Arbitration is a trap
It is well known that it is very expensive for an owner to either take
their condo corporation or to respond to a court application.
Mediation and Arbitration is claimed to be a cheaper, faster and better way of resolving condo disputes.
But are they a better way? As this two part investigation report by the
New York Times shows, arbitration may be a trap that condo owners may
be best to avoid.
Arbitration everywhere,
stacking the deck of justice
New York Times
By Jessica Silver-Greenberg & Robert Gebeloff
31 October 2015
Alan
Carlson, a restaurant owner and chef, was involved in a 2003
class-action suit against American Express. A decade later, a Supreme
Court ruling enabled American Express to prevent merchants from
bringing class actions. Credit Jason Henry for The New York Times
On Page 5 of a credit card contract used by American Express, beneath
an explainer on interest rates and late fees, past the details about
annual membership, is a clause that most customers probably miss. If
cardholders have a problem with their account, American Express
explains, the company “may elect to resolve any claim by individual
arbitration.”
Those nine words are at the center of a far-reaching power play
orchestrated by American corporations, an investigation by The New York
Times has found.
By inserting individual arbitration clauses into a soaring number of
consumer and employment contracts, companies like American Express
devised a way to circumvent the courts and bar people from joining
together in class-action lawsuits, realistically the only tool citizens
have to fight illegal or deceitful business practices.
Over the last few years, it has become increasingly difficult to apply
for a credit card, use a cellphone, get cable or Internet service, or
shop online without agreeing to private arbitration. The same applies
to getting a job, renting a car or placing a relative in a nursing home.
Among the class actions thrown out because of the clauses was one
brought by Time Warner customers over charges they said mysteriously
appeared on their bills and another against a travel booking website
accused of conspiring to fix hotel prices. A top executive at Goldman
Sachs who sued on behalf of bankers claiming sex discrimination was
also blocked, as were African-American employees at Taco Bell
restaurants who said they were denied promotions, forced to work the
worst shifts and subjected to degrading comments.
Some state judges have called the class-action bans a “get out of jail
free” card, because it is nearly impossible for one individual to take
on a corporation with vast resources.
Patricia Rowe of Greenville, S.C., learned this firsthand when she
initiated a class action against AT&T. Ms. Rowe, who was
challenging a $600 fee for canceling her phone service, was among more
than 900 AT&T customers in three states who complained about
excessive charges, state records show. When the case was thrown out
last year, she was forced to give up and pay the $600. Fighting
AT&T on her own in arbitration, she said, would have cost far more.
By banning class actions, companies have essentially disabled consumer
challenges to practices like predatory lending, wage theft and
discrimination, court records show.
“This is among the most profound shifts in our legal history,” William
G. Young, a federal judge in Boston who was appointed by President
Ronald Reagan, said in an interview. “Ominously, business has a good
chance of opting out of the legal system altogether and misbehaving
without reproach.”
More than a decade in the making, the move to block class actions was
engineered by a Wall Street-led coalition of credit card companies and
retailers, according to interviews with coalition members and court
records. Strategizing from law offices on Park Avenue and in
Washington, members of the group came up with a plan to insulate
themselves from the costly lawsuits. Their work culminated in two
Supreme Court rulings, in 2011 and 2013, that enshrined the use of
class-action bans in contracts. The decisions drew little attention
outside legal circles, even though they upended decades of
jurisprudence put in place to protect consumers and employees.
One of the players behind the scenes, The Times found, was John G.
Roberts Jr., who as a private lawyer representing Discover Bank
unsuccessfully petitioned the Supreme Court to hear a case involving
class-action bans. By the time the Supreme Court handed down its
favorable decisions, he was the chief justice.
Corporations said that class actions were not needed because
arbitration enabled individuals to resolve their grievances easily. But
court and arbitration records show the opposite has happened: Once
blocked from going to court as a group, most people dropped their
claims entirely.
The Times investigation was based on thousands of court records and
interviews with hundreds of lawyers, corporate executives, judges,
arbitrators and plaintiffs in 35 states.
