Outten & Golden: Empowering Employees in the Workplace

Forced Arbitration and the Kagan Hearings

July 5th, 2010 | Deepak Gupta

Deepak GuptaThe forced arbitration of claims arising out of statutory protections for consumers and employees has become a hot topic at the Kagan hearings. The parade of comments by Senators started even before the hearings began, with a written statement by Senator Leahy criticizing the Supreme Court’s 5-4 decision in Rent-a-Center v. Jackson, and similar remarks on the Senator floor by Senator Franken (video of which we’ve already posted here). The topic was raised again in Senator Whitehouse’s opening statement on Monday and in an extended colloquy between Franken and Kagan this morning.

In his statement, Leahy called the Rent-a-Center decision “a blow to our nation’s civil rights laws and the protections that American workers have long enjoyed under those laws.” He noted that “more than one hundred million Americans work under binding mandatory arbitration agreements” and that “most Americans are not even aware that they have waived their constitutional right to a jury trial when they accept a job to provide for their families.”

Congress worked for years on a bipartisan basis to pass laws to protect workers from race discrimination, gender discrimination and age discrimination.  . . . Rent-a-Center is unfortunately just the latest in a line of divisive and devastating Supreme Court decisions where five justices have, in effect, gutted those statutory protections. … Congress should now take a closer look at the way in which binding mandatory arbitration is creating a legal underground where American workers are left without protection.

There is no rule of law in arbitration. There are no juries or independent judges in the arbitration industry. There is no appellate review. There is no transparency. And as a result of today’s divisive ruling, there will likely be no justice for millions of American workers and their families.  The courthouse doors have simply been closed to them.  Today’s opinion also gives big business a disincentive to treat their employees fairly and will no doubt lead to virtually all companies requiring their employees to sign one-sided arbitration agreements as a condition of employment.

Senator Whitehouse’s opening statement at the Kagan hearings struck a similar chord:

Unfortunately, the conservative wing of the current Supreme Court has departed from [the Court's] great institutional traditions. Precedents, whether of old or recent vintage, have been discarded at a startling rate. Statutes passed by Congress have been tossed aside with little hesitation, and constitutional questions of enormous import have been taken up hastily and needlessly. Only last week, the Rent-A-Center decision concluded that an employee who challenges as unconscionable an arbitration demand must have that challenge decided by the arbitrator. And the Citizens United decision — yet another 5-4 decision — created a constitutional right for corporations to spend unlimited money in American elections, opening our democratic system to a massive new threat of corruption and corporate control. There is an unmistakable pattern. For all the talk of umpires and balls and strikes at the Supreme Court, the strike zone for corporations gets better every day.

Finally, Senator Franken this morning used the hearings as an opportunity to sharply critique not only the recent Rent-a-Center decision, but also the Court’s 2001 decision in Circuit City v. Adams, which rewrote the Federal Arbitration Act to include most employee claims.  The relevant portion of the transcript form this morning’s hearings is available after the jump.

Sen. Franken: I want to discuss something that is denying more and more working Americans that precious day in court, that fair shake, and that’s mandatory arbitration. Now, arbitration has its place. I’m talking about mandatory arbitration. Chances are if you have a cell phone or credit card or if you work, you’re likely to have signed a contract with a mandatory arbitration clause. These clauses basically say if we violate your rights, you can’t take us to court. You have to take it to an arbitrator. But then the fine print essentially says an arbitrator that we pay who depends on us for work and who makes decisions in secret. So a lot of people are denying their opportunity to come before the court.

Circuit City v. Adams

Unfortunately, we’ve seen a series of decisions from the Supreme Court that have made it even harder for people to get that fair shake, as you put it. In 2001 in a case called Circuit City, the Court was asked to decide whether workers’ employment, employment contracts could be subject to mandatory arbitration. This really should have been a no-brainer, because the Federal Arbitration Act of 1925, the law that says that arbitration agreements should be enforced — specifically exempts, quote, “contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce.”

