Mandatory Arbitration Violates Fundamental Values

By Jeffrey Needle

    The Seventh Amendment to the United States Constitution provides for a right to a jury trial in civil cases. It is not by accident that this right is contained in the Bill of Rights. It is one of the most important constitutional rights which we possess. The right to trial by jury allows randomly selected citizens to dispense social justice unfiltered by politicians, bureaucrats or the electoral process. It is the most logical and direct extension of the democratic process. Next to voting, the civil justice system provides for the most significant form of citizen participation in a free society. The right to trial by jury empowers ordinary citizens. It allows them to hold the most powerful governmental and corporate forces in our society accountable to the rule of law.

    In Colonial America the right to a jury trial in civil cases was celebrated "as a bulwark of liberty, as a means of preventing oppression by the Crown." (1) Colonial Governors relied on civil forfeitures to enforce the Stamp Act and other unpopular tax laws. Local juries, however, not only acquitted citizens of criminal charges, but awarded damages against officials who tried to collect the taxes. (2) England responded by removing many cases from juries to judges appointed by and beholden to the Crown. The result was predictable - forfeitures were upheld and criminal penalties imposed. This experience was fresh in the minds of the Colonists during and immediately after the revolution. "Those who favored juries believed that a jury would reach a result that a judge either could not or would not reach." Parkland Hosery Co. v. Shore, 439 U.S. 322, 343 (1978). The Colonists considered the right to trial by jury in civil cases so important that it was included as a grievance in the Declaration of Independence; "depriving us, in many cases, of the benefits of trial by jury."

    James Madison understood that the danger facing the new republic was not only from a potentially tyrannical government, it was also the struggle between the wealthy elite of society and those with less power and influence. (3) According to Thomas Jefferson, "were I called upon to decide whether the people had best be omitted in the legislation or judicial department, I would say it is better to leave them out of the legislative." (4) Jefferson added that right to a jury trial was "the only anchor yet imagined by man, by which a government can be held to the principles of its constitution." (5) As stated by Justice Story, "[o]ne of the strongest objections originally taken against the constitution of the United States was the want of an express provision securing the right of trial by jury in civil cases." Parsons v. Bedford, 28 U.S. 433, 446 (1830).

    Based upon their experience, it was understood by the founders that powerful and wealthy interests would seek to usurp this right in the name promoting their own special interest. It was to prevent that usurpation that the right to trial by jury in civil cases was crafted into the Bill of Rights as the Seventh Amendment.

    The founders' concerns were obviously justified. Corporations claim euphemistically that private lawsuits make them less "competitive" in international markets. What they really mean is that accountability to the rule of law makes them less "profitable." In their zeal to become more profitable and avoid accountability, corporations and their advocates have attempted to restrict the scope of individual rights and undermine the civil justice system as a vehicle for enforcing those rights. Mandatory arbitration is the latest in a long line of assaults on the right of access to courts and trial by jury in civil cases.

Mandatory Arbitration

    Mandatory arbitration within the employment context poses one of the greatest threats to the fundamental constitutional right of access to courts and necessarily to trial by jury. Within this context, the employer includes a paragraph in all employment applications, usually in fine print, which provides that if the employee accepts employment with the employer, the employee agrees to resolve all disputes in mandatory arbitration. The statute of limitations contained in arbitration provisions is shorter then in most jurisdictions. Discovery practice is more limited and the available remedies provide for significantly less recovery that its statutory or common law counter parts. Although diminished costs are frequently cited as a justification, costs of arbitration are far greater. Mandatory arbitration agreements often provide that the costs of arbitration are to be shared by the parties. Depending upon the jurisdiction, arbitrators can cost from $250-$450 per hour. Some arbitrations can take weeks. While large corporations may be able to afford such costs, unemployed workers can not. Some courts have held that arbitration agreements which require cost sharing are invalid on the grounds that an employee could otherwise have the claim resolved by a judge at no cost. E.g. Cole v. Burns International security Services, 105 F.3d 1465, 1487 (D.C. Cir. 1997).

    Employers argue that the right of access to courts is waived when the employee signs the application for employment. If this practice is allowed, the overwhelming majority of employees in the United States will be forced to choose between their fundamental right of access to courts, including the right to trial by jury, and providing an income for their family. The disparity in bargaining position is only too obvious. Subjected to this form of coercion, there is little doubt that a fundamental constitutional right will be significantly usurped despite the founders' best efforts to the contrary.

Adams v. Circuit City

    The United States Supreme Court has granted certiorari in a case originating from the Ninth Circuit Court of Appeals, Adams v. Circuit City, 194 F.3d 1070 (9th Cir. 1999). This case directly addresses the issue of mandatory arbitration within the employment context. Generally, the Court will determine whether the Federal Arbitration Act applies to contracts of employment. In relevant part, the FDA provides:

[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. Section 2. Section 1 of the FAA states: "[N]othing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

    In Adams, the Plaintiff completed a six-page application to work at Circuit City Stores. On pages two and three of the application, Adams signed a document titled "Circuit City Dispute Resolution Agreement" (DRA). The DRA requires that employees submit all claims and disputes to mutually binding arbitration. An employee cannot work at Circuit City without signing the DRA. If the employee signs the DRA and then withdraws consent within three days, the employee "will no longer be eligible for employment at Circuit City." The Circuit City work application established the following: 1) a one year statute of limitation; 2) required the employee to pay the costs of arbitration; 3) placed a cap on the amount of front pay or punitive damages the arbitrator could award; 4) prohibited the arbitrator from deciding cases on a class action basis; 5) vested complete discretion in the arbitrator to decide whether to award attorney's fees to a prevailing employee; and 6) did not require the arbitrator to provide any findings for reasoning in support of the arbitration award.