Since no government agency tracks class actions, The Times examined
federal cases filed between 2010 and 2014. Of 1,179 class actions that
companies sought to push into arbitration, judges ruled in their favor
in four out of every five cases.
In 2014 alone, judges upheld class-action bans in 134 out of 162 cases.
Some of the lawsuits involved small banking fees, including one brought
by Citibank customers who said they were duped into buying insurance
they were never eligible to use. Fees like this, multiplied over
millions of customers, amount to billions of dollars in profits for
companies.
More than a decade in the making, the move to block class actions was
engineered by a Wall Street-led coalition of credit card companies and
retailers, according to interviews with coalition members and court
records. Strategizing from law offices on Park Avenue and in
Washington, members of the group came up with a plan to insulate
themselves from the costly lawsuits. Their work culminated in two
Supreme Court rulings, in 2011 and 2013, that enshrined the use of
class-action bans in contracts. The decisions drew little attention
outside legal circles, even though they upended decades of
jurisprudence put in place to protect consumers and employees.
One of the players behind the scenes, The Times found, was John G.
Roberts Jr., who as a private lawyer representing Discover Bank
unsuccessfully petitioned the Supreme Court to hear a case involving
class-action bans. By the time the Supreme Court handed down its
favorable decisions, he was the chief justice.
Corporations said that class actions were not needed because
arbitration enabled individuals to resolve their grievances easily. But
court and arbitration records show the opposite has happened: Once
blocked from going to court as a group, most people dropped their
claims entirely.
The Times investigation was based on thousands of court records and
interviews with hundreds of lawyers, corporate executives, judges,
arbitrators and plaintiffs in 35 states.
Since no government agency tracks class actions, The Times examined
federal cases filed between 2010 and 2014. Of 1,179 class actions that
companies sought to push into arbitration, judges ruled in their favor
in four out of every five cases.
In 2014 alone, judges upheld class-action bans in 134 out of 162 cases.
Some of the lawsuits involved small banking fees, including one brought
by Citibank customers who said they were duped into buying insurance
they were never eligible to use. Fees like this, multiplied over
millions of customers, amount to billions of dollars in profits for
companies.
Consumer advocates disagreed. A class action, they argued, allowed
people who lost small amounts of money to join together to seek relief.
Others exposed wrongdoing, including a case against auto dealers who
charged minority customers higher interest rates on car loans.
The consequences of arbitration clauses can be seen far beyond the
financial sector. Even lawsuits that would not have been brought by a
class have been forced out of the courts, according to the Times
investigation. Taking Wall Street’s lead, businesses — including
obstetrics practices, private schools and funeral homes — have employed
arbitration clauses to shield themselves from liability, interviews and
arbitration and court records show.
Thousands of cases brought by single plaintiffs over fraud, wrongful
death and rape are now being decided behind closed doors. And the rules
of arbitration largely favor companies, which can even steer cases to
friendly arbitrators, interviews and records show.
The sharp shift away from the civil justice system has barely
registered with Americans. F. Paul Bland Jr., the executive director of
Public Justice, a national consumer advocacy group, attributed this to
the tangle of bans placed inside clauses added to contracts that no one
reads in the first place.
“Corporations are allowed to strip people of their constitutional right
to go to court,” Mr. Bland said. “Imagine the reaction if you took away
people’s Second Amendment right to own a gun.”
A powerful coalition forms
At Italian Colors, a small restaurant tucked in an Oakland, Calif.,
strip mall, crayons and butcher paper adorn the tables, and a giant
bottle of wine signed by the regulars sits in the entryway.
The laid-back vibe matches that of the restaurant’s owner and chef,
Alan Carlson, who prides himself on running an establishment that not
only serves great food — one crowd-pleaser is the spaghetti Bolognese —
but also doesn’t take itself too seriously.
“I’ve been a ski bum, a line cook at a Greek diner and owned restaurants, and it’s all been about having fun,” Mr. Carlson said.
Somewhat of a libertarian, Mr. Carlson said he used to associate big
lawsuits with “ambulance chasers.” But that was before he needed one.
