Thursday, December 5, 2013
Arbitration began as a simple dispute resolution mechanism to help businesses resolve contractual issues. At some point, someone had the brilliant idea to force arbitration provisions into consumer contracts. When that worked to perfection, the next obvious step was to infuse arbitration into the adjudication of statutory rights. A logical outgrowth of this rapid developing forum was to quell class actions, a la Concepcion, by using arbitration provision language, or lack thereof, to allow for a waiver of class actions.
In June, the Italian Colors case taught us that a waiver of class action is perfectly fine, even if the end result meant that the plaintiffs had not true remedy available (see analysis by our friends at ADR Prof Blog). Now, following the lead of SCOTUS in Concepcion and Italian Colors, the 5th Circuit yesterday dealt another blow to plaintiffs by asserting in Horton that the super-statute Federal Arbitration Act (FAA) trumps the National Labor Relations Act (NLRA). Specifically, the court rejected the National Labor Relation Board's (NLRB) argument that to disallow class arbitration was tantamount to taking away employees' Section 7 & 8 rights to concerted activity (see a full analysis by our friends at Workplace Prof Blog).
Why would the 5th Court issue such a ruling? Perhaps it is because the Supreme Court has repeatedly ruled in fashion that makes the FAA appear to be the mightiest statute in the land. The 2nd Circuit came to a similar conclusion when it recently held in Duran that its "unusual" pro-arbitration conclusion is premised upon Supreme Court precedent.
This is not to say that arbitration is bad. It has many wonderful attributes. But allowing businesses to prevent class action arbitration under the convenient - but power-balance impaired - 'freedom of contract' principle has resulted in inexplicable outcomes.