Wednesday, June 30, 2010

Why the Supreme Court's Decision in Rent-a-Center v. Jackson Matters

On Monday, June 21, 2010, in a 5-to-4 decision the U.S. Supreme Court sided with Rent-A-Center management in an decision that is a win for employers who want to resolve disputes with employees through the use of a company arbitrator, and not a court.

The Court ruled against the employee, Antonio Jackson, on the enforceability of an arbitration agreement between the company and the employee, who had filed an employment discrimination suit. Jackson argued that the binding arbitration provision was unconscionable because he would not have been hired without signing the agreement.

Antonio Jackson alleged race discrimination and retaliation on the part of his former employer, Rent-a-Center West, Inc. (RAC). RAC said the complaint must be resolved via forced arbitration, per the arbitration contract Jackson signed when hired. Jackson argued that the forced arbitration clause was unconscionable, and that the issue of unconscionablity must be decided by a court, rather than an arbitrator. He says the agreement is unconscionable because:

It contains one-sided coverage and discovery provisions.

It mandates that the arbitrator’s fee is to be equally shared by the parties (with no fee cap, meaning RAC could drag the arbitration out indefinitely and make it prohibitively expensive for the plaintiff).

The form contract was presented to him as a non-negotiable condition of his employment.

In holding against Jackson, the five-justice majority reinstated a ruling from a Nevada federal court judge that had been reversed by the U.S. Court of Appeals for the Ninth Circuit.

Writing for the majority, Justice Antonin Scalia reasoned that so long as an arbitration agreement delegates the decision regarding unfairness to the arbitrator, it should be the arbitrator rather than the court who decides whether an arbitration clause is unconscionable.

The case was argued before the Court for Rent-A-Center by Rob Friedman of the Littler law firm. "We are pleased with the Court's decision," said Dwight Dumler, Rent-A-Center senior vice president of public affairs. "The decision is consistent with the holdings of the majority of the circuit courts that have addressed the question. The Court's ruling keeps arbitration the efficient and cost effective process it was intended to be."

Jackson was defended by the Hardy Law Group of Reno, Nevada, and Public Justice of Washington, D.C. Oral argument was presented by Ian Silverberg of the Hardy Law Group.
Dissenting Justice Stevens wrote that the result made no sense. If the arbitration agreement is “so one-sided and the process of its making so unfair” then it was unreasonable to assume Jackson truly assented to put that very question to the arbitrator", Stevens wrote.

The decision is already drawing flak from liberal groups and lawmakers, who contend it will stack the scales in favor of corporations. In a statement, Senate Judiciary Committee Chairman Patrick Leahy said, “five members of the Supreme Court struck a blow to our nation’s civil rights laws and the protections that American workers have long enjoyed under those laws.”

Until this Supreme Court decision, consumers and employees had the right, under Section 2 of the Federal Arbitration Act, to go to court and ask a judge to find an arbitration agreement unconscionable or unfair and therefore unenforceable. Although most arbitration agreements are enforceable, court review weeded out the very worst abuses—like imposing exorbitant fees, forcing consumers or employees to travel great distances to arbitrate, or allowing a corporation to pick an arbitrator that is clearly biased in its favor.

This Supreme Court decision will leave many challenges to the fairness of a corporate arbitration system entirely in the hands of corporate arbitrators themselves. Nothing will stop companies from inserting clauses like the kind approved by today’s decision into standard-form arbitration agreements. Companies would then be free to impose one-sided terms or select clearly biased arbitrators with close ties to the company, secure in the knowledge that any challenge to the fairness of arbitration will be decided by the arbitrator whose very authority comes from the challenged arbitration agreement.

This decision will spur efforts in Congress to pass the Arbitration Fairness Act (H.R. 1020, S. 931), a measure that would ensure that any decision to arbitrate in a consumer, employment, or franchise dispute is made voluntarily and after a dispute has arisen, so that corporations cannot take advantage of their unfair bargaining power to force individuals into arbitration.

American Association for Justice (AAJ) President Anthony Tarricone commented; “The Supreme Court today gave corporations yet another free pass to submit employees and consumers to abusive forced arbitration proceedings. Corporations now have nearly unchecked authority to write, enforce and judge the fairness of their own forced arbitration clauses. The fox is guarding the hen house – at the expense of citizens’ access to the civil justice system. It is imperative that Congress pass the Arbitration Fairness Act (S. 931 / H.R. 1020), which would protect consumers and employees from these abusive practices.”

Here are three examples of unconscionability challenges that AAJ says could be adversely affected by this ruling:
If an individual wants to challenge that the arbitrator chosen by the company is unfairly biased toward that company, this ruling could mean the same arbitrators would decide whether they are biased.