In 2003, he sued American Express on behalf of small businesses over
steep processing fees. The fees — 30 percent higher than Visa’s or
MasterCard’s — were hurting profits, but the restaurants could not
afford to turn away diners who used American Express corporate cards.
It was a classic antitrust case: A big company was accused of using its
monopoly power to charge unfair prices. But as Italian Colors v.
American Express wended its way through the courts over the next 10
years, it became something far more momentous.
When the case was filed, the alliance of corporate interests, including
credit card companies, national retailers and carmakers, had already
been strategizing on how to eliminate class actions.
The effort was led by a lawyer at Ballard Spahr, a Philadelphia firm
that represented big banks. The only thing the lawyer, Alan S.
Kaplinsky, had in common with Mr. Carlson was a first name.
Laser-focused and admirably relentless, Mr. Kaplinsky preferred his
polo shirts buttoned up and tucked in.
Among his clients were Alabama money lenders accused of duping
customers into taking out credit cards. Settlements were costly; trying
the cases in front of sympathetic juries was worse.
Mr. Kaplinsky was searching for solutions when he remembered helping,
as a young lawyer, a mutual savings and loan association draft an
arbitration clause, he said in an interview. Banks could take it a step
further, he thought, by writing class-action bans into the clauses.
“Clients were telling me they were getting killed by frivolous lawsuits
and asking me what on earth could be done about it,” Mr. Kaplinsky said.
He soon joined forces with lawyers at WilmerHale, a firm that had
represented big banks. The group invited corporate legal teams in July
1999 to the law firm’s New York offices to strategize about arbitration.
Attendees included representatives from Bank of America, Chase,
Citigroup, Discover, Sears, Toyota and General Electric. At a
subsequent teleconference, participants dialed in remotely using an
easy-to-remember code: a-r-b-i-t-r-a-t-i-o-n.
Details of the meetings, and of more than a dozen others over the next
three years, were culled from court records filed in a federal lawsuit
in Manhattan and corroborated in interviews with lawyers who attended.
The records and interviews show that lawyers for the companies talked
about arbitration clauses as a means to an end. The goal was to kill
class actions and send plaintiffs’ lawyers to the “employment lines.”
Of the companies participating, only American Express and First USA had
adopted an arbitration clause banning class actions; months later,
Discover Bank added its own. By the time the meetings concluded, many
of the companies had followed suit.
To keep track of whether judges upheld or rejected the class-action
bans, Mr. Kaplinsky set up a scorecard. In the positive column were
courts in Pennsylvania and Georgia, which upheld a clause used by some
companies that gave consumers a small window to opt out of arbitration.
On the negative side were courts in California and one in
Massachusetts, which struck down a class-action waiver in a Comcast
cable contract. The judge found that the ban would shield the company
“even in cases where it has violated the law.”
Many judges across the country did not object to companies’ requiring
consumers to use arbitration. But they bridled at preventing those
consumers from banding together to bring a case.
State law guaranteed citizens a means to defend their rights, and
contracts that tried to take that away were “unconscionable,” many
judges said. In other words, class-action bans were unfair.
Petitioning the highest court
The push by Mr. Kaplinsky’s group coincided with the Chamber of
Commerce’s own campaign against class actions, which they called a
scourge on companies.
In particular, the chamber pointed to an Illinois judge who had ordered
Philip Morris to pay more than $10 billion for playing down risks
associated with light cigarettes.
At the other end of the spectrum, the chamber also criticized so-called
coupon lawsuits that generated big paydays for lawyers and little money
for consumers. In one, against a television manufacturer accused of
selling sets with fuzzy pictures, plaintiffs each received $25 or $50
coupons while their lawyers collected $22 million.
“It’s not like the class-action system is a land of milk and honey,”
said Matthew Webb, a senior vice president at the Institute for Legal
Reform, a chamber affiliate.
Once a state or federal judge certifies plaintiffs as a class, the
suits are often unstoppable, the chamber has said — even if no one has
been harmed. It has also said that plaintiffs’ lawyers have brought
cases in jurisdictions that were known to be friendly to class actions.
