“Contracts Freely Entered Into” or “An Offer He Couldn’t Refuse”?

October 6, 2017
Posted by Jay Livingston

On Monday, the Supreme Court heard arguments about arbitration clauses in the contracts that consumers and employees sign. I don’t know how many times I have clicked on “I agree,” but one of the things I’ve probably agreed to was arbitration.

Imagine that a company is adding a small and almost hidden fee to the bills of all its customers. If I notice it, and if I complain, the company might give me back the few dollars it has scammed me out of over the past several months. But they’ll keep the money that thousands of less vigilant customers have paid. Or maybe they won’t do the right thing. I could file a lawsuit. But even the cheapest lawyer would cost far more than the amount of money I might get back.

The way to stop the scam is for some ambitious lawyer to file a class-action suit on behalf of all the victims. But it turns out that all of us have clicked “I agree.” We will each have to settle the dispute in individual arbitration. No class action. Me vs. Wells Fargo. Guess who’s going to win.
       
It’s the same for workers whose employment contracts have arbitration clauses.

Earlier this year, Susan Fowler sparked an uproar in the technology industry with allegations of sexual harassment and gender discrimination at Uber. An internal investigation led to more than 200 employee complaints and at least 20 terminations. But Fowler may not be able to sue Uber in court. When she joined the ridesharing company, Uber required her to resolve any disputes through private arbitration and waive her right to participate in a class action. (Wired)



Sunday night at 10:00 – just a few hours before the Supreme Court heard the oral arguments – “The Deuce,” had a memorable scene about individual arbitration. The show has several interwoven plot lines, all set in the grittier regions of the 1970s New York City ecosystem. In the blue-collar biota, Bobby is in charge of paychecks at a construction site. His brother-in-law, a sleazo named Vinnie who knows some mob guys, suggests that instead of handing out paychecks they become in effect a check-cashing service. The worker signs over his check and receives cash minus a 5% cut. The workers will be OK with it. Pay comes at the end of the day on Friday, the workers want cash for the weekend, and the banks are closed till Monday.

Except one of the workers, Bill Schmidt, wants his check for the full amount. Word of this gets around to the mob guy. He comes to the construction site with his enforcer, has Schmidt called aside, and supervises the mob version of individual arbitration – the goon beats Schmidt brutally.

I doubt that Justices Gorsuch or Roberts or any of the others were watching “The Deuce,” and if they were, I doubt that they saw a connection. After all, there are obvious differences between Uber and the Gambino family. MasterCard is not the Mafia. Wells Fargo didn’t beat up their employees who were reluctant to join in the scam. Wells Fargo just made it impossible for them to get jobs in banking.

We all know the most famous case of a contract signed under a power imbalance.




The important similarity is the discrepancy in power. At some point, that power difference makes it ludicrous to talk about “contracts freely entered into.”

When there are only one or two cable providers or credit card companies, and they all have the same provisions in their contracts, how meaningful is “I agree,” especially when these companies have armies of lawyers? They may also have on their side the Republican-appointed majority of the Supreme Court.

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