    In response to employee's state court lawsuit under the California fair employment statute, the employer removed the case to federal court and sought binding arbitration under the Federal Arbitration Act (FAA). 9 U.S.C. Section 3. The federal District Court compelled arbitration. On appeal, the Ninth Circuit Court of Appeals reversed, and held that the arbitration agreement signed by the employee at time of job application was an "employment contract," and thus the FAA was inapplicable. The Court in Adams relied upon Craft v. Campbell Soup Co., 177 F.3d 1083, 1094 (9th Cir.1998), which held that the FAA does not apply to labor or employment contracts. In support of its ruling, the Ninth Circuit in Craft relies upon statutory interpretation and pre new deal cases which very narrowly interpret the breadth of the interstate commerce clause.

    In Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20, 39 (1991), the Court, inter alia, refused to reach to the question of whether employment contracts are covered by the FAA. Id. at 25. It is doubtful, however, that Congress intended the FAA to reach ordinary employment contracts.

    At the Senate Judiciary Subcommittee hearings on the proposed bill, the chairman of the ABA committee responsible for drafting the bill assured the Senators that the bill  is not intended [to] be an act referring to labor disputes, at all. It is purely an act to give the merchants the right or the privilege of sitting down and agreeing and with each other as to what their damages are, if they want to do it. Gilmer at 39 (Stephens Dissenting citing to Congressional Record). Congress acknowledged the inequality in bargaining which typically exists in the employment setting:

The trouble about the matter is that a great many of these contracts that are entered into are really not [voluntary] things at all. Take an insurance policy; there is a blank in it. You can take that or you can leave it. The agent has no power at all to decide it. Either you can make that contract or you can not make any contract. It is the same with a good many contracts of employment. A man says, "These are our terms. All right, take it or leave it." Well, there is nothing for the man to do except to sign it; and then be surrenders his right to have his case tried by the court, and has to have it tried before a tribunal in which he has no confidence at all.
Id. It is even more explicitly clear that Congress did not intend to allow employers to substitute mandatory arbitration for the remedies made available under Title VII.

    Lest there be any doubt as to the intended meaning of the Act's arbitration provision, Congress in fact specifically rejected a proposal that would have allowed employers to enforce "compulsory arbitration" agreements. It did so in the most emphatic terms, explaining that:  H.R. 1 includes a provision encouraging the use of alternative means of dispute resolution to supplement, rather than supplant, the rights and remedies provided by Title VII. The Republican substitute, however, encourages the use of such mechanisms "in place of judicial resolution." Thus, under the latter proposal employers could refuse to hire workers unless they signed a binding statement waiving all rights to file Title VII complaints. Such a rule would fly in the face of Supreme Court decisions holding that workers have the right to go to court, rather than being forced into compulsory arbitration, to resolve important statutory and constitutional rights, including equal opportunity rights. See, e.g., Alexander v. Gardner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974); McDonald v. City of West Branch, 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984). American workers should not be forced to choose between their jobs and their civil rights. H.R.Rep. No. 40(I) at 104 (emphasis added).  Duffield v. Robertson Stephens & Co., 144 F.3d 1182, 1196 (9th Cir. 1998)(emphasis original).

    Unfortunately for employees seeking to exercise their constitutional right of access to courts and trial by jury, the majority of all other circuits who have reached the question have decided that the FAA does apply to employment contracts except for the contracts of employees who actually transport people or goods in interstate commerce. Craft, supra at 1096 fn6 (citing other jurisdictions).

    The Supreme Court's ruling on the issue of mandatory arbitration will invariably require a scholarly review of Congressional intent under the Federal Arbitration Act and the scope of interstate commerce within the meaning of the Act. The application of the FAA to employment contracts will preempt state law and foreclose a state court rule that such agreements in an employment application are contracts of adhesion based upon the lack of equal bargaining position. E.g. [W]hen deciding whether the parties agreed to arbitrate a certain matter, ... courts generally...should apply ordinary state law principles that govern the formation of contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).

    The Supreme Court's ruling in Adams potentially could extend far beyond the employment context and effect the rights of consumers more generally. Potentially, mandatory arbitration could extend to every "contract evidencing a transaction involving commerce," 9 U.S.C. Section 2, including disputes with banks, insurance companies, credit card companies, utilities, retail stores, etc.


    Undeniably, corporations make essential contributions to society, and their ability to make those contributions needs to be nurtured. Yet, corporations also need to be held accountable to the rule of law. Without the power to hold corporations accountable, civil rights are only theoretical. The civil justice system is the basic mechanism which allows individual citizens the chance to hold the most powerful and wealthy forces accountable and obtain basic social justice. Juries are a historical and integral part of that system.

    Mandatory arbitration is repugnant to the fundamental values inherent in the Civil Justice System. It denies both access to courts and the right to trial by jury.

1. Austin Wakement Scott, Trial by Jury and the reform of Civil Procedure, 31 Harv.L.Rev. 669, 676 (1918).

2. Renee B. Lettow, New Trial for Verdict Against Law: Judge-Jury Relations in Early Nineteenth-Century America, 71 Note Dame L. Rev. 505, 517 (1966).

3. Jeffrey Robert White, The Civil Jury: 200 Years Under Siege, Trial Magazine, at 20 June, 2000.

4. Letter from Thomas Jefferson to L'Abbbbe Arnoux (July 19, 1789), reprinted in 15 The Papers of Thomas Jefferson 282, 283 (Julian P. Boyd ed., 1958).

5. The Writings of Thomas Jefferson 71 (Washington Ed. 1861).