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Forced Arbitration Can Nullify State Law

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On May 15, 2015, the Second Appellate Division of California’s Court of Appeals reversed a judgment and decided that the Forced Arbitration Act applied to a case between a driver and his employer. Countless other workers will suffer if this decision is allowed to stand since it will affect their ability to take matters to trial.  

It is the public policy of the State of California to protect workers’ rights in many respects. For instance, its Labor Code defines the term “independent contractor” and provides rules and regulations for wages and hours.

Division Eight of the Second Appellate Division of California’s Court of Appeal has ruled that a worker who claims that his corporate employer violated those provisions, must be sent to forced arbitration and dismiss his lawsuit.

The worker had been forced to sign an employment agreement that contained a forced arbitration clause. The court effectively shunted his case to a secret, unaccountable, forum where his rights can be violated by an arbitrator selected and paid for by the employer. See: Khalatian v. Prime Time Shuttle, Inc. (5/15/15).

Except for fraud or collusion (both of which are nearly impossible to prove), the employee will have no right of review of the arbitrator’s decision—no matter how it might ignore his rights, be flatly wrong on the law or the facts, or even if the decision is downright goofy. In fact, no law even requires an arbitrator to write an opinion detailing his or her reasons for making the decision. And no law says the proceedings or the decision has to be made public—and it won’t be.

The State of California has made a deal with its citizens: if you come here to work, our laws will protect certain of your rights, including whether you are an employee or an independent contractor and whether your employer is abiding by state law governing your wages and hours. These rights are hard-fought for. These laws are, in effect, the contract between California and those who live and work here. The whole idea is that no employer is free to require the employee to contract away these vital rights. It has long been thought that those rights were guaranteed to California workers—no ifs, ands or buts, but absolutely.

If the Khalatian decision is allowed to stand, every employer can hold an economic gun to every worker’s head: sign my forced arbitration clause or lose your job. When the worker signs (usually without the slightest inkling of the ramifications), our courts are now calling these contracts “voluntary” and enforcing them with a vigor and expansiveness unlike any other area of endeavor that comes to mind in my 52 years as a practicing lawyer.

All of this stems from a string of outrageous decisions by our U.S. Supreme Court that has held the Federal Arbitration Act trumps (preempts) state laws, and must be liberally construed to force arbitration of disputes affecting interstate commerce (please note that a shuttle driver who drives people to from their homes and airports apparently are considered to be engaged in interstate commerce, but health care with its wide national sweep probably not); and, this all comes about even though the worker has no truly voluntary choice, no option to refuse, no information advising of the rights to be lost.

It is hard to believe that the high court decisions (of which the lower courts have no choice but to follow) are not borne of ideological beliefs rather than careful legal analysis. Most legal scholars are convinced that the current majority on the Supreme Court has tortured its way to its rulings finding forced arbitration to be a legitimate consequence of the law of contracts. These decisions casually flip aside time-honored rules governing contracts of adhesion without any pretense of analysis.

The law has, since time immemorial, required that the consent represented by one’s signature on a contract must be freely given without coercion, and that the consent must be without fraud or mistake; that the parties have somewhat equal bargaining power, and that there is at least the opportunity to be informed about what the terms of the contract mean. Historically, if a large corporation forces upon a worker a “take it or leave it” contract—as a condition of employment—it was always considered to be a contract of adhesion.

Those ancient rules, successfully enforced through the ages as only fair and reasonable, have been tossed aside in favor of corporate power—power that covets unaccountability as much as profits.


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