Organized labor had asked for this specific language to be included to make sure the act would not apply to workers’ employment contracts. In fact, then commerce secretary Herbert Hoover said during a Senate hearing, quote, “if the objection appears to be inclusion of workers’ contracts in the law’s scheme, it might well be amended by states but nothing herein contained shall apply to the contracts of seamen, railroad employees or any other class of workers engaged in interstate commerce.”

Secretary Hoover was saying that if congress wanted to make clear that the Federal Arbitration Act did not apply to employment contracts, Congress should put this language in the statute. So Congress put the language in the statute. But when Justice Kennedy wrote the majority opinion in circuit city, he ignored the history. He wrote, and I quote, “we need not assess the legislative history of the exclusion provision.” Let me repeat that. “We need not assess the legislative history of the exclusion provision.” And based on a strained reading of the law he decided that the exception only applied to workers in the transportation business. Not any class of workers.

This means that instead of all workers getting their day in court in Congress . . . like Congress clearly intended, only transportation workers would get it, and that excludes the vast majority of american workers. General Kagan, I really disagree with this case and the way the court ignored Congress’ intent. That why I was glad to hear your response to one of Senator Schumer’s questions about how the court should interpret statutes. You said that among other things, quote, I think a judge should look to the history of the statute in order to determine Congress’ will. General Kagan, we spent a lot of time in hearings and on the floor debating legislation. How much weight do you think a judge should give to the deliberations of congress and the reasons why we pass the law in the first place?

EK: Senator Franken, the most important thing in interpreting any statute, in fact, the only thing that matters is Congress’ intent. Congress gets to make the laws under Article One of the Constitution. And what the Court should be doing in applying those laws is trying to figure out what Congress meant and how Congress wanted the laws to be applied. That is the only thing that the Court should be doing. Now, sometimes that can be a difficult task. New situations come up. The statutory language is not clear how it applies to those new situations or sometimes congress might simply not have thought of particular situations. Language is by necessity an exact, and so there are going to be cases which —

Sen. Franken: Do you agree with Justice Kennedy, “we need not assess the legislative history” of something?

EK: I would say this. I would say where the text is clear, a court should go with the text. Where the the text clearly covers some situation, the court should do that. The court shouldn’t be writing law.

Sen. Franken: Should the court assess that and make an assessment there?

EK: I think if the text is clear, the court should not rewrite the law. But where the text is ambiguous, which often happens —

Sen. Franken: Wouldn’t you have to assess whether it is ambiguous?

EK: Yes.

Sen. Franken: What Justice Kennedy said doesn’t stand up to that, does that? Let us me move on on that. We in Congress, we want to make sure all of us intentions are clear so 75 years from now the Supreme Court doesn’t just ignore the purpose behind the laws we’re passing. How can we do that? How do we do that? How do we make it clear to future Justices?

EK: Well, the courts surely would be helped if Congress spoke as precisely and exactly and as comprehensively as it could in all situations. You know, there are some instances where the Court just has legitimate difficulty trying to figure out what congress intended and where judges all of whom agree what they should be doing is doing what Congress intended, have difficulty determining that or disagree about what that means. Certainly to the extent Congress can make its intentions clear in legislation and can specifically spell out how it intends for the law to operate, congress ought to do so. To the extent that the court gets something wrong with respect to a statute, and this has happened many times in recent years and in prior years as well. To the extent that the court gets something wrong, of course Congress can come back and change it and make clear that the court got it wrong and also use it as an opportunity even to make clear its intentions with respect to a general area of law.

Sen. Franken: Okay. It’s hard to do 78 years from now, but we’ll try. Circuit City was a Rehnquist court decision.

Rent-a-Center v. Jackson

Just last week the Roberts Court did something better to keep workers out of court and in arbitration. Rent-a-Center has 21,000 workers and hundreds of milions of dollars in annual profits. It forces its workers to sind a mandatory arbitration agreement as a condition of employment. Antonio Jackson, an African-American account manager in nevada had been working for Rent-a-Center for years, but he was frustrated because he watched his company pass him over for promotions again and again. Instead they promoted workers who had less experience and who weren’t black. Although Jackson signed an employment contract agreeing to arbitrate all employment claims, this seemed blatantly unfair and he sued Rent-a-Center.