The chamber scored a victory when Congress passed the Class Action
Fairness Act in 2005, which allowed companies to move cases into
federal court and out of state courts considered hostile to corporate
defendants.
Brian T. Fitzpatrick, a former clerk to Justice Antonin Scalia who
teaches law at Vanderbilt University, said criticizing class actions
for small awards was misleading. By their very nature, the lawsuits are
intended to help large groups of people get back small individual
amounts, Mr. Fitzpatrick said.
“Without a class action, if someone loses $500, they will not be able to do anything about it,” he said.
Walter Hackett, who worked as a banker until 2007, said the real threat
was cases that force companies to abandon lucrative billing practices.
“When banks make mistakes or do bad things, they tend to do them many
times and to many people,” said Mr. Hackett, who switched sides and
became a consumer lawyer.
With state courts still blocking their efforts, Mr. Kaplinsky’s group focused on getting a case to the Supreme Court.
Success hinged on the justices’ applying the Federal Arbitration Act, a
dusty 1925 law that formalized the use of arbitration for disagreements
between businesses. Since the mid-1980s, the court had expanded the
scope of the law to cover a range of disputes between companies and
their employees and customers.
In fact, when Congress passed the act, lawmakers specifically
emphasized that it was meant for businesses. Some raised concerns that
companies would one day twist the law to impose arbitration on their
workers, according to minutes from a congressional hearing.
The Supreme Court had never taken a case that centered on whether the
Federal Arbitration Act allowed plaintiffs to form a class action.
A lawsuit in California’s courts looked promising. The defendant,
Discover Bank, was accused of charging unfair fees. A lower court
upheld the bank’s class-action ban, but the state’s Court of Appeals
negated it, accusing Discover of trying to grant itself a “license to
push the boundaries of good business practices to their furthest
limits.”
Discover, one of the companies involved with Mr. Kaplinsky’s group,
then petitioned the Supreme Court to intervene. Representing the
company was John G. Roberts Jr., at the time a prominent corporate
defense lawyer.
With much at stake, Mr. Kaplinsky said, he spoke with Mr. Roberts and
offered input on the brief Mr. Roberts was drafting to the Supreme
Court. “He was a really nice guy,” Mr. Kaplinsky said.
In the subsequent petition, Mr. Roberts wrote that the California
appeals court had overstepped its bounds in violation of the Federal
Arbitration Act. Allowing consumers to bring a case as a class, he
wrote, would violate the “core purpose of the Arbitration Act: to
enforce arbitration agreements according to their terms.”
In essence, companies were using the law to push disputes out of court,
and then imposing conditions that made it impossible to pursue those
disputes in arbitration.
The Supreme Court declined to take up the case.
A victory for corporations
Determined, businesses sweetened the terms of arbitration to try to
tempt the Supreme Court to wade into the fray, according to interviews.
A clause drafted for AT&T, for example, promised to award certain
customers who prevailed in arbitration at least $7,500 and to pay them
double their legal fees.
In 2010, the Supreme Court agreed to hear a case. In AT&T v.
Concepcion, customers said the company had promised them a free phone
if they signed up for service, and then charged them $30.22 anyway.
Once again, the ruling involved the California courts and their
rejection of a class-action ban as “unconscionable.” By then, Mr.
Roberts was chief justice.
Lawyers for both sides focused on the power of state courts.
Mr. Pincus, the Mayer Brown partner, represented AT&T and said that
the Federal Arbitration Act superseded state law. In his main argument,
Mr. Pincus accused state courts of making up special rules to
discriminate against arbitration.
Deepak Gupta, who at age 34 was already known as a skilled appellate
lawyer, worked for the plaintiffs. Mr. Gupta countered that the state
courts should be free to enforce their own laws.
“We thought we had a fighting chance if we argued the case was about
the importance of states’ rights,” Mr. Gupta said in an interview.
Sitting in the gallery during opening arguments, Mr. Kaplinsky had a
different take on the Roberts court, which seemed to favor arbitration.
