud or forgery to subject themselves to a psuedo contract.  It is equally perverse to pretend that employers and employees can negotiate in good faith an agreement to arbitrate employment disputes.  

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Mandatory Arbitration is a Loser for the Employee

Posted on October 19, 2009 by Tom Crane

 Mandatory arbitration holds few benefits for the employee.  In the labor union context, it is helpful.  The union and employer can pick the arbitrator they want.  Both union and employer have knowledge of the different arbitrators and their particular biases.  So, both sides can make an informed selection when they choose arbitrators.  But, that does not work in the non-union context.   Because in the normal at-will situation, the employee may go to arbitration only once in his/her life.  She will have no knowledge of the different arbitrators.  Instead, the employer will go to arbitration far more often and will have more knwowledge of the different arbitrators.  

And, the cost is huge.  One typical case: the employee was required to pay half the arbitrator's fee (usually about $250/hr with a minimum of $2000/day), filing fee of $500, case filing fee of $1000, additional filing fee of $2750, $150 daily hearing fee.  These are huge fees for someone who may have ben terminated.  

Then, if you lose, you may have to pay the other side's legal fees - $207,000 in one case.  In another case, the arbitrator derived half of his annual income from the employer.  

One study found that employees won 21% of the time in mandatory arbitration while winning 56% in California state courts.  I know there are occasional significant wins for employees, but generally, employees do worse in arbitration than they do in traditional courts.  The cost alone makes it virtually impossible for any employee to pursue.  

And, since the employers do more arbitrations, the arbitratraors will favor them.  The arbitrator gets work only if they get picked by one side or the other.  Over time, the arbitrator will favor the side that hires him/her more often.  

The reliance on arbitration needs to change.  It is harming a great many employees.  Support the Arbitration Fairness Act now pending in the Senate. 

 

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Arbitrations are not Popular with Everyone

Posted on May 22, 2009 by Tom Crane

 Arbitration has been around forever for labor disputes.  Unions and their employers have long relied on arbitration as a relatively inexpensive way to resolve disputes.  In the labor context, the arbitration process is set up through a collective bargaining agreement.  The arbitrator is picked by both sides from a list of some 10 ore more names.  The unions and employers know more or less who the arbitrators are and how they will approach various issues.  The unions and the employer share the fees for the arbitration.  Arbitrators receive anywhere from $150 to $500 per day.  Fees for renting a room, travel, etc. can add up to another $500 per day.  Since the fees are shared, the incentive is for arbitrators to not favor either side.  This approach has some fairness to it.  The entire process is negotiated.  

By going to arbitration, unions give up jury trials, but instead, they get a quicker system to resolve workplace issues.  

But, in the past 10 years or so have these arbitration style processes have invaded the non-union context.  Employers have seen them as relatively inexpensive and just as fair.  But, that is simply not true.  Unlike labor unions, your average employee involved in non-union arbitrations will participate in an arbitration only once in his/her life.  The employee knows nothing about any of the possible arbitrators on the list.  The employee cannot afford $500 per day for an arbitrator.  The courts have imposed some limitations, but still, the employee is expected to pay some fees in most non-union arbitrations.  

Its a tough deal for employees.  So, why have arbitrations?  Well, mostly because the employer want them, or think they want them.  There have been one or two instances of arbitrators awarding sizeable awards to employees.  But, most employees cannot even afford to get into the door of an arbitration.

But,  at least one defense lawyer finds arbitrations to be not worth the trouble for employers.  In his informal survey, he finds many defense lawyers who agree with him.  The process has grown, in part due to many lawyers and employees pushing to get some of the same protections they would have in court.  

But, across a range of consumer disputes, arbitrations appear to be here to stay.  

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