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Supremes Diss Challenge To Their “Skewed” Forced Arbitration Jurisprudence

November 28, 2012

The most notable feature of the Supreme Court’s November 26 per curiam, summary ruling in Nitro-Lift Technologies, LLC v. Howard may be how unremarkable the decision was.  Wrong as the Supreme Court’s ideologically-divided rulings interpreting the Federal Arbitration Act (FAA) are – and, as documented below, they are VERY wrong – these rulings now appear so entrenched that the Court’s liberal/moderate wing no longer sees the value in continued dissent.  It’s a sad day for every American who agrees to routine and routinely outrageous contract “terms and conditions” as they navigate essential task such as accepting a job offer, obtaining telephone service, enrolling a parent in an assisted living facility, visiting a hospital emergency room, purchasing a product, open a bank account, and so on.   

Little new ground needed to be plowed in Nitro-Lift to bury an important state law protection for workers.  Oklahoma’s law limits the enforceability of noncompetition agreements.  Nitro-Lift not only included a noncompetition agreement in its employment contracts but also required employees to sign an arbitration agreement, sending any disputes regarding the contracts to arbitration.  The Oklahoma Supreme Court held that the noncompetition agreement violated state law, and Nitro-Lift appealed. 

The U.S. Supreme Court decision focused on the Federal Arbitration Act (FAA) and therefore viewed the case as involving federal, not state, law.  Based on the FAA, the Court forbade the state court from even considering whether the employment contract violated Oklahoma’s law protecting workers. 

Holding that only an arbitrator could decide whether the contract violated state law, the U.S. Supreme Court simply cited its prior precedent, which purported to rely on congressional intent in passing the FAA in 1925.   Yet, as former Justice Sandra Day O’Connor has noted, “the Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation.”  Former Justice John Paul Stevens has similarly protested that the Court has “effectively rewritten the statute to give it a pre-emptive scope that Congress certainly did not intend.”  The text of the FAA expressly bars its application to employment contracts such as that at issue in Nitro-Lift Technologies.  In case after case, however, the Supreme Court’s conservative bloc has overridden the express language of the law, and refused to consider legislative history confirming that the drafters of the FAA meant what they wrote into the law.   

As has been elaborated by Justice Stevens, Justice O’Connor, other judges, and numerous exhaustive scholarly research, what the FAA’s drafters actually intended was to ensure federal court enforcement of voluntary commercial arbitration agreements between sophisticated businesses (or other large organizations) with roughly equal bargaining power.  The Supreme Court, however, has transformed the statute into a litigation ban to be imposed on individuals with no realistic leverage to negotiate contracts, such as agreements forced on families seeking to obtain nursing home care for severely ill parents.  As Justice Stevens has forcefully explained, the intended scope of the FAA was narrow, and the law’s drafters specifically excluded employment agreements.  Stevens protested that the majority “skews its interpretation with its own policy preferences.” The majority has turned the FAA into a tool to enable big businesses to avoid accountability to customers and workers under all laws, federal or state, enacted to protect them. 

Indeed, even if the FAA could be construed to apply to employment contracts, its drafters expressly included an exemption providing that arbitration agreements covered by the Act can be invalidated, revoked, or not enforced “upon such grounds as exist at law or in equity for the revocation of any contract.”   Quite clearly, this exemption was aimed at equity-based decisions such as that of the Oklahoma Supreme Court in this very case that the non-compete clause imposed by Nitro-Lift on its employees violated the state’s public policy.  That appropriate result, however, was ruled out by a bitterly contested 5-4 decision of the U.S. Supreme Court in 2011, holding that, the exemption notwithstanding, the FAA preempted a California law banning “unconscionable” contracts. 

Due to the U.S. Supreme Court’s radical distortion of the FAA, mandatory binding arbitration provisions are a standard feature in every conceivable sort of agreement that consumers are obliged to sign..  The conservative Justices have zealously empowered businesses and other large organizations to channel all possible types of disputes to arbitrators who are free to, and often do, ignore applicable laws passed for the benefit of consumers, employees, depositors, and the like.  Indeed, recent Supreme Court decisions have barred judicial interference with arbitrators’ authority, except when the arbitrators interpret agreements in ways significantly adverse to business interests, such as, for example, permitting small claimants to aggregate claims to make it economically feasible to assert them.  Regrettably, it now appears that the conservative majority’s tenacity in reinforcing and expanding the imprint of its forced arbitration jurisprudence is now so clearly established, that not a single Justice bothered to dissent in Nitro-Lift.