The Small Print That’s Swallowing Up the Legal Rights of Consumers and Employees

06/30/2014 (press release: KGEmployment) // Carey Been

The forced arbitration clause has become a legal loop hole big enough for corporate America to drive a semi-truck through. These clauses, lurking in the fine print in a range of user agreements and contracts, are depriving Americans of their rights and allowing companies to ignore many state and federal laws. These clauses, which prevent potential plaintiffs from taking businesses to court for violating laws, impacts all the areas of law that we cover, employment, anti-trust and consumer protection.

The history and recent proliferation of these clauses, as well as their impacts on employees, consumers and the country as a whole are well documented in Linda Khan’s piece in Washington Monthly, Thrown Out of Court.

Arbitration is normally a bad deal for employees and consumers. It’s a private trial where the defendant companies usually choose the arbitrators (not necessarily attorneys) who decide the outcome of disputes between parties.

· The amount of information and documents that can be sought from the parties is often limited, so the amount of evidence that can be used against defendants often comes up short.

· Proceedings and outcomes often cannot be made public, so evidence of corporate misdeeds can be kept under wraps.

· Since arbitrators are usually hired by the corporate defendants, there’s an unspoken incentive for them to rule against plaintiffs in the hopes of generating more income by being hired again on future arbitration cases.

· The ability for a plaintiff to have an arbitration decision overturned by a judge is severely hampered because there are few grounds for a court to get involved.

Congress passed the Federal Arbitration Act in 1925, a federal law recognizing a limited use of arbitration for businesses to quickly resolve disputes over corporate transaction with each other outside of the court system.

Over time, lawmakers opposed to consumer rights and conservative judges writing decisions favoring business interests have greatly expanded the scope of forced arbitration clauses to cover virtually any transaction or type of employment.

· While arbitrators at first could only interpret disputed contracts, they were later allowed to interpret laws with little chance of their decisions being reviewed by judges.

· Potential plaintiffs’ ability to join in class actions has also been curbed over the years.

A conservative 5-4 majority of the U.S. Supreme Court has issued decisions which strongly favor the use of arbitration clauses and contractual language barring class action lawsuits. In the face of U.S. Supreme Court law, lower courts have been forced to rule that these clauses are enforceable even when a consumer didn’t know they existed.

The potential reach and power of these clauses took a huge step forward (while consumers took a huge step backward) in 2011 when the U.S. Supreme Court ruled that Californian Liza Concepcion’s false advertising case could not become a class action because of a clause in her user agreement. She claimed AT&T Mobility falsely claimed customers would receive free cell phones with their services.

Without the ability of plaintiffs like Concepcion to join together to fund litigation against a major corporation, consumers, forced to go it alone, effectively have no legal options in cases where potentially millions of them are cheated out of small amounts of money. Instead of obeying the law, corporations can just pay out what few arbitrations don’t go their way as a cost of doing business.

Immediately, law firms around the country blasted out advisories to their corporate clients: Time to rewrite your contracts. The law firm Baker & McKenzie called it a “sea change,” comparing it to the “disruptive innovations from chemical photography to digital photography, from personal computers to smart phones and from snail mail to email,” and noting that if employers drafted the right language, “[e]mployment class action suits are no longer necessary.”

What may have started out as a good idea, with arbitration being used for businesses to bypass the courts to hash out disputed contract language amongst themselves, arbitration has mutated, become malignant and ballooned into a system that has swallowed up the legal rights of employees, consumers and even businesses. Without the open air of public trials, evidence of corporate law breaking may not surface for years, hampering law enforcement and delaying legislation to clamp down on corporate abuses.

There are now, and have been in the past, proposals in Congress to restrict the use of arbitration clauses, but given how much the country’s businesses have benefited from them, there’s little hope of them becoming law any time soon.

If you find yourself in an employment or consumer law dispute and an arbitration clause may be involved, contact our office to discuss the situation so we can discuss your rights and whether or not that clause may be applicable in your case.

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