But the company argued that only the arbitrator could decide whether the arbitration clause was unfair. Let me repeat that.  Rent-a-Center argued that only the arbrator could decide whether the arbitration clause was unfair. Last week the Roberts Court sided with Rent-a-Center.

Talk about not getting your day in court. Now you can’t get your day in court to get your day in court. Now, general Kagan, I know I probably can’t ask you whether I can ask you, but you won’t answer, whether this case was correctly decided, but I would like to ask you still agree with what you said yesterday to Senator Kyl, that one of the glorious things about courts is they provide a level playing field in all circumstances, and that we need to make sure that every single person gets the opportunity to come before the court and gets the opportunity to make his best case and gets a fair shake.

EK: Well, I do agree with that very strongly, Senator Franken. If I might just return to this question of statutory interpretation that you started off with, because I did want to make clear that when a text is ambiguous, which you know frequently happens, which frequently happens, then I think the job of the courts is to use whatever evidence is at hand to understand Congress’ intent. And that includes exploration of Congress’ purpose by way of looking at the structure of the statute, by way of looking at the title of the statute, by way of looking at when the statute was enacted and in what circumstances and by way of looking at legislative history. Now, I think the courts have to be careful about looking at legislative history and make sure that what they’re looking to is reliable, but courts shouldn’t at all exclude signs of congressional intent and should really search hard for congressional intent when the text of the statute itself is unclear.

Sen. Franken: Good. Then I think you and I agree that Justice Kennedy may have been in error when he said that — that the Court doesn’t have to assess the legislative history.

EK: Well, I suspect that — i don’t know the case very well. I suspect that Justice Kennedy may have meant he thought the text was clear, and therefore, the legislative history was not something that should appropriately be explored, but I’m just guessing on that.

Sen. Franken: Okay. I think you’re guessing wrong.

EK: Okay.

This article was originally posted on Consumer Law & Policy Blog

About The Author: Deepak Gupta is a staff attorney at Public Citizen Litigation Group, the litigating arm of the national, non-profit consumer advocacy organization Public Citizen. He also teaches a course in public interest law as an adjunct professor at Georgetown University Law Center, and he previously taught a course in appellate advocacy as an adjunct professor at the Washington College of Law at American University.

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2 Responses to “Forced Arbitration and the Kagan Hearings”

  1. E J Gorman Says:

    Most interest arbitration clauses are the result of contracts of adhesion. Arbitration offers no confirmed rules of evidence, stare decisis or even an explanation behind an arbitrator’s decision. They exist primarily for the convenience of the dominant party in a relationship. Moreover, arbitrators are often retired pro-industry attorneys. Panels of arbitrators in securities cases, for example, are often former representatives of securities firms. I challenged a securities firm for knowingly allowing my brain-injured, septugenarian father to trade options and equities from his hospital bed both pre- and post-surgery on his brain. Not knowing what he had traded even hours before, he would call up and order trades without the benefit of a computer or any limits imposed by the firm. He ended up losing 90% of his wealth in a 2-year period, which we learned about after the fact. After putting on a week’s worth of medical and expert witnesses and being told by the arbitration panel that we had demonstrated a compelling case, and even encouraging the firm to settle with us, we got a decision with one word in it: “denied.” The same case made in court would have warranted at least partial compensation and, likely, punitive damages. One decision does not a damning case make but it demonstrated the utter futility of expecting any fair shake in an arbitration case. There are simply no procedural or substantive protections, unless the arbitrator, in his/her SOLE discretion, decides they apply. Assuming that Congress meant for civil rights and labor laws to be waivable (existence of a collective bargaining agreement may be an exception here; at least the subordiate party is represented), turns legislative intent on its head. The reverse presumption must apply.

  2. Marc Brenman Says:

    Excellent column. Thanks very much!

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