If an individual wants to challenge the fairness of having to fly across the country for the arbitration, this ruling could dictate that he fly across the country to challenge whether it’s unfair to have to fly across the country.

If an individual wants to challenge the fairness of having to pay excessive costs for the arbitration, this ruling could require her to pay for the arbitration to ask the arbitrators whether the fee is unfair.

As the world's largest trial bar, the American Association for Justice (formerly known as the Association of Trial Lawyers of America) works to make sure people have a fair chance to receive justice through the legal system when they are injured by the negligence or misconduct of others—even when it means taking on the most powerful corporations.

Analysis of Rent-A-Center v. Jackson By David Gans

On June 21, 2010, the Supreme Court handed down its ruling in Rent-a-Center v. Jackson to a near-deafening silence.

The case generated very little media coverage, drowned out by continuing coverage of the oil spill and coverage of other rulings by the Court and limited, perhaps, by the density of Justice Scalia’s majority opinion, which seems designed to make the case appear complicated, technical and narrow.

But Rent-a-Center is extremely important, and its holding will likely affect thousands of Americans, another ruling in a long campaign by corporations to supplant judicial review with arbitration.

In Rent-a-Center, in a sharply divided 5-4 ruling, the conservative majority of the Supreme Court reached out to create a new rule of pleading that makes it difficult for hard-working Americans to seek justice in the federal courts to enforce their federal rights, including the right to be free of racial discrimination in employment.

Citing the arbitration agreement Antonio Jackson was forced to sign as a condition of being hired by Rent-a-Center, Justice Scalia’s opinion for the Court’s five conservatives held that Jackson’s civil rights lawsuit could not be heard in federal court. Jackson’s claims, including his challenge to being forced to arbitrate his civil rights claim, could only be decided by a private Rent-A-Center arbitrator.

Justice Scalia’s opinion for the Court invents a new pleading rule – one urged by neither party in the litigation – to keep Jackson out of federal court.

Parsing Jackson’s briefs, Justice Scalia finds fault with Jackson’s lawyers for attacking the validity of the entire forced arbitration agreement as unconscionable, rather than the particular provision of the agreement that gave the arbitrator the power to resolve challenges to the arbitration agreement.

Because Jackson’s lawyers brought the wrong claim, Jackson loses.

This looks largely like nitpicking – and it is – but something far more serious is afoot. Justice Scalia’s opinion raises dramatically the burden on workers and other Americans across the country who are subject to forced arbitration.

Justice Scalia rejects the idea that Jackson is entitled to seek justice in federal court if he can show that the arbitration agreement, in its totality, was an unfair, one-sided deal that the company forced on him as the price of getting a job. That’s the challenge that Jackson’s lawyers brought, and the Court rejected.

It’s never going to be easy for an employee to show that an arbitration agreement is unconscionable, and the Court’s ruling makes that burden a great deal heavier by refusing to look at the arbitration agreement as a whole.

In Jackson’s case, for example, the Court treated it as irrelevant that the arbitration agreement was manifestly one-sided, only covering claims an employee might bring against the employer, while exempting those claims that Rent-a-Center might raise, and imposing sharp limits on an employee’s ability to gather evidence. The net result – which Justice Scalia basically concedes – is that the Court’s newly minted pleading rule will make it harder for employees to seek justice in federal court.

The Court’s holding turns on its head our constitutional tradition of access to the courts, and effectively relegates hard-working Americans like Antonio Jackson to arbitration proceedings that, all too often, are structurally biased to favor large corporations. The problem here was not the law – as Justice Stevens showed in another powerful dissent, nothing in the Federal Arbitration Act, its history, or the Court’s precedents, remotely compelled this result – it was the five conservative Justices in the majority. In fact, the Justices had already recognized that a plaintiff was entitled to bring suit in federal court notwithstanding an arbitration agreement if he or she had been forced to go to arbitration as part of an unconscionable bargain.

Justice Scalia’s opinion in Rent-a-Center changed the rules to make it much harder for Americans subject to an arbitration agreement to make this showing. With millions of Americans forced to arbitrate their claims – whether by their employers, cell phone or credit card companies – it is hard to miss the obvious fact that shutting the courthouse doors to plaintiffs like Antonio Jackson will have a lasting effect on access to justice for men and women across the country.

David Gans is the Director of the Human Rights, Civil Rights & Citizenship Program at the Constitutional Accountability Center. CAC joined an amicus brief in Jackson, emphasizing that forced arbitration of civil rights claims runs counter to the text and history of the Reconstruction-era civil rights statute at issue, which was written to give Americans a right of access to federal courts.

No comments: