Mandatory Update on Mandatory Arbitration
7 New Turns on the Arbitration Rollercoaster
1 . Mandatory Arbitration Upheld in Nursing Homes
On May 15th, the US Supreme Court ruled that mandatory arbitration agreements were binding in nursing home contracts, which were signed through power of attorney by a person other than the patient. In Kindred Nursing Centers v. Clark, the families of patients sued a nursing home for wrongful death and personal injury of their loved ones. Kentucky’s Supreme Court ruled on behalf of the families, determining that the right to go to court was “sacred.”
But once again, the US Supreme Court pointed to the Federal Arbitration Act (FAA) as requiring courts to enforce arbitration agreements. All of this occurs in the context of the CMS, under the Obama administration, seeking to ban mandatory arbitration agreements in nursing home facilities. That rule already faced legal challenges, but this SCOTUS ruling may signal the end of this attempt to hold nursing homes accountable for wrongs done, and protect the rights of elderly people and their families to a jury trial.
2 . . . and in Banks
The Consumer Financial Protection Bureau (CFPB) is poised to limit mandatory arbitration in consumer financial products like banks and credit cards. But Congress could rush to stop them.
In the upcoming weeks, the House may be voting on the “Financial CHOICE Act” as a replacement for the Dodd-Frank Act. The CHOICE Act would limit the authority of the CFPB, particularly in its attempt to ban mandatory arbitration by consumer financial service providers. The comprehensive summary of the bill scolds the CFPB, claiming its attempts to ban arbitration are mere handouts to greedy class action trial lawyers.
Democrats in the House Financial Services Committee tried to pass an amendment to loosen the clause against banning mandatory arbitration, but they were voted down. If the CHOICE Act passes in its current form, it’s likely that banks and credit card institutions will be allowed to continue using mandatory arbitration clauses in all contracts of adhesion. And with consumers stripped of their day in court, we’ll likely see more debacles like the Wells Fargo fake account scandal.
3 . . . and in Workplaces
In another move to bolster arbitration, President Trump signed an executive order at the end of March that rips up an Obama-era order protecting women in the workplace. Obama’s “Fair Pay and Safe Workplaces” order insisted that companies that contract with the federal government couldn’t include mandatory arbitration on sexual assault, harassment, or discrimination claims.
Trump’s order will allow businesses profiting from taxpayer money to keep sexual assault claims in secretive, opaque arbitration proceedings.
4 . . . and in the Gig Economy
Legal analysts are taking note of the eager use of mandatory arbitration clauses in the rapidly expanding ‘gig economy’ — the ‘nontraditional’ employment options offered by companies like Uber and Lyft. Gig companies classify their workers as ‘independent contractors,’ meaning they must pay their own income taxes, don’t have guaranteed minimum wage or overtime pay or employee benefits, aren’t eligible for workers’ compensation or unemployment insurance benefits, and aren’t protected under employee-based civil rights laws like Title VII.
Workers are beginning to push back against this situation. They’ve brought major class action lawsuits against both Uber and Lyft (see O’Connor v. Uber, Yucesoy v. Uber, and Cotter v. Lyft). So far, the companies have offered significant settlements, and given their workers some additional protections not legally required for typical freelance workers.
But legal scholars predict that gig companies will try to avoid the larger question of employment status by resorting to mandatory arbitration agreements that prohibit class action.
5 . But California ‘Throws Down the Gauntlet’
This April, the California Supreme Court boldly rejected some mandatory arbitration agreements. The plaintiff in McGill v. Citibank sued the bank for deceptive marketing practices. Citibank pointed to a contract she signed when she got the card which requires arbitration for these disputes. But the California Supreme Court noted that the contract’s clause denying “public injunctive relief in any forum” was against California public policy, and that this policy takes precedence over the FAA.
6 . Arbitration Clauses Come Back to Bite Google in the Assets
As an ironic aside:
Google is in a high-stakes court fight with Uber over self-driving car technology, claiming their former employee stole their tech when they went to work for Uber instead. Uber wants to keep the case from going to a jury trial, and are pointing to Google’s mandatory arbitration clause to back them up. Business Insider reports:
The judge in the case appears to be relishing the rich irony of the situation, telling the lawyers representing Google’s spinout during a court hearing on Thursday that it would be “poetic justice” if the litigation wound up in private arbitration.
7 . On the Horizon: Big Supreme Court Decision
We’re now operating within a circuit split on the question of mandatory arbitration in workplace contracts. The Second, Fifth, and Eighth Circuit Courts have upheld their use, while the Seventh and Ninth have found them to violate the National Labor Relations Act. The US Supreme Court has agreed to wade into this confusion and clarify whether the contracts violate the law’s protection of “concerted activity” in the workplace.
With Justice Gorsuch’s confirmation to the Court, many believe the small-print arbitration contracts will be upheld. However, others note that Gorsuch has ruled in the past in favor of the NLRB, which is seeking in this case to protect employees’ rights to sue. The Court has delayed the process, and is expected to take on the question late this year or early in 2018.