• Noah Baron

Federal Arbitration Law is a Farce

Credit: The English Spot

Today, the United States Supreme Court announced its decision in Epic Systems Corp. v. Lewis. It determined that employers could prohibit employees from suing through a class action, by including a provision in their employment contract requiring them to individually resolve employment disputes through out-of-court "alternative dispute resolution"--known as arbitration. Outside of the halls of the federal judiciary, the problems with arbitration are well-known: it is secretive and precludes media coverage because there is no public docket, and no public hearing; there is no availability of broad injunctive relief, because the powers of the arbitrator arise from a contract, not the Constitution; written decisions are rare, and when they do issue they provide little information; disputes are heard and decided by a single person, not a jury; appeals from arbitration outcomes are nearly impossible, freeing arbitrators to virtually ignore substantive law. Today, of course, courts refuse to recognize any of this.

Alone, Lewis is flagrantly wrong; in context, it is even worse--a symptom of a large and growing body of sham jurisprudence based equal parts on legal fictions unmoored from reality, and be-garbaged concoctions of legislative history and statutory interpretation. Putatively, arbitration law rests on the Federal Arbitration Act ("FAA"), enacted in 1925. The FAA required courts to give effect to contracts in which two parties agreed to resolve disputes through "arbitration"--out of court, before an employee of a private corporation. The law was intended to apply only to contract disputes between merchants, as a way of responding to a growing and increasingly interconnected economy. It applied to a narrow range of matters, such as disagreements over quality of goods.

Though the legislative history is replete with references, one need only look at the plain text of the law: it requires parties to a contract to "settle by arbitration a controversy . . . arising out of such contract." 9 U.S.C. § 2. By its own terms, it does not encompass claims brought under either federal or state law. For example, claims brought under anti-discrimination laws do not "arise" from a contract, they arise from a statute, regardless of whether there is also a contract involved. And, bound to abide by the legislative history and plain meaning of the FAA, courts for a time respected the narrow limits of the law. In Wilko v. Swan, 346 U.S. 427 (1953), for example, the Supreme Court recognized that an arbitration agreement did not supersede claims under a securities fraud law.

Nor was the FAA meant to apply to employment disputes at all, as arbitration scholar Imre Szalai has pointed out. See Imre Szalai, An Obituary for the American Arbitration Act: An Older Cousin to Modern Civil Procedure, 2010 J. Disp. Resol. 391, 392 (2010). In fact, section 1 of the FAA specifically excludes from its provisions "contracts of employment of . . . any . . . class of workers engaged in foreign or interstate commerce." During the congressional hearings on the law, a drafter explained that "[i]t was not the intention of this bill to make an industrial arbitration in any sense . . . It is not intended that this shall be an act referring to labor disputes, at all."

This more or less remained the law until recently. In Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), the Supreme Court held that employees could still pursue judicial remedies, even after resorting to arbitration. The decision was based in significant part on the Court's recognition of the infirmities of arbitration. In some circumstances, it said, "arbitral processes [are] . . . inferior to judicial processes" in the protection of civil rights." Alexander then dedicated several paragraphs explaining its conclusion that "[a]rbitral processes [are] comparatively inferior to judicial processes in the protection" of statutory and constitutional rights.

In the 1980s, however, Nixon and Reagan judicial employees reversed course and began a long project of decimating the rights of employees and consumers. In 1991, the Supreme Court decided Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), where it somehow arrived at the conclusion that claims brought under a federal anti-discrimination law, the Age Discrimination in Employment Act, could be required to be arbitrated. Its reasoning ran contrary to all previous precedent, the text of applicable statutes, and the facts of what arbitration actually is.

First, the Court misconstrued the reality of arbitration: "Gilmer raises a host of challenges to the adequacy of arbitration procedures . . . . Such generalized attacks on arbitration rest on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants." Id. at 30. Plugging its ears and covering its eyes, the Court dismissed concerns that arbitration has more limited discovery, that arbitration is necessarily limited by the scope of the contract in the relief available, and that there is unequal bargaining power between employers and employees--all recognized in Gardner-Denver. Instead, we must now pretend that arbitration is no different than a judicial proceeding.

Second, Gilmer brushed past the reasoning behind Gardner-Denver, clear precedent which--somehow--it claimed it was not overturning; instead, the Court asserted, the previous case had nothing to do with the case before it, because Gardner-Denver concerned a collective bargaining agreement, not an individual agreement. It did not address at all the problems of arbitration it recognized in Gardner-Denver.

The federal judiciary's expansion of arbitration did not end there. Shortly after Gilmer, Congress passed the Civil Rights Act of 1991, which included a provision stating: "to the extent appropriate and authorized by law . . . arbitration[ ] is encouraged." The legislative history made clear that the provision was intended to "supplement, not supplant, the remedies provided" by federal civil rights laws:

"Thus, for example, the committee believes that any agreement to submit disputed issues to arbitration, whether in the context of collective bargaining or in an employment contract, does not preclude the affected person from seeking relief under the enforcement provisions of Title VII. This view is consistent with the Supreme Court's interpretation of Title VII in Alexander v. Gardner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974). The Committee does not intend this section to be used to preclude rights and remedies that would otherwise be available."

H.R.Rep. No. 40(I) at 97 (emphasis added). Bizarrely, Courts have concluded exactly the opposite. Rather than adopting Gardner-Denver by statute, they insist, Congress actually meant to adopt Gilmer, notwithstanding all evidence to the contrary. The sole basis for this conclusion is that Congress did not explicitly disclaim its adoption of Gilmer, which happened to be announced a few months before the 1991 Act was signed into law.

Given these stilts upon which the courts have constructed nonsense, today's decision in Lewis is unsurprising, if disappointing. Lewis ignores the FAA provision excepting employment contracts, as it has done for decades. As before, it pretends that arbitration is an adequate substitute for litigation, and that forcing dozens, or hundreds, or thousands, of employees to individually sue is no different than allowing a class action to proceed. Like in Gilmer and so many other cases, it supplants the statutory causes of action and remedies of federal law, the National Labor Relations Act, with feeble recourse limited by the terms of a contract.

Lewis is merely the latest outrage in the decades-long process of right-wing judicial lawmaking designed to neuter the rights of employees.


© 2018 by Noah Baron.

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