Arbitration clauses are buried in nearly every contract you sign — quietly stripping your right to sue or join a class action. Here's how they work and what you can do.
Once upon a time, if you had a dispute with a company you were buying a product or service from, or with your employer, if you couldn’t resolve the issue you could take the company to court.
1 The Day You Lost Your Day in Court
Those days are long gone. Today, nearly every contract you sign contains an arbitration clause. This practice even extends to online purchases. Here is a partial list of the types of businesses that will usually include an arbitration clause somewhere down in the fine print: pretty much all hardware and software you purchase; cellphone, cable and Internet services; many employment contracts; every credit card you use; car rentals and purchases; investment and retirement accounts; nursing or retirement facilities; any type of insurance you buy; and, home-building contracts.
2 What Arbitration Actually Means
First let’s define what arbitration means. It involves two parties who are in dispute agreeing to let a third party listen to both sides and resolve the conflict. Marriage counseling is a type of arbitration. The practice can be a faster, cheaper alternative to going to court, although this is not always the case. The National Association of Consumer Advocates (NACA) says that what they term “forced arbitration” can cost thousands of dollars to the consumer, with a large up-front fee required to file the action, more to travel on their own dime to the site of the arbitration hearing and—if they lose, which is usually the case—paying the company’s legal fees.
3 Why Forced Arbitration Is the Problem
The problem with arbitration arises when you are forced into arbitration as the only alternative to settling disputes as a condition of employment or use of a product or service, and waiving your right to either a subsequent court trial or a class-action lawsuit no matter the provocation. The problem is compounded by the fact that the vast majority of arbitration clauses stipulate that the company will be the one to select the arbitrator, not the complainant.
4 The Numbers Behind the Silence
A New York Times report on arbitration in 2015 investigated thousands of court records and conducted extensive interviews with various players in 35 states; it found that, between 2010 and 2014, only 505 consumers went to arbitration in disputes involving $2,500 or less. It also found that Verizon, with over 125 million consumers at the time, faced just 65 consumer arbitrations over that period, and Time Warner Cable, with 15 million customers, faced just seven.
And that is the whole point: to make it difficult, if not impossible, to redress perceived wrongs by large corporations, whether by individual or class action.
“By banning class actions, companies have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination, court records show.”
“This is among the most profound shifts in our legal history,” William G. Young, a federal judge in Boston who was appointed by President Ronald Reagan, said in an interview with the newspaper. “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”
5 A One-Way Street — and What You Can Do
This is also a one-way street, according to NACA, which says most arbitration clauses limit only the consumer’s rights, while affording the seller the retention of all of its rights, including the right to take any complainant to court.
NACA recommends you try to find one of the increasingly fewer companies that offer services without forced arbitration clauses and, failing that, urge your congressional representatives to pass legislation banning the practice.
Although Billshark can’t roll back the calendar to pre-arbitration clause days, we do want to make you aware of the practice, as well as help you spot the kinds of overcharges or useless charges on your bills that might—in the old days—have sent you to court to resolve.
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Frequently Asked Questions
What is an arbitration clause?
An arbitration clause is a contract provision that requires two disputing parties to let a third party listen to both sides and resolve the conflict instead of going to court. It can be a faster, cheaper alternative to a trial, though that is not always the case. These clauses are now buried in the fine print of nearly every contract you sign.
Which kinds of contracts usually contain arbitration clauses?
Almost all of them. The list includes nearly all hardware and software you purchase; cellphone, cable and Internet services; many employment contracts; every credit card you use; car rentals and purchases; investment and retirement accounts; nursing or retirement facilities; any type of insurance you buy; and home-building contracts. The practice even extends to online purchases.
Why is forced arbitration a problem for consumers?
Forced arbitration becomes the only way to settle disputes as a condition of employment or use of a product, and it waives your right to a court trial or class-action lawsuit. The vast majority of clauses also let the company, not the complainant, select the arbitrator. According to NACA, forced arbitration can cost a consumer thousands of dollars in fees.
How rarely do consumers actually use arbitration?
A 2015 New York Times report reviewing thousands of court records across 35 states found that between 2010 and 2014, only 505 consumers went to arbitration in disputes involving $2,500 or less. Verizon, with over 125 million consumers, faced just 65 consumer arbitrations, and Time Warner Cable, with 15 million customers, faced just seven.
What can I do about forced arbitration clauses?
NACA recommends trying to find one of the increasingly fewer companies that offer services without forced arbitration clauses and, failing that, urging your congressional representatives to pass legislation banning the practice. Billshark can also help you spot the kinds of overcharges or useless charges on your bills that might once have sent you to court.
