What is the Arbitration Epidemic?

Photo with word arbitration in a court setting

Mandatory arbitration deprives workers and consumers of their rights. It might be more widespread than you think

Photo: Image source: https://rb.gy/yoki2d

12 April 2022 | James Porteous | Clipper Media News

‘Essentially, litigation means taking a dispute to court. Both sides present their case before a judge or jury, who will then render a decision. Arbitration, on the other hand, is a private process in which both parties agree that an arbitrator (a neutral third party) will render a binding decision…’ HCLawyers

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THIS AGREEMENT REQUIRES THE USE OF ARBITRATION ON AN INDIVIDUAL BASIS TO RESOLVE DISPUTES, RATHER THAN COURTS OR JURY TRIALS, AND LIMITS THE REMEDIES AVAILABLE IN THE EVENT OF A DISPUTE.

The arbitration epidemic

Report • By Katherine V.W. Stone and Alexander J.S. Colvin • December 7, 2015 | Economic Policy Institute

In the past three decades, the Supreme Court has engineered a massive shift in the civil justice system that is having dire consequences for consumers and employees. 

The Court has enabled large corporations to force customers and employees into arbitration to adjudicate practically all types of alleged violations of countless state and federal laws designed to protect citizens against consumer fraud, unsafe products, employment discrimination, nonpayment of wages, and other forms of corporate wrongdoing. 

By delegating dispute resolution to arbitration, the Court now permits corporations to write the rules that will govern their relationships with their workers and customers and design the procedures used to interpret and apply those rules when disputes arise.

Moreover, the Court permits corporations to couple mandatory arbitration with a ban on class actions, thereby preventing consumers or employees from joining together to challenge systemic corporate wrongdoing.

As one judge opined, these trends give corporations a “get out of jail free” card for all potential transgressions. These trends are undermining decades of progress in consumer and labor rights.

This report tracks these developments and presents the most recent research findings, summarized here:

  • It is common for employees to be presented with terms of employment that include both a clause that obligates them to arbitrate all disputes they might have with their employer and one that prohibits them from pursuing their claims in a class or collective action in court.
  • Employees subject to mandatory arbitration can no longer sue for violations of many important employment laws, including rights to minimum wages and overtime pay, rest breaks, protections against discrimination and unjust dismissal, privacy protection, family leave, and a host of other state and federal employment rights.
  • On average, employees and consumers win less often and receive much lower damages in arbitration than they do in court.
  • Employers tend to win cases more often when they appear before the same arbitrator in multiple cases, indicating that they have a repeat-player advantage over employees from regular involvement in arbitration.

Introduction: The problem

Over the past 25 years, it has become increasingly commonplace for corporations to insert arbitration clauses into their contracts with customers and employees.

These clauses appear to be innocuous, or even beneficial, to consumers and employees, but they pack a powerful punch.

They prevent customers and employees from going to court if they have a dispute. Instead, when there is an arbitration clause, consumers and employees are required to take their complaints to a privatized, invisible, and often inferior forum in which they are less likely to prevail—and if they do, they are less likely to recover their due. Moreover, once a dispute is decided by an arbitrator, there is no effective right of appeal.

At the time of contracting, most consumers and employees do not object to having an arbitration clause in their contracts.

After all, who thinks they will have a dispute with their employer or their bank? Who would risk a valuable job opportunity or an important consumer financial transaction over an obscure procedural provision?

And if a dispute should arise, who wants to go to court to resolve a dispute over a faulty product or nonpayment of overtime pay?

Courts are slow, excessively technical, and intimidating to most people. To hire a lawyer to handle the case would usually cost more than most disputes are worth. Yet despite the seeming benefits of arbitration, there are serious pitfalls.

As the research cited in this report shows, consumers and employees often find it more difficult to win their cases in arbitration than in court.

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ACLU COMMENT ON FORCED ARBITRATION

ACLU of Maine executive director Alison Beyea gave the follwong comments at a press conference on February 4, 2020:

Good afternoon. My name is Alison Beyea and I’m the executive director of the ACLU of Maine. We are here today to urge Maine’s legislators to pass LD 1693, and restore access to justice for victims of workplace harassment and discrimination.

Access to the courts has long been a crucial tool for holding companies accountable to the law and the rights of their employees.

30 years ago, if an employee or group of employees faced harassment or discrimination in the workplace, they could take their case to court.

If a woman faced sexual harassment by her employer, or a group of Black workers was treated differently than their white counterparts, they could sue. The lawsuit would have the effect of bringing the abuse to light, deterring future discrimination, and achieving some justice for the workers.

Today, the rise of forced arbitration agreements has largely done away with that.

Today, if a worker or group of workers is the target of unlawful discrimination or harassment, they may not have the option to sue. Instead of bringing their complaint to court, they may have to bring it to an industry arbitration board made up of lawyers with no training on the legal issues surrounding harassment.

This use of forced arbitration – in which employees knowingly or unknowingly sign away their right to sue their employers as a condition of employment – slams the courthouse doors on victims of workplace harassment and discrimination. 

