The Supreme Court tangles with mandatory arbitration clauses.

Oral argument from the court.
April 26 2010 6:43 PM

Justice by the Hour

The Supreme Court tangles with mandatory arbitration clauses.

A courtroom.
Are mandatory arbitration clauses fair?

Antonio Jackson worked at Rent-A-Center in Nevada. The store rents out appliances and electronics and also—in the event of a contentious employment dispute—quality judges.

Dahlia Lithwick Dahlia Lithwick

Dahlia Lithwick writes about the courts and the law for Slate

In 2004, when Jackson signed his employment contract, he agreed that disputes arising from his employment would go to arbitration. Specifically, his contract said, "The Arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement." And so, in 2007, when Jackson sued Rent-A-Center for racial discrimination and retaliation in federal district court, his former employer tried to dismiss the case, arguing that the arbitration agreement meant that only an arbitrator could determine whether the agreement was enforceable. (More legalese in the contract: The arbitration authority extended to "any claim that all or any part of this Agreement is void or voidable.")

Jackson's claim here is that the arbitration agreement he signed is unconscionable—so one-sided in favor of the employer that it cannot be enforced. But first, he has to argue to the Supreme Court today that it is for a judge, not an arbitrator, to rule on that question. Just to be clear, or as clear as you can be when fighting your way through 59 minutes of warm mud, the issue today isn't whether Jackson's employment contract is unconscionable, but whether an arbitrator gets to arbitrate that question or a judge gets to judge it.

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The rap on mandatory arbitration clauses is that, in the interest of speed and efficiency, they replace the truth-seeking function of courts with the truthiness-seeking function of paid arbitrators. In addition to structural incentives for arbitrators to favor the employer and wonky fee-sharing and secrecy rules, arbitration provides for limited review and unequal bargaining power between employers and employees (who are generally told to take it or leave it). But the courts have mostly tended to enforce arbitration agreements, except in extraordinary cases, and the lower courts agreed to dismiss Jackson's case. The 9th Circuit reversed, finding that whether an arbitration provision is unconscionable is a matter for the courts, not an arbitrator. Rent-A-Center appealed to the Supreme Court, and the tilt-a-whirl of oral argument begins.

Robert Friedman represents Rent-A-Center, and he is immediately pressed by the justices to explain what kinds of unconscionable contracts should not be heard in arbitration. Friedman opts to go with the "gun to the head" analogy: If someone signs a contract with a gun to his head, Friedman will concede that this is duress. He will make the gun-to-the-head argument four separate times this morning.

Chief Justice John Roberts asks whether it's impossible to have a contract in which "the provisions are so one-sided that you may assume from that that the formation was not voluntary." Friedman says it is never possible. At which point he briefly loses Justice Antonin Scalia, as well. Justice John Paul Stevens is stunned: "[S]uppose the agreement provided that the employee shall pay all the costs of arbitration no matter who wins?" Friedman replies that unless the contract completely blocks access to arbitration, judges may not assess whether it's unconscionable. He adds that the party opposing arbitration would need to show that being forced to pay all the costs "would prohibit them from actually getting to arbitration."

This drives Justice Stephen Breyer to unleash a wandering taxonomy of coercive employment agreements. Class 1 is evidently when "you put up this four-page document, and I say: 'Look! That is not my signature; that is the signature of Joe Bananas!' " Friedman agrees the courts should probably look at that case. Class 2 is trickier. Breyer: "What he did is he got me drunk, told me a bunch of lies, and I signed it. I grant it's my signature, but look at how squiggly it is! And my will was not a free one because I was under the influence of alcohol and lies!" Friedman concedes that should also go to the judge instead of the arbitrator. Class 3 is the trap: Says Breyer, "I agree it's my signature, I agree it is not squiggly, but still my will was overborne by those very situations that lead courts to label contracts unconscionable. … The person who was the victim had no free will, he did not sign it of his own accord."

Friedman stops him. "Issues of unequal economic bargaining power … are nonissues that cannot be addressed by the arbitrator." (That is either a triple lutz or a double negative. We'll have to wait for the European judges). This forces Justice Breyer to ask about the "I was in Alaska" defense" (which differs from the "Joe Bananas" defense, I surmise). Which in turn causes Friedman to respond, "It does not rise to the same level as something that's fraudulent or something that is forced with a gun to your head." I think we can all agree that whatever else Rent-A-Center may do to its employees, it draws the line at forcing them to sign arbitration agreements at gunpoint.

I think we can also agree at this point that whatever else is happening in this case, it's probably time to start calling it a "bailout."

Ian Silverberg represents Antonio Jackson, and at no point does he allege that Joe Bananas brandished a gun in Alaska to force his client to sign a contract. Yet somehow he is still probably going to lose. Silverberg wants to make a simple point: Rent-A-Center is trying to create a rule that agreements to arbitrate are "presumed enforceable even before their validity has been determined by a court." But Silverberg can't quite tell Justice Sonia Sotomayor whether the arbitration agreement is unconscionable in its entirety or whether the problem is just certain clauses. Then Scalia starts to hound him about whether he is truly claiming that the arbitrator can ignore state law and just impose his own views on the parties: "Let's assume," grins Scalia "that the contract is a contract to maim. It's a Shylock contract, OK? He's going to be able to exact a pound of flesh." Scalia wonders if Silverberg really thinks the arbitrator can ignore the fact that state law forbids that, and say, "Well, you know, I don't really think it's so bad. A pound of flesh sounds reasonable to me?"

Silverberg replies, "I don't think we have that guarantee." To which Scalia retorts, "I think you have a misunderstanding of the law, then!" Roberts steps in to say of arbitration that if you are "in for a penny, you're in for a pound. If you agree to arbitrate, then it's at least for the arbitrator to decide particular provisions, whether they are unconscionable." Scalia chimes in, "You can be a stupid person who voluntarily signs an unconscionable contract. Now, the courts may protect you because you are stupid, but you haven't been coerced."

Silverberg concludes his presentation with the attempt to caution those assembled that "courts must remain open to protect people. I would venture to say that there are many people in this room who are subject to arbitration agreements and they don't even know—"

But Ruth Bader Ginsburg cuts him short. "Underlying your whole case, I think, is the notion that this is a take-it-or-leave-it contract, very common in consumer, credit card agreements, in employment contracts, that one party has no say except to sign or not to sign," she says. "Are all those contracts subject to the unconscionability argument that you are making?" Uh, oh. When Silverberg says that, yes, all these contracts are subject to this argument, Scalia says, "Well, kiss goodbye to arbitration." Or, more likely, kiss it hello.

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