You Should Know: Forced Arbitration Is Forced Injustice

Tia’s employment case against Circuit City was thrown out of court even though her boss sexually harassed her for months, once even exposing his genitals. Javier lost his job when he was deployed overseas despite federal laws protecting employment for members of the armed services. Alan and other small business owners were told they couldn’t take American Express to court for charging exorbitant exchange rates. Marjorie, Roberta, Richard, Dean, Frances, Beulah, Horace and Mary all suffered terribly and died from nursing home neglect, yet their families were not able to sue the nursing home companies.

How could injustices like these be allowed to exist in America where everyone has the right to take wrongdoers to court? It’s called forced arbitration, and you or a loved one may be next to lose your rights.

Harassed, Assaulted and Then Dismissed

 Tia was sexually harassed by her boss at Circuit City for months. Her  story here.

Tia was sexually harassed by her boss at Circuit City for months. Her story here.

Tia thought she was taking a step forward when she became a manager-in-training at electronics giant Circuit City. Instead she endured months of sexual harassment by her boss, who at one point exposed his genitals to her. He was also captured on video grabbing Tia’s hand and parading her around the store as she tried to escape.

But the worst was yet to come. When Tia filed a sexual harassment claim against the chain, her lawsuit was thrown out of court because of a legal time bomb in her employment contract called a forced arbitration clause. Circuit City went out of business while Tia was in arbitration and her case was dropped.

A “Get Out of Jail Free” Card for Corporations

 Dean Cole’s family tried holding a Minnesota nursing home accountable in court after he died of neglect, but they were forced into arbitration where the truth was hidden from the public. His  story here .

Dean Cole’s family tried holding a Minnesota nursing home accountable in court after he died of neglect, but they were forced into arbitration where the truth was hidden from the public. His story here.

Tia is among a growing number of Americans learning about forced arbitration clauses the hard way. Thousands of businesses, from credit card companies, banks and investment firms to cell phone providers, schools and nursing homes, are inserting legalese into employment contracts and service agreements called “forced,” “binding” or “mandatory arbitration.” When something goes wrong – and in some cases terribly wrong – the customer, renter, homeowner, resident, patient, employee, etc., is forced into arbitration. And that’s when the bomb goes off!

Individuals almost always lose to businesses in arbitration (97 percent of the time according to a 2007 Public Citizen report) because arbitrators are hired and hand picked by the offending businesses. Decisions from the arbitration proceedings are secret, and there is no appeal. Most forced arbitration clauses also include a ban on class-action lawsuits as well, preventing consumers from joining forces to fight wrongdoing. A recent investigative series by the New York Times called forced arbitration “a far-reaching power play orchestrated by American corporations,” and quoted state judges who called it a “get out of jail free” card.

A Short But Disturbing History

The use of forced arbitration clauses is a relatively new tactic developed by a Wall Street-led coalition of credit card companies and retailers. Their goal, according to interviews with coalition members and court records, was simple: find a way to legally insulate businesses from lawsuits. Consumers and advocacy groups eventually cried foul and challenged the use of forced arbitration clauses and the ban on class-action lawsuits. But in 2011 and again in 2013, the U.S. Supreme Court upheld forced arbitration. With the floodgates now open, the use of forced arbitration clauses exploded far beyond the financial services industry and is now found in everything from daycare and dog sitting services to cable television and funeral homes.

How Do You Fight Back?

You can learn how to identify arbitration clauses before you sign a contract or click the little box next to “I agree to these terms and conditions.” You can then take your business elsewhere. However, this option isn’t always practical if you want cell phone service, for example, or need a new job. Your other option is to support efforts by some lawmakers, government agencies and consumer advocacy groups to stem the tide of forced arbitration. Here’s a few:

  • The Consumer Financial Protection Bureau (CFPB) is a government agency that protects consumer rights in the financial services industry. The CFPB recently announced a proposed rule that would ban class-action waivers in service contracts for credit cards, checking accounts and other financial services. Right now the CFPB wants to hear from the public on this proposal. Go here to add your comments and support the ban on these restrictive waivers.
     
  • The Centers for Medicare and Medicaid Services (CMS) is also working on a similar provision, which would forbid mandatory arbitration clauses in nursing home contracts.
     
  • The Department of Education has recently announced it’s considering a proposal that would prohibit colleges from including mandatory arbitration clauses in their enrollment contracts with students.
     
  • U.S. Sen. Al Franken (D-Minn.) and U.S. Rep. Hank Johnson (D-Ga.) have introduced the Arbitration Fairness Act, which would do away with forced arbitration clauses in contracts that ban class-action in employment, consumer, antitrust or civil rights disputes. To voice your support of this legislation, sign our petition at Take Justice Back.

 This article appeared in our May 2016 "You Should Know" e-newsletter.