Let The Buyer Beware The Mandatory Arbitration Clause

We’ve all heard that old warning about consumer contracts: Let the buyer beware. It’s meant to remind us that merchants don’t always have the best interests of their customers at heart. Most buyers as a result are skeptical until they understand the terms of a transaction. When every question has been answered, and we still want the thing, we buy.

The typical sale pitch ends with “Sign Here!”, where the buyer puts pen to paper after all objections are overcome. Nowhere is the buyer encouraged to read and consider the contract itself, because the salesperson has already covered the terms. You see, a critical element of every sale is the buyer’s trust. As the theory goes, the buyer won’t need to read the contract because he or she trusts the seller. And let’s face it, litigation is the last thing on a buyer’s mind at closing.

But it’s often the first thing on a seller’s mind. Litigation is expensive. Lots of sales revenue goes up in smoke in the form of settlements and legal fees when a company is sued. So when customers complain about their purchases, companies try to steer them toward mediation, arbitration or other alternatives to litigation. It’s been largely voluntary for both parties, until now.

Everyday Everywhere Arbitration

A three-part New York Times investigation has revealed that mandatory arbitration clauses are routinely showing up in everyday contracts, tricking consumers and employees into waiving their rights to a day in court. The investigation found,

Over the last few years, it has become increasingly difficult to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration. The same applies to getting a job, renting a car or placing a relative in a nursing home.

The contract language is often very concise — “You or we may elect to resolve any claim by individual arbitration. Claims are decided by a neutral arbitrator.” — and is hidden within long passages of legalese.

The reference to individual arbitration in the contract language is no accident. It operates as an outright ban on class-action lawsuits, an interpretation affirmed by the U.S. Supreme Court in 2011 and 2013. So when a group of consumers or employees files suit against a company, that company can halt the litigation and disband the group by forcing each plaintiff into separate arbitration. The Times reviewed nearly 1200 federal class-action lawsuits over the last five years and found that judges shut down 80% of them due to arbitration clauses.

The Privatization of Civil Justice

Does arbitration work? Plainly, no. It’s often more expensive for an individual plaintiff to bring a case before an arbitrator. Proceedings are confidential, off the record and behind closed doors. There are no rules of evidence, so arbitrators alone decide which pieces of evidence to consider and how much weight to give them. And while errors in a court of law can be appealed to higher courts, there are no rights to appeal an arbitrator’s ruling.

There are also no enforceable rules against conflicts of interest. A corporate defendant is usually the party electing arbitration, and therefore the company being sued hires and pays the arbitrator. This allows the business community to influence the profession in ways that prevent arbitrators from truly being neutral.

Aside from class actions, mandatory arbitration clauses also close the courthouse doors on single claimants, as well as those of us suing without lawyers. In the last few years, fewer and fewer plaintiffs have elected to proceed with arbitration when their cases are thrown out of court. According to the Times, the justice system has effectively been privatized for consumer and worker claims.

Replacing the Rule of Law with Scripture?

Some companies go a step further to require private religious arbitration of customer and employee disputes. Commentators and politicians on the right often rail against Sharia law proceedings in the United States. But it turns out that Christian proceedings are common alternatives to secular courts of law, when all parties agree to them. Decisions are based on the tenets of the Old and New Testaments, and the arbitrators are specially trained religious authorities. Nowadays, with religious arbitration clauses sneaking into everyday contracts, some consumers are finding it necessary to find scriptural support for their claims.

Judges across the country have been steadfast in enforcing these clauses, out of respect for contract law and to avoid interfering with religious freedom. When a party to a lawsuit has signed a contract with a religious arbitration clause, and the other party elects arbitration, there is little a judge can do to keep the matter in a secular court. Parties have been forced into religious arbitration even where the evidence showed their religious beliefs changed after signing the contract.

Fighting Back

Contracts for everything from streaming TV to home renovation services now include arbitration clauses of one kind or another. The Times series is worth a read if you enjoy legal horror stories. Again, here’s Part 1, Part 2 and Part 3.

So what can be done to protect your rights? Support the efforts of Fair Arbitration Now, a coalition of consumer advocates working to ban or regulate mandatory arbitration clauses. When suing a company on a contract with an arbitration clause, be sure to attack the contract itself in your claim. It may be unenforceable if you assert and can show that you didn’t understand the terms. The best protection against mandatory arbitration is to locate and literally mark through these clauses in any contracts you sign, or to find a product or service provider that doesn’t use them.

Have you found these clauses in your contracts? Have you been forced into arbitration, and how did it work for you? Share in the comments below.

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