Let's talk for a minute about an unlikely hot topic, but one that is hot nonetheless, and that is the topic of the mandatory arbitration clause. In your lifetime, and probably just in your day-to-day, you have signed many of these clauses. They say something like this, "In the event of a dispute shall arise between the parties to this contract, it is hereby agree that the dispute shall be referred to the American arbitration and mediation service for arbitration in accordance with that Services' rules of arbitration. The arbitrator's decision shall be final and legally binding, and judgment may be entered here on." What is this clause doing and why are there so many of them? What this clause says is that if one of the parties wants to bring a legal claim, they must bring that legal claim to a private dispute resolution rather than to court. Arbitration is a private dispute resolution that the parties agree to participate in in lieu of using the legal system. These clauses are increasingly part of employment contracts as well as consumer contracts because companies believe that they are cost-effective. Going to court takes more time, it's often more expensive, it's less predictable. Arbitration is often quick and you know where and often when it's going to happen, you're paying for a service essentially. In fact, with employers themselves, they might even know the actual arbitrator, since the parties will often choose who arbitrates or decides their claim. It's much more of a workaround for a quick resolution of a problem rather than the messier baggier process of going to court. The downsides of arbitration are that they are confidential proceedings that don't create precedent. The courts don't issue opinions that they then have to follow, it happens outside of the common law. There are also claims by some people, like employees and consumers, that they believe that arbitration tends to be more pro company, pro-business than the courts would be. This is really hard to test empirically, so it's hard to know. This is just the assertion or the view of some commentators and scholars. In some cases when employees have brought suits based on claims like discrimination, they have been surprised to find that when they try to bring their claim to court, the court says no and sends them instead to arbitration and they have challenged this. In 1991, the Supreme Court considered this issue in the case of Gilmer versus Interstate Johnson Lane. Gilmer was fired at age 62 and he believed that his discharge was the result of his age, and that's a violation of the Age Discrimination in Employment Act, or at least that was the claim, the ADEA. Gilmer argued arbitration is not where I should be going for this kind of claim. Arbitration can't fully vindicate the kind of rights that are at stake in the ADEA. These claim's about something deep and important, discrimination on the basis of age, and they should be subject to things like appellate review. And the court should have to create an opinion with legal reasoning that affects other claimants who come after me, we should be a part of a body of developing law. It's important to indicate the principles underlying this statute. Gilmer also argued that employees like him sign these agreements without much choice. If you want to be employed, the arbitration clause is just part of the package and that's really not fair. There's a policy reason we shouldn't favorite that kind of agreement, he argued. The Supreme Court basically rejected those arguments and said, "We understand the claims that Gilmer is making. But there is an additional piece of important legislation called the Federal Arbitration Act. That act Trump's here. It's a pro-arbitration statute and it directs us, the court, to be deferential to the arbitration clauses." Gilmer lost and went to arbitration. In fact, in 2018 a Supreme Court upheld the mandatory arbitration clause in an employment contract even though that clause would prohibit class actions. Prohibiting class actions is a really big deal because one way that people with small-dollar claims, so if you have a claim for things like, my employer should have been paying me for certain amounts of small time at the beginning and end of my shift and isn't. Those are small-dollar claims that even if there's an award are going to be small awards, the way you get an attorney for those awards is by banding together with other similarly situated plaintiffs, such that the lawyer could aggregate the claims into something that's going to create an award that's big enough to make litigation worthwhile. In 2018, the court said, even though this arbitration clause is going to have the effect of making it much harder to pursue these wage and hour claims, we are going to uphold it in this employment case. You can think about the courts as being really quite deferential and open to mandatory arbitration claims. The places you do sometimes see courts pushing back against arbitration requirements is when they feel like the companies are hiding the arbitration clause in the contract in violation of basic underlying contracts principles. In a very recent case, Burnett versus Pagliacci pizza, this came out of Washington State in 2020. These Pizza delivery drivers wanted to bring a clause action against this pizza company for wage and hour claims, so small-dollar claims. The company tried to compel arbitration based on a mandatory arbitration provision in their employee manual, they said. Well, the court looked into the employment contract including the employee manual and said, well, actually, what happened here is that delivery drivers upon being hired, would go to this initial orientation where they hear a presentation and then sign a short employment contract. Then later they were given a booklet, a booklet entitled The Little Book of Answers. Within the little book of answers, which I think was like 20 pages long, there was a page entitled mutual fairness benefits. Then under the mutual fairness benefits was a mandatory arbitration provision. The court said, wait a minute, the people who signed that employment deal did not agree in any meaningful sense to this arbitration clause. This contract lacks assent and furthermore, the court said, it's unconscionable. The court used the traditional contract doctrine of unconscionability, so shocking to the conscience, and said, this is procedurally and substantively unconscionable. This term has the effect of drastically reducing the rights of employees to pursue claims, and the way that the company procured accent to this term is really suspect, it was really flocked. This is a case in which the arbitration clause might have been enforceable. But the way the company gave employees notice of the clause was intention with basic contract principles like accent and notice. That's mandatory arbitration provisions.
