mic dicta

America Is a Spiraling Corporate Contract Dystopia

To live, you have to let corporations walk all over you.
June 5, 2018, 3:00am
Image by Nico Teitel

This is the second entry in a new column from the hosts of the legal podcast Mic Dicta that will break down the strangest and most interesting court cases knocking around the US legal system.

"Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?"

That’s how Supreme Court Justice Neil Gorsuch, forever doing his best impression of the least likable kid in your high school’s debate club, began his majority opinion in Epic Systems v. Lewis, the decision last month in which the Court held that bosses are allowed to include (and enforce) provisions in employment contracts forbidding workers from joining a class action against them.


It’s safe to assume Gorsuch was smirking when he wrote that line, because it manages to intentionally dodge the case’s most significant issue: employees rarely have enough leverage to meaningfully impact the terms of their contracts. If you need a job and aren’t in great position to negotiate—much less hire a lawyer—chances are you’re going to just sign whatever deal gets put in front of you. The same reality applies to digital services millions of Americans use every day, from online shopping outlets to ride-sharing or dating apps on our phones.

In other words, to participate meaningfully in modern life, you have to let corporations walk all over you.

The imbalance of power between the corporations drafting contracts and the individuals signing them has a broad effect on the average person’s rights in America, but nowhere has it been felt more acutely than in the workplace. It has left the United States as one of only a handful of countries embracing at-will employment, which allows employers to terminate employees with or without cause (for reasons as absurd as the employee’s private sex life or the color of their clothing). It has allowed for the proliferation of non-compete provisions, which prevent employees from working in the same market as their employer once their employment ends (feel free to start a new career in another field, though!). And, as the Supreme Court put on vivid display in Epic Systems, it has allowed for employers to methodically hack at the procedural apparatus that regular people use to validate their rights by funneling all of their claims into closed-door arbitration proceedings.


That last point is worth zeroing in on. Businesses have invested a vast amount of resources into drafting contracts that force employees to waive the ability to vindicate their rights in open court, and force them instead into this completely separate process. In arbitration—essentially a third-party review of each side's claims—plaintiffs bear more up-front costs, have limited right to appeal, and are much less likely to prevail. Research has shown that employee win rates can drop by upwards of 35 percent in arbitration, with median damages reaching as low as a quarter of those received in court.

Perhaps most importantly, arbitration is typically confidential, allowing companies to keep allegations of sexual harassment, discrimination, and any other sensitive issues away from the prying eyes of the media and other employees. There’s no question that the corporate world has been able to bury at least some of the #MeToo reckoning in confidential arbitration proceedings. No, you don’t read about every prominent man who has been formally accused of sexual harassment at a major corporation—at least not if their legal department is up to snuff.

You might ask yourself: How is this legal? The answer is the reemergence of the Federal Arbitration Act, a nearly century-old statute designed to promote private arbitration and help ease the caseload of federal courts. Due to consistent and aggressive campaigns by industry lobbyists, the law has been strengthened to the point where state laws attempting to place limitations on the scope or force of arbitration contracts are deemed nullified by the federal law, and, as held in Epic Systems, the Act overrides various federal statutes designed to protect workers.


And of course this phenomenon isn't limited to employment. Consumer contracts have long been the source of draconian restrictions on plaintiffs' rights, and as commerce has moved online, large corporations have seized the opportunity by popularizing "clickwrap" agreements—those pop-up contracts asking you to agree to terms and conditions before you make an online purchase or start using a new app on your phone. Buried in those terms and conditions are the same type of aggressive arbitration provisions serving to insulate those companies from class-action lawsuits and prevent any messy allegations from being publicly filed in court.

Clickwrap contracts are arguably the most egregious for one obvious reason: nobody reads them. In fact, the entire online retail business model relies on you not reading them. By the time you actually sit down and read about being forced to arbitrate your claims, you might as well get off your computer and drive down to Banana Republic.

Companies have spent the last two decades testing the boundaries of online contract formation, and courts—again leaning on a sweeping interpretation of the Federal Arbitration Act—have done little to get in their way. Last year, the Second Circuit Court of Appeals heard a case alleging price fixing against Uber and its former CEO Travis Kalanick; Uber successfully argued that the case needed to be sent to arbitration, pointing out that when you create an Uber account, there is small text telling you that you’re also agreeing to Uber’s terms of service. The Second Circuit held that this was enough to form a contract, writing that a "prudent smartphone user" would realize that they were agreeing to contractual terms. The fact that a wealth of evidence has shown that only a tiny minority of users read these contracts is something courts have largely ignored.


The end result of all this is more than a little dystopian. Most people interact with major corporations in two ways: they work for them, and they buy stuff from them. The largest companies in the world have managed to saddle both of those interactions with burdensome and non-negotiable contracts. The net effect is that at every conceivable nodal point of contact between a human being and a corporation, the corporation has written a contract minimizing their liability for anything that might go wrong.

Of course, as Justice Gorsuch is quick to point out, you don’t have to agree to any of these contracts. It’s your choice! You could decide to opt out of every one of these agreements. You probably wouldn’t be able to order anything online, though, because just about every company from big online retailers to major food delivery websites have arbitration agreements. You couldn’t use Uber or any major ridesharing app—in fact, you wouldn’t be able to use many apps at all. But that’s a secondary concern, because you probably wouldn’t have a phone: all of the major service providers require you accept mandatory arbitration. You will, however, be able to ponder your choices during your frequent long walks, as automakers and car dealerships have been putting arbitration provisions in their consumer contracts for years.

Of course, those are secondary concerns, because you probably wouldn’t have a job.

There is, at the end of the day, no choice. If you want to exist in modern American society, you’re going to end up agreeing to contract terms that severely curtail your rights. The last time big businesses had this much leverage, they used it to force workers to sign yellow dog contracts—agreements that the worker would not join a union. In 1932, Congress passed the Norris-LaGuardia Act, which outlawed those contracts because of the disproportionate bargaining power between companies and workers. We now live in a similar moment, as corporations have successfully subverted worker and consumer plaintiff rights in nearly every conceivable arena. Absent legislation that places real limitations on the scope of the Federal Arbitration Act, the trend is likely to continue. Unfortunately, it’s reasonable to assume that just about every major corporation in America would actively oppose such legislation, and, in case you haven’t noticed, they’re writing all the rules.

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SovCit, Esq. (a pseudonym) is an attorney who lives in New York. Follow him on Twitter.