The Fine Print of Forced Arbitration

American consumers enter into contracts every single day.  Some of these contracts fit the picture in our minds of what a normal contract looks like, such as purchasing a new home.  Others are very informal and we hardly think of them as contracts because they’re part of our everyday life.  For instance, when you go to the gas station, you are essentially contracting with the business to pay them in exchange for fuel.  When you get a new credit card, you are contracting with them to make payments with interest in exchange for a line of credit.  When you start a new job, you perform work in exchange for payment for your services.  But more often than not, these transactions don’t strike people as “contractual obligations” because they don’t usually require you to come in, sit down, go over stacks of paperwork and sign documents that could have detrimental legal implications. 

But what happens when these transactions do have detrimental legal implications and you don’t find out about it until it’s too late?  This is the case for many Americans who have no idea that just by taking a job, swiping their credit card, or purchasing a product, they are binding themselves to forced arbitration. 

Buried deep in the fine print of credit card agreements that most people don’t even read, or employment agreements that most people think are standard forms, is a mandatory arbitration clause that forces you to give up your right to sue the company in court for their illegal and sometimes even dangerous conduct.  There is no judge, no jury and no right to appeal in forced arbitration.  Instead, you and the company each present your case to an arbitrator who makes a final and binding decision about your case.  Sometimes, there is only one arbitrator, who can even be pre-selected by the company in the arbitration clause.  Other times, it is a panel of three, with one arbitrator selected by the company, one selected by you and the third being one you both agree on.  Each of these arbitrators usually charge anywhere from $300-$500 per hour and you may be responsible for paying half of their fee.  Even the smallest of cases can take hours to arbitrate, resulting in massive legal fees. In one Minnesota case, the family of an elderly man who died as a result of negligence in a nursing home was awarded $230,000, but after paying arbitration fees, the entire family received less than $20,000 (Katie Halloran, Justice Denied, Trial, Jan. 2017 at 38).  That’s hundreds of thousands of dollars spent on arbitration when taking the matter to court could have cost considerably less.

Arbitration is also a private proceeding and not subject to appeal.  So, there is no way to monitor or review the arbitration process to ensure that misconduct did not occur. 

Why does this matter so much?  Because mandatory arbitration clauses are in almost every set of terms and conditions for everything you purchase nowadays, even if you don’t actually sign a contract for them!  If you own a cell phone, have health insurance, use a credit card, have a checking account, work for a large corporation, purchased a car from a dealership, or even attended a for-profit college, you may have signed away your legal rights in the form of a forced arbitration clause.  Unfortunately, even knowing that these clauses exist doesn’t offer the consumer any protection from them.  After all, it’s virtually impossible for individual consumers to negotiate the terms of their cell phone contracts or credit card terms.  In order to escape these forced arbitration clauses, legislation must be passed to ban the practice of forced arbitration altogether. 

Jill S. Bollwerk
Helping St. Louis area residents with personal injury, workers' compensation & insurance appeals/disputes.