The House Packard McElderry Blog

Arbitration Clauses

By Aaron M. House, January 14, 2016

We live in an age where the right to fair compensation is under attack. More often than not, if you have been the victim of negligence, fraud, or breach of contract, your only hope of recovering damages is by selecting an excellent attorney. From the obstacles to filing a lawsuit to caps on the recoverable damages, the odds of success are simply stacked against individuals in favor of large corporations. One tool used by large corporations that is becoming all too common and that can eliminate your constitutional right to an impartial jury claim is an arbitration clause. Unfortunately, these clauses are often hidden underneath pages of fine print in the contract you are asked to sign.

For instance, have you ever purchased a phone, applied for a credit card, or had a job? If the answer is yes, you have more than likely signed a contract including an arbitration clause and, whether you read the contract or not, agreed to resolve any disputes with that business outside of court. This has been an increasing problem in the United States.

Over the past decade, thousands of businesses across the country have utilized arbitration to create an alternate system of “justice.” Through arbitration, these businesses have secured a way to resolve disputes outside of court. Although the growing trend of businesses using arbitration clauses has been swift and gone virtually unnoticed, it has had an enormous impact on American citizens. Tens of millions of Americans have been deprived of the fundamental right of their day in court as a direct result of forced arbitration. The shift of businesses toward using arbitration ultimately amounts to the whole-scale privatization of the justice system. Even if you have a claim for medical malpractice, sexual harassment, a hate crime, discrimination, theft, fraud, elder abuse or wrongful death, if you signed a contract with an arbitration clause, you are likely to be subject to arbitration and not a court of law.

Large corporations contend that arbitration is a great alternative for consumers and employees because disputes can be more quickly resolved out of the public eye. However, if arbitration is such a tremendous alternative to a court of law, why don’t businesses give individuals a choice, instead of concealing arbitration clauses in the fine print and forcing people to sign their agreements before they can obtain a phone, credit card, or job? The answer is quite simple: Because businesses know that arbitration is much more favorable to them than a standard court of law.

Arbitration is a method for resolving claims that is very different from the judicial process guaranteed by our federal and state constitutions. There is no court involved. There is no judge. There is no right to trial by jury. The procedures designed to help the individual build the case are greatly limited. The arbitration clause may require you to travel to some distant state to conduct the arbitration; may require your claim to be governed by the law of another state; and may require you to pay the fees and expenses of the other side if you lose.

The arbitrator who decides the case is usually a lawyer who will be paid a fee by the parties to decide the case. Although arbitrators are supposed to be neutral, they have an obvious economic interest in deciding in favor of your opponent, who is much more likely to need their services again in the future. The arbitrator’s decision is final, and there is little opportunity to appeal.

As more and more Americans seeking legal remedies have been forced into arbitration or are simply left without an adequate remedy because of hidden arbitration clauses, arbitration clauses have become a highly litigated issue. In the last 5 years, cases centered on arbitration clauses have been argued before the Supreme Court more than once. However, the Supreme Court, in very close decisions, has upheld the use of arbitration clauses in consumer and employment contracts.

For example, in the 2011 case AT&T Mobility v. Concepcion, the Supreme Court handed down a 5-4 decision enforcing an arbitration clause, even when the arbitration clause included a class action waiver. Typically, when individual claims do not amount to a substantial enough amount to initiate a claim against a defendant, class actions are an available remedy because the aggregate damages result in a substantial amount of money when added together. This recent decision by the Supreme Court is alarming because it could significantly limit the availability of class action lawsuits as a remedy to consumers who have been taken advantage of by large corporations. All businesses have to do is include a class action waiver in the arbitration clause to forego any threat of a class action lawsuit. Because class action lawsuits are not permitted in arbitration, it will be virtually impossible for consumers and employees to bring smaller claims in a class action against businesses if there is an arbitration clause in their agreement.

If you have been the victim of negligence, fraud, breach of contract, or other wrongdoing, the first question to ask is “how will my claim be decided?” If the answer involves an arbitration clause, the next question is whether the arbitration clause is enforceable. Sometimes, arbitration clauses are voidable due to ambiguity or the failure to comply with state law. Please speak with us to learn more.

- Aaron M. House

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