The Trial You Signed Away
Introduction When you open a bank account, start a new job or sign-up for online services you may enter into an agreement where you agree to use arbitration to resolve any disputes. This is often set out in detailed contracts with little room for negotiation.
Arbitration can be faster, cheaper and give both parties a private place to resolve their dispute.
However, there can be constitutional concerns if someone has agreed to use arbitration before knowing what type of dispute can occur.
The Seventh Amendment gives protection to people’s right to a trial by jury within many civil cases in federal court. However, with millions of contracts in place there are many arbitration clauses in place which can prevent disputes going to a jury.
This brings us to the main issue of whether arbitration is truly a legitimate right to use within contracts or if it is a way to prevent constitutional rights being enforced due to powerful parties in the contract.
A Right Dating Back
The Seventh Amendment gives protection to the right to a trial by jury in some civil cases based on common law. Whilst the Sixth Amendment protects a person’s right to a trial by jury in criminal cases, the Seventh Amendment does so in civil cases.
Historically, it was created to protect the use of juries to solve disputes concerning legal rights. However, it does not give everyone the right to a jury in all civil cases.
If two parties agree to use arbitration then they will generally agree to have a third party decide the dispute in private. Their decision will not be able to be reviewed by the courts to a large extent.
Whilst the Seventh Amendment does not specifically prevent arbitration agreements, the Supreme Court have generally seen arbitration as an issue relating to enforcing agreements. They do so whilst considering statutory and other legal constraints. The more complex issue is whether we should enforce arbitration agreements when one party has little ability to refuse.
The Federal Arbitration Act
Congress passed the Federal Arbitration Act in 1925. This means that written arbitration agreements can be enforced in cases covered by the Act.
In AT&T Mobility LLC v Concepcion (2011) the Supreme Court looked at a case concerning a consumer contract which required individual arbitration and prohibited class action. The court ruled that the Federal Arbitration Act prevented the California rule that the arbitration clause prohibiting class actions was unconscionable.¹
This has made arbitration agreements easier to enforce. However, it has also shown how difficult it can be for individuals to enforce their rights.
Where a consumer has a valid claim but there is little financial incentive to pursue it as the claim does not entitle them to a large amount of money. An individual claim can become too costly.
Class actions can help overcome this issue. However, if a contract prohibits class actions then consumers may have to pursue individual claims. This does not necessarily mean that arbitration clauses are illegal but it does cause issues with whether a real remedy can be obtained through contractual processes.
Contractual Agreement
Those who support mandatory arbitration argue that it can be a cheaper, quicker way to resolve a dispute. Parties can also agree to use processes that best suit their needs. It can also provide a private process.
These can be very beneficial. With a good arbitration process disputes can be solved more efficiently.
However, we need to think about whether the agreement was made with a genuine choice. Many consumer and employment contracts are drafted by the dominant party meaning there is little real choice for the other party to negotiate the arbitration clause. They may not have a genuine choice as the service or job may be hard to replace.
Generally, contract law will not invalidate an agreement simply because the parties had unequal bargaining power. However, the courts can look at whether individual clauses are unconscionable or unenforceable. This is whilst considering the Federal Arbitration Act and precedent.
It can become an issue whether the agreement was genuinely agreed to.
Constitutional Protections
Generally, the Seventh Amendment will not stop parties using arbitration. In Gilmer v Interstate/Johnson Lane Corp [1991], the Supreme Court enforced an arbitration clause relating to an age discrimination claim. The court rejected the argument that the statutory claim was fundamentally unsuitable for arbitration.²
This shows that many statutory rights can be enforced through arbitration. This is whilst considering the agreement and relevant law.
This can cause issues when arguing that mandatory arbitration removes legal rights. Generally, arbitration will simply change the forum and process. However, the process can change how effectively a person can enforce their rights. This can be due to differences in discovery, privacy, costs, review and class actions.
Who Decides?
Ultimately this is an issue about private contracts and public institutions. Courts will have to enforce valid arbitration agreements. However, the Federal Arbitration Act can be amended by congress to create exceptions or control arbitration in certain situations. Legislatures can also increase transparency by strengthening disclosure requirements. They can also protect certain claims.
Any changes will have to consider the positives of arbitration. We cannot assume that all private processes are fair or that all arbitration clauses are unfair.
A complete ban could take away a useful way to resolve disputes. However, allowing everything to be enforced could lead to contractual terms limiting someone’s ability to enforce legal remedies.
Instead we should look to create more targeted changes to ensure transparency, fairness of processes and that agreements allow for genuine enforcement of substantive rights.
Why it Matters
Mandatory arbitration affects consumers, employees and businesses throughout the American economy. It is an issue of who controls how legal disputes will be dealt with. It can also cause issues about how far we should allow parties to control processes to resolve disputes in the future. This can be an issue when there is a large difference in the parties’ bargaining power.
Conclusion
Arbitration is not inherently unfair. There is no constitutional right to a trial by jury in all civil cases. The challenge is to determine whether arbitration agreements are legitimate or limit the ability to enforce legal rights.
The Seventh Amendment provides an important protection from history. The Federal Arbitration Act provides a strong policy to enforce arbitration agreements in qualifying cases. We must carefully consider the wording of the statutes, fairness of the contracts and impact of private dispute resolution.
A contract can dictate where disputes are dealt with. However, the real issue is whether the process allows for both parties to have a genuine opportunity to be heard.
AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344–52 (2011).
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26–35 (1991).
Federal Arbitration Act, 9 U.S.C. §§ 1–16.
U.S. Const. amend. VII.
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