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March/April 2008 Issue

Have You Signed Away Your Right To

Sue?
More employees are being forced to sign mandatory-arbitration
clauses. But is it legal?
By Stephanie Mencimer

Fonza Luke had worked as a nurse for Baptist Health System's Princeton Medical
Center in Birmingham, Alabama, for 26 years when the human resources department
summoned her to a meeting about a new "dispute resolution program." Nurses,
housekeepers, and lab techs crammed into a conference room where hospital
administrators presented a form and told them to sign. Signing meant agreeing to
submit any future employment-related complaints to an arbitrator hired by the
hospital and waiving the right to sue in court. Refusing to sign meant they'd be fired.
Luke had known the arbitration agreement was coming, and she didn't like the idea
one bit—"I just think it's unfair to be made to do something like that," she says.
Sobefore going to the conference room, she slipped away to a pay phone and called
her lawyer. He said, "Don't sign it. You'll be signing your rights away," she recalls.
Luke turned in the form without a signature in quiet protest. A few weeks later, the
hospital again ordered her to sign, and again she refused. Despite repeated threats,
the hospital didn't fire her, at least not then.
Three years later, Luke traveled to Atlanta for a continuing-education class
recommended by her coworkers. When she returned, the hospital fired her for
"insubordination" because she had been cleared to take just one day off, not two. For
30 years, Luke had been an exemplary employee. Her personnel file was full of praise
for her performance; a review three weeks before the firing called her a "role model."
Many of the younger, white nurses Luke worked with had taken unapproved leave,
she observed, and kept their jobs. So Luke filed a race and age discrimination
complaint with the federal Equal Employment Opportunity Commission (eeoc), which
conducted a lengthy investigation, upheld her complaint, and recommended that
Luke file a civil rights suit in federal court, which she did in 2003.
That's when the surprise came: Baptist Health argued that Luke had given up her
right to sue back in 1997 when the hospital presented the arbitration agreement—
even though she'd refused to sign. Simply by continuing to show up for work,
Baptist's lawyers said, she'd agreed to the terms. Acting contrary to established
contract law, which requires both parties to consent to a contract before it becomes
binding, a federal judge accepted the hospital's argument. Luke was forced to take
her civil rights case before Baptist's hired arbitrator, who dismissed it in short order.
She had no right to appeal. She'd lost not only her job but, because she hadn't yet
reached retirement age, part of the pension she'd worked toward for most of her
adult life. Now Luke works night shifts at two health care facilities to make up her lost
salary.
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Mandatory-arbitration provisions like the one You Can't Sue Us! Some of the
forced upon Luke are not rare. In fact, companies that use arbitration
agreements not to sue are becoming a clauses in contracts with
ubiquitous facet of commercial life, governing employees or customers
everything from employment to used-car
sales. On job-related matters alone, the Hooters • Applebee's • kfc •
National Employment LawyersAssociation Friendly Ice Cream Corporation •
(nela) estimates that 30 million Americans, or Circuit City • Neiman Marcus •
roughly a fifth of the nonunion workforce, Nordstrom • Hallmark Cards •
have been forced to sign away the right to Merrill Lynch • Citigroup • First usa
bring civil claims before a judge or jury. (The • Ameriquest • Discover • Blue
practice had a moment in the spotlight Cross Blue Shield • Aetna • Kaiser
recently when a kbr contractor named Jamie Permanente • AT&T • Ford •
Leigh Jones, who said she'd been raped by Daimler AG • Toyota • Clear
coworkers in Iraq, had to take her sexual Channel • General Electric •
assault and harassment case to an arbitrator Halliburton • Bechtel • Rent-a-
hired by her employer rather than a civil jury Center
after the Justice Department failed to
prosecute her alleged attackers.)
The root of the arbitration trend is an obscure 1925 law called the Federal Arbitration
Act. At the time of its passage, lawmakers stipulated that it only applied to
"merchants" involved in contract disputes. But in 1984, the U.S. Supreme Court ruled
that Congress had created a "national policy favoring arbitration," thus opening the
door to far wider use. The decision prompted a dramatic increase in mandatory
binding arbitration, which proponents claimed would help clear overcrowded judicial
dockets and cut back on excessive legal expenses.
Since then, judges have used the Supreme Court ruling to legitimize and further
expand the use of mandatory arbitration, even though, as Justice Hugo Black once
observed, arbitrators can be "wholly unqualified" to oversee complicated cases.
Indeed, private arbitrators aren't required to follow the law or established precedent,
or even issue written decisions. Many have legal backgrounds, but there is no
standard dictating that they be lawyers or credentialed in any way—yet their
decisions can't be appealed.
In 1992, the California Supreme Court ruled that an arbitration decision can stand
even if it is legally wrong and causes "substantial injustice." In 2006, the U.S. Court of
Appeals for the 7th Circuit declared that courts shouldn't review arbitrators' decisions
even when they are "wacky." Also in 2006, the 11th Circuit appellate court went so
far as to suggest that people who try to challenge arbitration awards in court ought
to be sanctioned. Says Cliff Palefsky, a San Francisco employment lawyer and
cofounder of nela, "Courts have created the fiction that docket clearing is public
policy."
Judges have another reason to love arbitration: The growth of private justice has
created for them a new and lucrative job market. U.S. district court judges earn
$165,200 a year, less than some second-year law firm associates. Private arbitrators
can make $10,000 in a day. Some judges now even seek coaching on how best to
tailor their résumés for future arbitration jobs. Lucie Barron, the founder of Action
Dispute Resolution Services in California, encourages judges to keep lawyers'
business cards for use in marketing their arbitration services to the legal community
later on. The trend has become so pronounced that in December, a judge in
California reportedly refused to accept a move from civil to criminal court because it
would impact his ability to get a job as an arbitrator.
National arbitration companies recruit heavily among sitting judges, many of whom
have at one time or another been called upon to rule in a challenge to an arbitration
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clause. In fact, the California Supreme Court justice who wrote the 1992 opinion
allowing unjust arbitration decisions to stand now works as a private arbitrator
charging $6,500 a day.
With little hope of progress in the courts, consumer advocates and employment
lawyers have turned to Congress. They are banking on a bill introduced last July by
Senator Russell Feingold (D-Wis.) that would outlaw mandatory-arbitration clauses in
consumer and employment contracts. In December, Fonza Luke flew to Washington
to testify before the Senate Judiciary Committee. Having once successfully petitioned
the pope to intervene when she thought her daughter had been mistreated in
Catholic school, Luke held her own on a witness panel dominated by lawyers and law
professors. "I did everything I could to keep my right to go to federal court," she told
the committee, "but the courthouse doors were closed when I got there."
Sitting down the table from Luke was Mark de Bernardo, an attorney representing
employers who dubbed Feingold's measure a "mandatory-litigation bill." De Bernardo
argued that doing away with forced arbitration would lead more people to choose
court hearings and "impose a death penalty" on alternative dispute resolution in
America. Yet to Feingold and others, that's exactly the point—people should be able
to choose. As F. Paul Bland Jr., a staff lawyer with Public Justice in Washington, D.C.,
put it, "It is a pretty grim idea that the only way you could have arbitration is to force
people into it."

Stephanie Mencimer is a reporter in Mother Jones' Washington, D.C., bureau