“We were pretty sure we had his vote,” Mr. Kaplinsky said.
When the court ruled 5-4 in favor of AT&T, it largely skipped over Mr. Pincus’s central argument.
“Requiring the availability of classwide arbitration,” Justice Scalia
wrote for the majority, “interferes with fundamental attributes of
arbitration.” The main purpose of the Federal Arbitration Act, he
wrote, “is to ensure the enforcement of arbitration agreements
according to their terms.”
It was essentially the same argument Mr. Roberts had made as a lawyer in the Discover case.
With the Supreme Court marginalizing state law, the only option left
for consumer advocates was to use a federal law to fight back.
Enter Mr. Carlson, the owner of Italian Colors, who was still fighting
with American Express. After the company won the first round, Mr.
Carlson’s lawyers appealed, saying the class-action ban prevented
merchants from exercising their federal rights to fight a monopoly.
“In a contest between just me — a restaurant in Oakland — and American Express, who do you think wins?” Mr. Carlson said.
Individually, none of the merchants could pay for a case that could cost more than $1 million in expert analysis alone.
The United States Court of Appeals for the Second Circuit, which
included Sonia M. Sotomayor, ruled in the plaintiffs’ favor in 2009.
American Express appealed again, and the case ultimately went to the
Supreme Court. By the time the court heard it, in 2013, Ms. Sotomayor
was a justice and recused herself.
The case centered on the Sherman Act, a muscular antitrust law that
empowered citizens to take on monopolistic entities. Conservatives and
liberals on previous Supreme Courts had consistently found that
Americans should be guaranteed a way to exercise that right.
On June 20, 2013, the justices abandoned the precedent and ruled in favor of American Express.
Arbitration clauses could outlaw class actions, the court said, even if
a class action was the only realistic way to bring a case. “The
antitrust laws do not guarantee an affordable procedural path to the
vindication of every claim,” Justice Scalia wrote.
Within hours, critics from across the political spectrum registered
their disbelief on legal blogs. “No one thinks they got it right,”
Judge Young of Boston wrote later in a decision.
The most withering criticism came from Justice Elena Kagan, who wrote
the dissenting opinion. “The monopolist gets to use its monopoly power
to insist on a contract effectively depriving its victims of all legal
recourse,” she wrote. She went on to say that her colleagues in the
majority were effectively telling those victims, “Too darn bad.”
Back in Oakland, Mr. Carlson got the news from his lawyer. The
restaurateur said he had no choice but to continue accepting American
Express. About a third of his customers use it, including many who run
up bigger tabs because the cards are tied to expense accounts.
“In a
contest between just me — a restaurant in Oakland — and American
Express, who do you think wins?” Mr. Carlson said. Credit Jason Henry
for The New York Times
Mr. Carlson did make one change, though. He added a special bourbon
cocktail to the menu. “I call it the Scalia,” he said. “It’s bitter and
tough to swallow.”
A clause for all occasions
Signs posted in a theater in Los Angeles and a hamburger joint in East
Texas informed guests that, simply by walking in, they had agreed to
arbitration. Consumer contracts with Amazon, Netflix, Travelocity, eBay
and DirecTV now contain arbitration clauses. Even Ashley Madison, the
online site for adulterers, requires that clients agree to them.
It is virtually impossible to rent a car without signing an agreement
like Budget’s, which reads, “Arbitration, No Class Actions.” The same
goes for purchasing just about anything online, which makes adding the
clauses even easier.
The “birth of a thousand clauses,” as one corporate lawyer put it, has caught millions of Americans by surprise.
James Pendergast had no idea he had agreed to arbitration until a
class-action suit he filed on behalf of Sprint customers in Miami was
thrown out of court. They had sued the company after noticing that
their monthly bills contained roaming charges incurred in their homes.
The cost of arbitration was far more than the $20 charges Mr.
Pendergast was contesting. And his lawyer, Douglas F. Eaton, advised
him that winning would require high-tech experts at a six-figure bill.
If he lost, Mr. Pendergast might even have to pay for Sprint’s lawyers. “Why would anyone risk that?” Mr. Eaton said.
