Driving Nails in the Coffin of Your Rights

On 4/24/19, the U. S. Supreme Court probably drove the last possible nail in the coffin of cases wherein an employer or, for that matter, any company enforces a contractual provision which states that disputes must be resolved by arbitration (rather than in a court of law) and prohibits participating in a class action case.

To understand the case it is helpful to know the background. Contractual provisions requiring arbitration have been proliferating for years. These provisions first began to appear in the fine print of consumer contracts of all kinds. They, in fact, have become so prevalent that it is now highly unusual to see a contract without them. If you closely read your contract with your bank, your cellphone provider, your credit card provider, your cable company or internet provider, etc. you will almost certainly find such a provision. As disputes arose, cases were filed by consumers in the judicial system. At that point, the companies that had been sued began to defend the claims by asserting that their contracts prohibited claims from being litigated in court and demanded that the courts decline jurisdiction and refer the cases to arbitration. Over time, these cases made their way to the U.S. Supreme Court. The Supreme Court ruled that mandatory arbitration provisions were enforceable. Emboldened by these decisions, corporations began to expand these provisions to include language that said the consumer was also prohibited from being a part of a class action claim. This type of provision was also upheld by the Supreme Court. The effect was to make each claimant pursue his or her claim individually through arbitration, which in many cases was prohibitively expensive. The upshot of this legal situation is that corporations are enabled by judicial decisions to cheat a large number of people in relatively small amounts because those claims must be pursued individually rather than in a class action. The cumulative benefit to a corporation of allowing it to get away with this can be staggering. For example, just imagine the massive amount of money involved if AT&T is allowed to overcharge all of it’s customers $5.00 each. It didn’t take long before big employers began to take notice of the trend and they began to include mandatory arbitration provisions in their employment contracts .

With all of that background in mind, we’ll go back to the most recent case. The facts are that Lamps Plus, a sizable employer, employed a person named Varela. Varela’s employment contract contained a mandatory arbitration clause. Lamps Plus had a security breach which compromised the personal data of it’s entire workforce. As a result, a hacker used Varela’s personal data to file a fraudulent tax return in Varela’s name. Varela sued Lamps Plus in court in a class action for the benefit of all Lamps Plus employees who had been harmed. Lamps Plus responded that Varela was contractually prohibited from suing them in court in a class action. Here is the catch: the employment contract did not say Varela could not pursue his claim in a class action. It merely said his claim had to go to arbitration. Nevertheless, in a 5-4 decision, the Supreme Court ruled that Varela could not maintain his claim in a court of law as part of a class action.

Justice Ruth Bader Ginsburg, in a dissenting opinion, said the decision was the court’s latest effort “to deny employees and consumers effective relief against powerful economic entities.” She couldn’t be more right about that.

There is no practical, effective way to preserve and protect your legal right to go to court because all of the consumer contracts you must sign to obtain consumer goods and services contain the same provisions. It is not a level playing field.

There was a slight hope for consumer relief when the Consumer Financial Bureau was created, but that hope vanished when Mick Mulvaney, who hates the Bureau, was appointed by Trump to head the Bureau. Now, the last hope is Congressional action, but with Republicans in control of the Senate, that won’t happen. Democrats have shown keen interest in this issue, but it remains to be seen whether they can win veto-proof majorities in both Houses of Congress.