A Dangerous Shield: How Arbitration Protects Corporations at the Expense of Justice
On October 5, 2023, New York doctor Kanokporn Tangsuan tragically died after a severe allergic reaction to a meal at a Disney World restaurant, where workers failed to heed multiple warnings about allergens in her food. Understandably, Jeffery Piccolo, her widower, decided to sue Disney for more than $50,000 under the Florida Wrongful Death Act. However, this complaint was found to be useless due to a technicality: The Disney+ subscription which he bought and signed for almost four years prior to Tangsuan’s passing stated that all disputes between subscribers and Disney must be resolved through individual arbitration, a process bypassing court proceedings to resolve disputes. While Disney eventually backpedaled, waiving their right to arbitration, thereby allowing the dispute to go to trial, this case highlights a glaring manipulation of arbitration where Disney likely would have a significant advantage over Piccolo.
Arbitration is an agreement between two parties, meaning corporations and people, to settle disputes with an agreed upon arbitrator (no qualifications necessary unless agreed upon by both parties) acting neutrally to serve as a judge on the case, ultimately providing an arbitration award to be confirmed in court and reduced to an enforced judgment like in any other case. In 1925, Congress passed the Federal Arbitration Act (FAA) and President Calvin Coolidge signed it into law, federally allowing two parties to engage in arbitration. This piece of legislature originally started with intentions to stop unnecessary, inefficient, and costly litigation with Herbert Hoover, secretary of Commerce under Coolidge stating: “Next to war the greatest source of economic waste in our national life is needless litigation.” Those like Hoover aimed to lessen the economic costs of litigation on the state and federal courts and therefore, on individual state governments.
In fact, a study by Micronomics analyzed the time differences between litigation and arbitration administered by the American Arbitration Association (AAA) from 2011 to 2015. The findings revealed that U.S. district court cases took, on average, more than 12 months longer to reach trial compared to AAA arbitration cases (24.2 months vs. 11.6 months). This delay resulted in direct losses estimated between $10.9 billion and $13.6 billion over a five-year period, translating to over $180 million per month. Lowering costs that reach levels this high is crucial to maintaining an efficient and sustainable legal system and granting state and federal governments have more financial flexibility. As such, the economic benefits of arbitration can not be understated.
However, the United States has become one of the most expansive users of the process, allowing avenues for legal/economic exploitation to slip under the rug. While the original intention may have been to prevent inter-corporational disputes from being solved quicker, the result has been an exploitative process that coerces individual consumers into arbitrative processes with unequal power dynamics on each side. Over 60 million American workers are now subject to an arbitration clause, barring them from the opportunity to protect their employment rights at the courts. Moreover, decisions by the U.S. Supreme Court have expanded the role of arbitration, allowing arbitration to be included in nearly all contracts. In Southland Corp. v. Keating (1984), the Court ruled that the FAA applies to all contracts executed under state law, preempting proposed laws that limit or invalidate arbitration agreements on a state level.
One case in which this legislation can potentially become dangerous is in AT&T Mobility LLC v. Concepcion (2011), where the Court held that the FAA overrides state laws that prohibit contracts from disallowing class-wide arbitration. This ruling effectively upheld the enforceability of arbitration agreements that include class-action waivers, limiting consumers’ ability to pursue class-action lawsuits. In Morgan v. Sundance, Inc. (2022), another such case, the Court clarified that the FAA does not authorize federal courts to create arbitration-specific procedural rules, such as requiring a showing of prejudice to the opposing party before finding that a party waived its right to arbitration by litigating. This decision emphasized that arbitration agreements should be placed on equal footing with other contracts, meaning they cannot have any arbitration-special rules or clauses that a contract does not have. In 2018, the Court upheld arbitration agreements prohibiting workers from uniting to challenge employers over wages, overtime pay, or civil rights, a decision sharply criticized by Supreme Court Justice Ruth Bader Ginsburg as “egregiously wrong.”
These rulings have allowed companies to take advantage of their employees or consumers, only providing employment, products, or services when a contract including arbitration is consented to. Despite President Biden banning the use of arbitration in sexual harassment and assault claims through the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act in 2022, arbitration can continue to be included as a part of sexual transactions. This occurred notoriously in the happenings and eventual legal case between Donald Trump and Stormy Daniels, leading legal scholars to question whether arbitration should be voided in cases of potential coercion or public policy concerns. At this point, arbitration has become a safeguard for many predatory practices.
Fortunately, many organizations, politicians, and activists have spread awareness to combat the exploitation of arbitrative proceedings. The passage of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act was spurred by the #MeToo movement. Especially, by former Fox News Anchor Gretchen Carlson, and her challenge of the use of arbitration in sexual harassment cases: “These arbitrators tend to find in favor of the companies. There are no appeals and most of the time complainants do not win…Every protected class deserves to not be silenced, so we’re chipping away at the system one class at a time.” In Congress, Georgia Representative Hank Johnson has championed the Forced Arbitration Injustice Repeal Act (FAIR) Act since 2007 to end mandatory arbitration clauses. Despite passing the House twice, it stalled in the Senate. Reintroduced in April with Senator Richard Blumenthal, it gained over 80 House and 37 Senate co-sponsors. Finally, New Prime Inc. v. Oliveira (2018), ruled that independent contractors in the transportation industry, in addition to employees are exempt from proposing forced arbitration agreements. Movement is occurring to address and rectify the issue of arbitration-induced exploitation, even if this is occurring at a relatively slow pace.
While the Fair Arbitration Act is essential in providing a pathway for disputes to be solved between two parties in a cost-efficient manner, arbitration has been grossly overused beyond the extent to which the Act’s originators intended. Herbert Hoover did not intend to protect large corporations like Disney from bearing responsibility for negligently causing the death of consumers like Kanokporn Tangsuan. In light of this, there is meaningful change being done in this field: the FAIR Act may serve as a beneficial step forward in protecting the rights of consumers and employees from the whims of wealthy corporations. Through legal, political, and socioeconomic means, it remains clear that we need to considerably limit the scope of arbitration to facilitate a more just environment for both producers and consumers.
Connor Swenson is a sophomore at Brown University, concentrating in Political Science and Philosophy. He is a writer for the Brown Undergraduate Law Review and can be contacted at connor_swenson@brown.edu.
Cat Gao is a sophomore at Brown University studying Philosophy and Literary Arts at Brown University. She is a blog editor for the Brown Undergraduate Law Review and can be reached at cat_gao@brown.edu.