Those Arbitration Clauses Matter More than You Think

Let’s be honest – you never read the fine print in a contract, do you? You know you should, but most people don’t. Besides, do you really expect to find something so blatantly offensive, so patently unfair that it would be a deal breaker? That you would refuse to sign and miss out on the product or opportunity that just moments before you were convinced you wanted? Turns out, businesses are capitalizing on these consumer behaviors by slipping mandatory arbitration clauses into their agreements, which means that you are signing away your rights to file a lawsuit if you have a major legal dispute with them. A 2011 Supreme Court decision opened the door for corporations to use standard contracts as a way to prevent people from joining together into one arbitration. In that case, plaintiffs were barred by the language of the contract they signed from seeking class-action damages. Since that time, the loophole has been exploited by routinely adding arbitration clauses to consumer and employment contracts as a way out of class-action lawsuits. Unable to take on alone a corporation with vast resources, many potential plaintiffs either never file a claim or give up once they realize the many ways that arbitration rules tend to favor businesses.

It is also difficult to have much confidence in the arbitration process, because its secretive nature makes it hard to gauge the fairness of the proceedings. Arbitrated claims are confidential and are not required by the federal government to be reported. Most concerning is the notion that impartial judges are replaced by arbitrators who often consider the corporations to be their clients. A recent investigation by the New York Times based on thousands of records and hundreds of interviews involving 35 states discovered that of the 1,179 class actions that companies sought to push into arbitration between 2010 and 2014, arbitrators ruled in their favor in four out of every five cases. More than three dozen arbitrators admitted that they felt beholden to companies and that underlying every decision they felt the threat of losing business. Being blocked from court and forced into arbitration is now commonplace when dealing with banks, credit card companies, cell phone carriers, TV providers, construction companies, and more. Many well-known brands have arbitration clauses built into their terms of service, including Time Warner, eBay, Discover, Amazon, DirecTV, AT&T, Netflix, Starbucks, and American Express. There are a few attempts in the works to address the prevalence of these unfair clauses. For example, more than 30 senators have appealed to the federal government to deny Medicare and Medicaid funding to those nursing homes that use arbitration clauses. Also, the Consumer Financial Protection Bureau (CFPB) is considering partially banning consumer financial companies from employing arbitration clauses. While the clauses would not be entirely forbidden, they would have to explicitly state that they do not apply to cases filed as class actions unless and until the class certification is denied by the court or the class claims are dismissed in court. If you have a grievance with a company and are unsure about your rights, or you have any questions about this topic, you can find out more by discussing it with the Pikeville, KY-based Johnson Law Firm. Contact us by calling 606-437-4488 or filling out our online form.