AARP’s brief in the U.S. Supreme Court argued that judges should continue to hear challenges about whether arbitration clauses should be enforced, rather than having an arbitrator make that decision. The Supreme Court disagreed, and allowed arbitrators to make that call.
Arbitration is an out-of-court dispute resolution process that was originally developed to resolve disputes between businesses with equal bargaining power in industries that benefited from having a decision maker with specialized expertise in a particular field. Now, arbitration is increasingly forced upon people in standard form contracts for virtually every good and service they purchase, without any opportunity to negotiate. For the average person, arbitration is expensive, doesn’t provide the same public proceedings and procedural protections as court, and can sharply limit access to remedies while permitting corporations to evade their obligations.
In the instant case, an employee filed a lawsuit alleging racial discrimination. Rent-A-Center sought to compel arbitration, but the employee claimed the arbitration clause is unenforceable because it is unfair. Rent-A-Center claimed, however, that the contract requires that the arbitrator must decide whether an arbitration clause is enforceable.
AARP’s brief, filed by AARP Foundation Litigation attorneys, pointed out that courts have long exercised the right to declare a contract “unconscionable” even if both parties appear to have freely entered into it. In contracts such as the employment contract at Rent-A-Center — a standard printed form that was presented as a take-it-or-leave-it to the employee — there is no “bargaining” possible. Often these types of standard form contracts are essential for the smooth operation of a modern economy. But as AARP’s brief noted, the “safety valve” of a court’s being able to consider the fairness of the contract is particularly important and helps foster use of standard form contracts because it provides an assurance of basic fairness for individuals.
AARP also argued that the question of whether an arbitration contract is at its root unconscionable is not one that can be answered by the arbitrator. By the narrowest possible margin (5-4), the Supreme Court disagreed and ruled that the decision of unconscionability is to be made by the arbitrator.
What’s at Stake
Older people are increasingly forced to sign arbitration clauses in every type of contract for products, services, medical and nursing home care, and employment. Most people do not understand the differences between arbitration and court, and do not understand how their rights are severely curtailed by mandatory arbitration. Even if they do understand the impact of arbitration on their rights, the contracts are presented on a take it or leave it basis. If they want the job, medical care or product or service, they are forced to sign the agreement. As a result, courts are being deprived of the ability to review contracts and to provide remedies even when laws that protect consumers and employees are being violated.
In Rent-A-Center v. Jackson, the employee was denied a day in court and must proceed in arbitration, regardless of the expense and disadvantages that arbitration imposes on the employee.
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