CONGRESS ACTS TO REIGN IN MANDATORY ARBITRATION I remind my first-year Contracts & Sales students at LMU just how ubiquitous contracts are in our daily lives. We all enter into contracts every day, often without even knowing it. Over the last few decades, an increasing number of those contracts have required the parties to arbitrate, rather than litigate, any claims arising out of the agreement. The rise of mandatory arbitration has been fueled by a generation of U.S. Supreme Court decisions reading the Federal Arbitration Act (FAA) expansively. This trend towards forced arbitration has, for the most part, been left unchecked by Congress, which has the power to amend the FAA as it sees fit. It is possible that the tide may be turning. In February, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act.1 The bill passed by broad bipartisan margins and was signed quickly into law by President Biden, becoming effective on March 3, 2022. The new law is designed to prevent employers from using mandatory arbitration provisions to silence victims of sexual assault or harassment in the workplace and beyond. While the Act certainly is a victory for the #MeToo Movement, it may have even broader repercussions. An Era of Expansion for Mandatory Arbitration Congress passed the FAA in 1925 to “place arbitration agreements on an equal footing with other contracts . . . and enforce them according to their terms.”2 Specifically, the FAA states that a contractual provision to settle disputes arising out of the contract via arbitration “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”3 No mind that the FAA was passed in response to courts’ open hostility to commercial arbitration agreements negotiated by parties with equal bargaining power. The Supreme Court has used its expansive view of the FAA to uphold the use of mandatory arbitration provisions in a variety of contexts unanticipated by Congress in 1925. In 2011, the Court upheld the inclusion of mandatory arbitration provisions in contracts for consumer and financial services in AT&T Mobility LLC v. Concepcion. The Court struck down a California rule4 that boilerplate class-action waivers in certain types of consumer adhesion contracts were unconscionable and concluded that “[r]equiring the availability of classwide arbitration interferes with fundamental
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attributes of arbitration and thus creates a scheme inconsistent with the FAA.”5 A series of subsequent decisions have reinforced the basic principles set forth in Concepcion in a variety of areas, including consumer agreements (again),6 merchant credit card agreements,7 and nursing home agreements.8 In 2018, the Court decided Epic Systems v. Lewis, which upheld mandatory arbitration and class-action waivers in employment agreements.9 Notably, the percentage of private-sector, non-union employees in the United States who were subject to mandatory arbitration of employment disputes increased from two percent in the early 1990s to about 25 percent in the early 2000s to over 55 percent in 2017.10 Epic rejected a challenge by employees to an email their employer had sent requiring them to bring wage-and-hour claims “only through individual arbitration” and to waive, as a condition of their continued employment, “any right to collective action.”11 Ever-resilient, the plaintiff ’s bar has been adjusting to the increased use of mandatory arbitration. For example, a June 2021 Wall Street Journal article observed that Amazon had changed its terms of service to allow customers to file lawsuits after 75,000 individual arbitration demands were filed by users of its Amazon Echo device (a/k/a “Alexa”).12 Remarked the plaintiff ’s attorney whose firm filed the majority of the arbitration claims: “Companies thought they were getting out of liability altogether. Now they’re seeing exactly what they bargained for, and they don’t like it.”13 Motivated by the #MeToo Movement, Congress Acts The success against Amazon notwithstanding, most plaintiffs do not have the resources to file mass arbitration claims. Given the continued lean of the U.S. Supreme Court towards business interests, the only real way to stem the tide of mass arbitration is for Congress to amend the FAA. Such a move seemed unlikely, given the politically toxic and divisive environment in Washington. But the incentive to act finally came with rise of the #MeToo Movement. The 2016 sexual harassment suit filed by former Fox News host Gretchen Carlson against CEO Roger Ailes, along with similar claims against other high-profile defendants, initiated a national conversation about the use of mandatory arbitration clauses and non-disclosure agreements (NDAs)
DICTA
May 2022