Arbitration lacks the procedural protections afforded by the justice system. Rather than going before a judge or a jury of one’s peers, cases in arbitration are decided by a panel of lawyers who are not required to follow legal precedent.

And unlike court cases, these proceedings are subject to strict confidentiality. Even if a victim wants to discuss their case publicly, they cannot. This secrecy thwarts public accountability for repeat harassers or the employers who have failed to stop them.

As a result, too many valid sexual harassment and other discrimination cases never see the light of day, repeat offenders are not held to account, and few survivors get true justice through this process.

Yet despite this denial of justice, the use of forced arbitration has doubled in scope since the 1990s. And it is prevalent in female dominated industries – 58 percent of female workers are subject to the practice – as well as in low-wage fields and industries dominated by women of color. 

To be sure, some people may prefer arbitration to the process of litigation, and they should have the right to pursue that course if it is their preference. But they should also have the right to pursue justice in the courts.

To safeguard everyone’s rights to be treated with dignity, Maine’s lawmakers should support efforts to protect all victims of discrimination. LD 1693 would preserve access to courts for Maine workers when all other avenues have been closed off by corporations.

Legislators should take this opportunity to pry the courthouse doors open again, and ensure victims of harassment and discrimination get their day in court.


It’s Time to End Forced Arbitration

Galen Sherwin, Senior Staff Attorney, ACLU Women’s Rights Project
& Vania Leveille, Senior Legislative Counsel

SEPTEMBER 20, 2019 | 4:15 PM

If you own a credit card or a bank account, use a ride-sharing service, made an online purchase, or work in corporate America, chances are you have signed a forced arbitration agreement: a promise that, if any disputes arise between you and your employer or the business, you won’t sue.

Hidden in the fine-print of a contract you may not even remember signing is language that says you’ve agreed, in advance, to give up your right go to court.

But today, the House of Representatives passed the FAIR Act, legislation that would prohibit the use of forced arbitration in employment discrimination and consumer contract cases.

In the wake of #MeToo, the practice is drawing increasing criticism—making the FAIR Act one of the most important reforms we can make to ensure workplace equality.

Little known to consumers and employees, the use of this sneaky practice is on the rise—it has doubled in scope between the 1990s, and currently impacts more than 60 million workers.

These kinds of agreements are prevalent in female dominated industries – 57.6 percent of female workers are subject to the practice – as well as in low-wage fields and industries dominated by women of color.  One estimate shows that by 2024, forced arbitration will be in place in over 80% of workplaces, covering more than 85 million workers.

Forced arbitration has had the effect of slamming the courthouse doors in the face of victims of workplace harassment and discrimination, and is a huge boon to employers.

By sneaking forced arbitration into contracts, employers and corporations are ensuring that even if you did notice what you signed, and have the foresight to imagine what you would prefer to do if a dispute were to arise in the future, you have very little choice but to sign.

Studies have shown that employees are less likely to pursue discrimination cases in arbitration, and that when they do, they are less likely to win and their monetary awards far lower than they would be in court.

For example, one report showed that in 30 years, only 17 women on Wall Street had won sexual harassment claims in industry arbitration.  The  widespread use of forced arbitration agreements is one major reason that many valid sexual harassment cases, and other discrimination cases, never see the light of day — and repeat offenders are not held to account.

Companies claim that this method is more efficient and less costly than court proceedings. That can be true in some cases – and there is no doubt that it should remain an option, particularly if both parties agree to use it after a dispute has actually arisen.

But what they don’t tell you is that arbitration also lacks critical procedural safeguards — for example, permitting access to evidence from the other side that can be the key to proving your claims – particularly in discrimination cases, which often hinge on how the employer has treated other employees.

The arbitrators may or may not be lawyers, and may or may not be trained in resolving discrimination cases. Results are secret, helping companies evade public accountability. The outcome is binding, and there is generally no right to an appeal.

How did we get into this mess? Congress initially blessed arbitration agreements as a tool to settle disputes between corporations, and passed a law favoring their enforcement.

But a series of Supreme Court cases has since permitted the practice to spread unchecked, and to extinguish the right to go to court in a host of contexts it was never intended to reach.

These include not only employment discrimination cases, but also cases brought by rideshare passengers who allege they were raped by inadequately vetted drivers; families whose loved ones were abused or neglected in residential care centers; customers who bought furniture online and discovered it was infested with bedbugs, and, most recently, in the context of class actions to improve working conditions.

These cases are a far cry from what was originally intended.

But the FAIR Act could finally allow workers, consumers, and others to choose how they wanted to pursue their dispute.  This bill could solve one of the biggest problems most of us never knew we had (until it’s too late).

Forced arbitration agreements have to go.  The House has taken the first important step but our fight has just begun – the bill has little chance of passing the Senate, unless each of us takes steps to let them know how we feel about being snookered into these agreements. It’s past time to pry the courthouse doors back open again – and make antidiscrimination laws more than an empty promise.

James Porteous

James Porteous is an author, photographer and researcher. Clipper Media News is a daily publicatioin featuring news and views you can use.

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