Mandatory arbitration clauses may be stripping you of your right to take certain corporations to court – without you even knowing it.
Arbitration is no new thing, in fact, it’s been around in the US since 1925, and in many cases can be quite helpful.
By definition, arbitration is the process of using an arbitrator (a sit-in for a legitimate judge or jury) to settle a dispute. The arbitrator hears both sides of a case and decides–not unlike a judge would–who wins and loses the case.
It’s a tool which helps settle legal decisions quickly while effectively lowering the costs incurred on the courts by litigation.
There are a few major problems, however. Corporations are sometimes able to force you away from a courtroom and into arbitration without you ever being the wiser; a process which has been deemed by many as a major infringement on people’s constitutional rights.
As a consumer and employee, below are five things you need to know about mandatory arbitration.
1. Arbitration clauses are often snuck into agreements between employers and company contracts discreetly
If you’re an avid social media user, you’ve likely (and unwittingly) signed more mandatory arbitration clauses than you might assume.
According to The New York Times, one-third of top websites actually restrict users’ rights to sue.
By sneaking mandatory arbitration clauses into overly dense “terms of agreement” contracts, websites are able to subvert users’ right to legal action.
Cereal giant General Mills even tried to sneak their own mandatory arbitration clause in through Facebook, claiming that anyone who so much as “liked” the brand on the social media site was agreeing to relinquish their right to sue–a decision which was later retracted by General Mills following backlash.
2. When cases go to arbitration, employers win at an overwhelming rate
Employee and consumer rights are often underrepresented in arbitration cases, favoring the corporation who issued the contract the vast majority of the time.
According to a Cornell study (pdf) of over 4,000 arbitration cases, only 21 percent of on-the-job discrimination cases were decided in favor of employees, compared to about 50 to 60 percent of the time in courts.
3. In arbitration, normal rule of law does not necessarily apply
Since arbitration falls outside of the traditional court system, arbitrators are able to issue decisions that a judge or court would not be able to.
This can sometimes result in decisions like choosing to fire an employee for being absent during military service (an act which would otherwise be illegal), or preventing contractees from joining a class-action lawsuit.
4. The arbitrators and terms of the argument are chosen by companies
Arbitrators and the arbitration firm are both hired by the company issuing the contract. This means that said company gets to dictate where the arbitration takes place, and on what terms.
This, critics say, has resulted in a biased system where arbitrators are incentivized to issue decisions in favor of their employer, in addition to rewarding smaller settlements.
In a study by the US Chamber of Commerce researchers found that between 2010 and 2012, out of 410 consumer arbitration cases, just 32 consumers won.
5. There may be good news for mandatory arbitration critics
Not all hope is lost for those battling to reform mandatory arbitration clauses. For instance, in the US the Consumer Financial Protection Bureau, set up after the 2008 financial crisis, is proposing new rules that would allow consumers to break out of mandatory arbitration so they could sue banks.
In other areas, President Obama signed an executive order which was designed to protect millions of workers from unfair arbitration rulings.
The new order dictates that if you’re a federal worker filing a workplace complaint about sex, race, ethnicity, etc… then you are able to go to court, unless you voluntarily agree to arbitration.