The data on consumer arbitration obtained by The Times shows that
Sprint, a company with more than 57 million subscribers, faced only six
arbitrations between 2010 and 2014.
“Just imagine how many customers Sprint can take money from because of arbitration,” Mr. Pendergast said.
Sprint declined to comment.
Few industries more keenly understood the potential of arbitration
clauses than financial firms. A particularly bruising set of lawsuits
starting in 2009 revealed an accounting device that more than a dozen
banks employed on debit card transactions. Customers accused the banks
of deducting big payments like monthly rent before taking out smaller
charges like those for a pack of gum — even if the customer bought the
gum first.
Changing the order of transactions, the lawsuits said, allowed the
banks to increase the number of times they could charge overdraft fees,
typically $35 a pop. Forced into court, the banks settled the cases for
more than $1 billion.
At least seven of the banks in the overdraft cases have since added arbitration clauses, The Times found.
A lot is at stake. Since regulations prompted by the 2008 financial
crisis crimped profits from trading and other risky activities, revenue
from fees has become crucial to banks’ profits.
Together, the three largest banks in the country — JPMorgan Chase, Bank
of America and Wells Fargo — made more than $1 billion through
overdraft fees in the first three months of 2015, according to the
Federal Deposit Insurance Corporation.
In interviews, corporate executives and defense lawyers predicted that
consumers would use arbitration once it became more familiar. They
added that people could also get relief in small claims court, an
option often not covered by arbitration clauses. But much like
arbitration, few people go to small claims court, according to court
data and interviews with judges.
While many companies also include an opt-out provision on arbitration —
typically between 30 and 45 days — few consumers take advantage of it
because they do not realize they have signed a clause to begin with, or
do not understand its consequences, according to interviews with
lawyers and plaintiffs.
Companies noted in interviews that arbitration incentivized them to resolve many customer disputes informally.
Matthew Kilgore, of Rohnert Park, Calif., had no such luck.
A bread truck driver, Mr. Kilgore had dreamed of being a helicopter
pilot ever since his father, who was in the Navy, took him to an air
show when he was a child.
At 28, after his first daughter was born, he enrolled at Silver State
Helicopters, a for-profit school in Oakland, taking out a $55,950 loan
from Key Bank to pay for the program.
Matt Kilgore, pictured with his wife and daughters. Credit Jason Henry for The New York Times
Less than halfway into training, Mr. Kilgore got a call from his flight
instructor, who said Silver State was bankrupt. In disbelief, he drove
to Oakland the next day to find the school’s doors padlocked.
Key Bank and Student Loan Xpress, the school’s preferred lenders,
demanded that students pay back their loans for degrees they never
received. About 2,700 students, including Mr. Kilgore, joined in class
actions against the two lenders, accusing them of ignoring financial
signs that the school was in trouble.
Student Loan Xpress, whose contracts did not have an arbitration
clause, agreed to settle and forgave more than $100 million in student
loans. Key Bank, whose contracts did, used the clause to get Mr.
Kilgore’s lawsuit dismissed in 2013.
Key Bank declined to comment on Mr. Kilgore’s case, but said the bank had forgiven a portion of many students’ loans.
Mr. Kilgore has not been able to pay back his loan, which with interest
has swelled to $110,000. With his credit ruined, he and his wife cannot
buy a house and he has abandoned his dream of becoming a pilot.
“It’s the worst decision I ever made,” he said.
Bargaining power fades
A hunter whose trophies are mounted on the walls of his chambers in
Philadelphia’s federal courthouse, Judge Berle M. Schiller prefers to
use a bow to catch his prey. He has stalked deer through the
Pennsylvania woods, tracked caribou in Quebec and pursued fleet-footed
impala through South Africa.
Hunting with a rifle is “not a fair fight,” said Judge Schiller, 71,
who applies the same philosophy to his courtroom. Or at least he did
until December 2013, when he had to rule on a lawsuit against the owner
of 39 Applebee’s restaurants in Pennsylvania.
