Forcing more litigation isn’t the answer to litigation abuse

By Phil Goldberg

To avoid the expense and stress of going to court, Americans are turning to arbitration to settle workplace, and other, disputes. Free enterprise depends on businesses, employees, and consumers to be able to resolve disputes quickly and fairly. Plaintiffs’ lawyers, who file lawsuits for a living, are trying to convince Congress to take that option away.

The House recently held a hearing to ban pre-dispute arbitration agreements in employment, consumer, and anti-trust matters. Their supporters are attaching anti-arbitration clauses to various bills, including the National Defense Authorization Act this month, and want action on a comprehensive ban (the “FAIR Act”) before recess. They also are trying to leverage the #MeToo movement, which is critical to the success of women in the workplace, to suggest that courts are the only places for protecting people’s rights.

The real-life experience has been the opposite. People and businesses have found value in arbitration because it often allows them to reach quicker, less combative, and fairer resolutions. In 2011, the Supreme Court held that people could agree to arbitrate any dispute that arises so long as both parties to the agreement have a fair and reasonable process. The American Arbitration Association and the Judicial Arbitration and Mediation Services have rules and procedures, including over how arbiters are chosen, to ensure such fair treatment.

Arbitration is geared toward resolution. Rules are less formal, discovery is tailored to the dispute, and plaintiffs receive individual attention. It is not all-or-nothing warfare, which is important when relationships matter, as in the employment context. Also, businesses often pay costs of the arbitration and attorneys’ fees to facilitate the claims.

Indeed, studies show that arbitration is beneficial. The U.S. Chamber Institute for Legal Reform released a study by NDP Analytics comparing employment arbitration to lawsuits over a five-year period. The report found employees are three times more likely to win in arbitration than in court and, on average, receive higher awards. Also, a government study has found that consumer arbitrations are generally resolved in seven months, compared to three years in litigation.

The public relations machine supporting the poorly named FAIR Act is now in full gear. Terri Gerstein of Harvard University and Heidi Shierholz of the Economic Policy Institute attackedNDP’s study, but missed their target. Their main beef was that the study looked at arbitrations regardless of whether the agreement to arbitrate came before or after the issue arose and did not look at class actions. When the arbitration agreement occurred has nothing to do with the whether the result was fair. Their other concerns are similarly off-point.

San Francisco School of Law Professor Joshua Davis advocated for the FAIR Act by espousing benefits of antitrust class actions. Antitrust actions, though, epitomize the problem with high-stakes litigation: They often are not about compensating aggrieved individuals, but maximizing attorneys’ fees. Plaintiffs’ lawyers often try to leverage the costs of litigation to generate settlements and attorney’s fees regardless of the merits.

The Supreme Court identified this concern with antitrust cases, cautioning that “the threat of discovery expense will push cost-conscious defendants to settle even anemic cases.” J. Thomas Rosch, a former Federal Trade Commissioner, further explained that, “The plaintiffs’ lawyers … stand to win almost regardless of the merits of the case.” Arbitration helps weed out these abuses and focuses on real people and real disputes.

Finally, Zachary Clopton and David Noll, law professors at Cornell and Rutgers, call for more “creativity” in opening the floodgates to needless litigation. They propose that states sue companies when employees or consumers have arbitration clauses, and if states do not want to do so, allow people unconnected to the dispute to file the lawsuits. Such cases would be completely abstracted from reality, since nobody would be representing anyone alleging an actual injury.

It is not surprising that plaintiffs’ lawyers are fighting arbitration with the zeal of the self-interested. But it’s also their fault people are turning away from the courts in favor of private dispute resolution. Litigation has become much too expensive and lawyer-driven. Congress should not get in the way if people contract to avoid the expense and abuse of litigation. Now is not the time to ban this useful alternative, but to enhance it.

Phil Goldberg is director of the Progressive Policy Institute’s Center for Civil Justice and the Managing Partner of the Washington, D.C., Office of Shook Hardy & Bacon, LLP. In May 2019, he testified in the House of Representatives in favor of pre-dispute arbitration agreements.