BECAUSE ARBITRATION CAN BE BENEFICIAL, IT SHOULD NEVER HAVE TO BE MANDATORY: MAKING A CASE AGAINST COMPELLED ARBITRATION BASED UPON PRE-DISPUTE AGREEMENTS TO ARBITRATE IN CONSUMER AND EMPLOYEE ADHESION CONTRACTS

Abstract

By checking a box next to the phrase “I agree to the terms and conditions,” or providing a signature at the end of a multi- page standard form contract, today’s consumers and employees often inadvertently bind themselves to some form of alternative dispute resolution (ADR). Without fully understanding the consequences of their so-called agreement, these individuals effectively relinquish their right to access state and federal courts. Even when employees and consumers fully understand the impact of their decision, they may have no opportunity to do anything but sign the contract. This is not merely a theoretical issue. In addition to this voluntariness problem, mandatory arbitration sometimes has devastating real-life implications, as evidenced by the following exchange before the Senate Subcommittee on the Constitution in 2007. Chairman Feingold: Can you tell us more about why you did not want to sign the arbitration agreement? Mrs. Luke: Well, I did not want to sign it because . . . the way they explained it, I would be signing away my rights. I would not be able to go to court if anything happened. Chairman Feingold: And you had been working for your employer for many years already when you were asked to sign the arbitration agreement. Did the employer offer you anything in return for giving up your rights to go to court? Mrs. Luke: They offered me nothing for giving up my rights, but they offered to terminate my position if I did not sign it. Chairman Feingold: Some offer. You said you thought you would have had a fairer hearing on your case in a court of law than you did in arbitration. Why do you think that? Mrs. Luke: Well, because the arbitrator was paid by [my employer], and I was not allowed to bring any of the evidence I had. I first went to the EEOC, who investigated for months and ruled in my favor. The arbitrator told me I could not bring this up, nor could I bring any evidence from this. And I felt that that was unfair, that if I had gone to court, I would have been able to use all of this information, and that they would have looked at it objectively and possibly ruled in my favor. Even though mandatory pre-dispute clauses to arbitrate in adhesion contracts undermine the voluntary nature of ADR, courts seem to prefer to hold individuals to the terms to which they have agreed. Plus, proponents of these clauses argue the process of arbitration itself is overwhelmingly beneficial in most circumstances. So, courts continue to compel arbitration. In balancing party autonomy against the public interest, however, courts are getting it wrong. When courts compel parties to arbitrate disputes based on agreements in consumer and employee adhesion contracts, they undermine the supposedly voluntary nature of ADR, often resulting in an unfair process. Perhaps judicial compulsion is the result of the judiciary’s failure to recognize the absence of consent in adhesion contracts; a desire to promote an alternative to the judicial system; or an overly broad interpretation of a congressional statute. Whatever the ultimate source, the willingness of today’s courts to compel arbitration in all circumstances, despite the objections of the weaker party, has a direct and adverse impact on consumers and employees. Cognizant of the issues involved, Congress has repeatedly attempted to provide a solution. However, it has been unable to propose legislation simultaneously broad enough to address the underlying problem of voluntariness, yet narrow enough to avoid offending advocates of arbitration. Consequently, in order to directly address the voluntariness problem, this Comment proposes a legislative solution prohibiting the enforcement of arbitration clauses in consumer and employee adhesion contracts. Alternatively, Congress could pass legislation providing that any arbitration agreement in a consumer or employment contract allow the consumer or employee the opportunity to select the arbitration provider and the processes to be used by that provider. If these agreements are to be upheld, requiring them to allow consumers and employees a choice as to provider and process would help to ensure that these parties have some control over the mechanisms used to settle their disputes. Section II of this Comment provides the necessary background information. Specifically, it describes the advantages of binding arbitration and the rise of arbitration in the U.S. in subsection A. The difficulties posed by compelling arbitration based on pre-dispute agreements to arbitrate in consumer and employee adhesion contracts are addressed in subsection B. Critical analysis of the legislative history of the Federal Arbitration Act (FAA), which clearly indicates that the statute was not intended to address consumer and employee adhesion contracts, is provided in subsection C. Next, in subsection D, this Comment explores potential market incentives that may encourage corporations and arbitration providers to avoid mandatory arbitration clauses in adhesion contracts. Section III outlines some of the many attempts to redress the unfairness of compelled arbitration. Subsection A discusses the judicial steps that have been taken, subsection B reviews the legislative attempts, and subsection C briefly describes some of the solutions proposed by academics and some possible solutions that should be investigated further. Finally, Section IV recommends two distinct legislative solutions that address, at least partially, the problems of consent and unfair processes.