The class action was brought by a former waiter on behalf of other
low-wage employees. The waiter, Charles Walton, said Applebee’s made
workers sweep floors, stock silverware, scrub booths and empty trash
cans, but did not pay them a fair wage for the extra tasks. The
Applebee’s employees, who relied on tips, often ended up making less
than minimum wage. Employment lawyers said these practices were
widespread in the restaurant industry.
The Rose Group, which owned the restaurants, defended its practices and
urged Judge Schiller to dismiss the lawsuit since Mr. Walton signed an
employee contract that included “a mutual promise to resolve claims by
binding arbitration.”
The request troubled Judge Schiller. “It is just these kinds of cases where it’s important to have a jury,” he said.
Applebee’s franchises, run by different owners, have faced similar
class actions in Alabama, Florida, Illinois, Kentucky, Missouri, New
York, South Carolina and Rhode Island.
In 2014, Ronnie Del Toro brought a case while working as a waiter in
the Bronx. Once again, Applebee’s sought to have it thrown out.
In the meantime, Mr. Del Toro said the restaurant’s owner and two
hulking men, including one who went by “Big Drew,” confronted him on
the job. They warned him to “stop being a little bitch” and withdraw
his lawsuit, according to an application for a restraining order that
Mr. Del Toro filed in a Bronx court.
“I didn’t wait to hear anymore,” said Mr. Del Toro, who moved to Brooklyn and got the restraining order.
Ronnie
Del Toro brought a case against Applebee’s while working as a waiter
for the company in the Bronx. Applebee’s sought to have it thrown out.
Credit Uli Seit for The New York Times
Apple-Metro Inc., which owns the Bronx Applebee’s, did not return requests for comment.
Mr. Del Toro now works at P.F. Chang’s, another restaurant chain. He
had to sign an employment contract with an arbitration clause to get
the job.
Class-action bans are also widely included in the employment policies of retailers, including Macy’s, Kmart and Sears.
Even some N.F.L. cheerleaders have had to agree to them. When a group
of cheerleaders sued the Oakland Raiders over working conditions, they
discovered that Roger Goodell, the N.F.L. commissioner, would preside
over the arbitration. The Raiders later agreed to use someone else.
The use of class-action bans is spreading far beyond low-wage
industries to Silicon Valley and Wall Street, where banks like Goldman
Sachs require some executives to sign contracts containing the clauses.
Civil rights experts worry that discriminatory labor practices will go unchecked as class actions disappear.
Cases brought by African-American employees against Nike in 2003 and
Walgreens in 2005, for example, led the companies to change their
policies. The drug company Novartis paid $175 million to settle a class
action brought by female employees over promotions and pay.
Jenny Yang, chairwoman of the Equal Employment Opportunity Commission,
said arbitration allowed “root causes” to persist. Part of the problem,
Ms. Yang said, is that arbitration keeps any discussion of
discriminatory practices hidden from other workers “who might be
experiencing the same thing.”
The point was not lost on Judge Schiller in Philadelphia, who has
handled many employment cases in his 15 years on the bench. Once an
arbitrator himself for disputes between companies, the judge said he
had nothing against the forum, as long as both sides wanted to go.
Among thousands of employees at Applebee’s franchises, only four took
the company to arbitration between 2010 and 2014, according to The
Times’s review of arbitration data.
When lawyers for Applebee’s argued before Judge Schiller to have the
lawsuit thrown out, they assured him that Mr. Walton, who brought the
suit, could have turned down the job and not agreed to the arbitration
clause.
Judge Schiller was not persuaded. “To suggest that he had bargaining
power because he could wait tables elsewhere ignores reality,” the
judge wrote in court papers. The Applebee’s workers, the judge wrote,
must “chew on a distasteful dilemma” of whether to “give up certain
rights or give up the job.”
Despite his own objections, Judge Schiller said he was bound by the
Supreme Court decisions. In his ruling, he noted the “lamentable” state
of legal affairs and dismissed the case.
With no other option, Mr. Walton took his case to arbitration. In April, he lost.
Michael Corkery contributed reporting.
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