Tuesday, November 3, 2009

Arbitration Clauses: Pro-Business/Anti-Feminist

The case of Jamie Leigh Jones has brought the issue of the unconscionability of mandatory arbitration clauses to the forefront:
“Jones worked as a clerical worker for KBR at a Halliburton office in Baghdad’s fortified Green Zone and alleges she was drugged and raped by several Halliburton workers in her company barracks bedroom. She also claims she was placed under armed guard and held in a ‘prison-like container’ for hours after reporting the alleged attack. Halliburton says Jones signed an agreement that requires all of her claims against the companies stemming from the alleged rape to be resolved through private arbitration.”

Under English and American common law, arbitrations were often deemed to be contrary to public policy because they ousted courts out of their jurisdiction. Arbitrators wield considerably more power than judges because the appeals process is significantly more limited and there are fewer substantive and procedural rules by which they must abide. In spite of these concerns, in 1925 Congress passed the Federal Arbitration Act (FAA) to encourage courts to enforce contract agreements to arbitrate. For decades, federal judges were resistant to placing arbitration agreements on the same footing as other contracts. Since the 1980s, however, there has been an incredible growth in arbitration agreements due to a series of Supreme Court cases in which the Court expanded the scope of the FAA to include federal diversity cases and to state court cases that involve commerce. Further in 1987, in Shearson v. McMahon, the Supreme Court held that the FAA “establishes a federal policy favoring arbitration, requiring that the courts rigorously enforce arbitration agreements. This duty is not diminished when a party bound by an agreement raises a claim founded on statutory rights.” Thus parties are now required to arbitrate their contractual rights in addition to their statutory rights.

This pro-arbitration stance is intended to expedite dispute resolution by providing businesses and their employees with a process by which they can streamline their claims to save costs and time. Unfortunately, arbitration clauses have also been utilized to circumvent statutory protections and are only struck down when they are both substantively and procedurally unconscionable. Public Citizen, a non-profit organization, has instituted the “Fair Arbitration Now” campaign. They argue:
“Just by taking a job or buying a product or service, most Americans have given up their right to go to court if they are harmed by a company. Instead, people are forced into a private system of justice without a judge, jury, or an appeal. The arbitrators don't have to follow the law, and there is no public review of decisions or real accountability.”
About six weeks ago, the United States Court of Appeals for the Fifth Circuit rejected Halliburton’s claim that Jones’ rape fell within the scope of her employment contract. However, the very fact that this was a plausible argument illustrates how distorted the FAA has become. In advocating for arbitration, the Supreme Court has supported a system that can deny Americans the right to their statutory protections with limited appellate review absent showing either that the claim is brought under a particular federal statute which is not arbitrable or that the arbitration clause is both substantively and procedurally unconscionable. Further, mandatory arbitration clauses in themselves are not considered unconscionable even if employment is conditioned upon signing the arbitration clause.

In response to this case, Senator Al Franken sponsored an amendment to the 2010 Defense Appropriations bill “that would prevent the Pentagon from doing business with contractors who force employees into binding arbitration over rape and sexual assault charges.” While the amendment’s passage is necessary, the bigger question is why this was happening in the first place. As Jon Stewart commented, “How is that a loophole that needs closing?”

Even more puzzling is why thirty Republicans rejected the amendment. Or perhaps that is the easier question because it is clear that pro-business lobbyists have had a profound effect upon the mandatory arbitration movement. Thirty years ago it was unthinkable that the Supreme Court would support a system that is essentially exempt from the law. Although it may be sensible for two businesses on par with one another to opt for a system that is efficient and cost-effective, it is unfair to bind employees and consumers into the same adhesion contracts for they lack the ability to negotiate the terms of their arbitration. Rather than providing a means to resolve their dispute, arbitration clauses are being used to silence employees and consumers. If other women are to escape Jones’ fate, more needs to be done to curb the pro-arbitration movement. If individual employees and consumers cannot contract out of mandatory arbitration clauses, then collectively we need to advocate for equity in setting the terms for our contracts.

1 comment:

Anon5 said...

I think this is a great post and I totally agree with your assessment that the pro-arbitration movement should be resisted.

As I read this and watched the Daily Show video, I realized that it never ceases to amaze me how conservative politicians will rail against big government, wasteful spending, or intrusion into private affairs one minute, and then push for expansion of government spending/power the next.

It is especially ironic in this situation because during Bush's presidency, the government allowed KBR/Halliburton to waste millions of dollars by awarding them cost-plus contracts for work in Iraq. Conservatives didn't seem too worried about being frugal then, but now they want to save companies the costs of litigating rape cases in court. Maybe wasting taxpayer money is no problem but wasting company money is. It just seems like they have no shame.

I agree that efforts should be made to advocate for equity in the setting of contract terms, but I wonder what would have to be done in order to make up for the seemingly extreme disparity in bargaining power between large corporations and individual employees, especially if those employees are relatively replaceable. Without significant government regulation of employment contracts, would greater union strength be the answer? I'm not sure.