By Liz Kramer
In recent years, arbitration has become a divisive issue. Exemplifying the increased public focus on arbitration, The New York Times ran a three-part series in 2015 that was very critical of the state of arbitration law. In 2016, I predict a battle between the judicial and executive branches over how arbitration can be used in consumer and employment contexts.
Since 2011, the United States Supreme Court has interpreted the Federal Arbitration Act in such a way that (1) states must enforce class action waivers in arbitration (which many states had previously declared unconscionable in the consumer context); (2) courts must enforce "delegation clauses" in arbitration agreements (which authorize arbitrators to determine even the validity of an arbitration clause); and (3) courts must enforce clauses requiring individual arbitration of federal statutory claims, despite evidence that those individual claims will cost more than can be recovered and even when those claims have a public benefit, as in the antitrust arena. Because the Federal Arbitration Act governs nearly all arbitration disputes in both state and federal court, these decisions from the court are binding precedent in every court in the country.
These Supreme Court decisions (most of which were 5–4) have mobilized many pro-consumer and pro-employee groups to organize for change in our arbitration laws. In response, the executive branch seems to be bracing for a fight with the judicial branch over arbitration. For example, the National Labor Relations Board has interpreted the nation's labor statutes to preclude class-action waivers in employment and to trump the Federal Arbitration Act. The NLRB has persisted in its interpretation, even after multiple federal circuit courts of appeals have reached the opposite conclusion. And in 2015, the Consumer Financial Protection Bureau published the results of the arbitration study it conducted (pursuant to the Dodd–Frank Act), which largely concluded that arbitration agreements in financial products were hurting consumers. The CFPB has indicated that it plans to propose rules for consumer financial products that will (1) invalidate arbitration agreements for any members of a putative class action “unless and until class certification is denied or the class claims are dismissed,” and (2) collect and publish consumer financial claims filed in arbitration.
Because these proposed CFPB rules and NLRB decisions are at odds with the decisions of the courts, this conflict may come to a head in 2016 or the near future. Having Justice Scalia—who was a voice for enforcing arbitration agreements as written—off the court will impact the resolution of that conflict.
Watch www.arbitrationnation.com for developments!
Liz Kramer is a member of the firm's Business Litigation practice group. Her practice focuses on franchise disputes, construction projects, breaches of contract and appeals. Ms. Kramer works from the firm's Minneapolis office. For more information please contact Ms. Kramer or your usual Stinson Leonard Street contact.
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