By: Jeffrey Zaiger
There has never been a better example of slowly legislating employee and consumers’ rights away than with “mandatory arbitration.” Signing a contract for employment or purchasing consumer goods will very likely have an arbitration clause. In the consumer context, these agreements are invariably obscure clickwrap terms and conditions or a shrinkwrap agreement when you open the box to a new purchase. Other times the terms are hidden with fine print or the middle of pages of boilerplate legalese in terms of service. For the past four decades corporations have been getting more and more aggressive with what rights they seek to have individuals waive in arbitration clauses that will likely go unread. Although frequently touted as a more cost friendly alternative to the courts, the reality is that corporations are generally interested in just reducing their exposure to liability and protecting their bottom line. Beginning in the ‘80s, the courts have gone along, passing decisions that have slowly eroded employee and consumers’ access to the courts, one decision at a time.
What is Mandatory Arbitration
Arbitration is a less formal out of court process where disputes are submitted to one or more arbitrators. In the case of a Mandatory Arbitration Clause, these disputes are typically submitted to a single arbitrator.
Problems with Mandatory Arbitration
A key reason why companies are eager to adopt arbitration provisions is because the cost of pursuing a single arbitration will often be prohibitively costly from the lens of both time and expense. In addition, because arbitration is an informal process, it doesn’t have to follow rules that protect consumers. Often, the discovery process is cut short or isn’t as extensive as the discovery required by a court. Even when an attorney like Jeffrey Zaiger pushes for more complete discovery, the arbitrator has discretion to turn it down. It also doesn’t give attorneys the option to object to inadmissible evidence.
Some companies even go so far as to eradicate the statute of limitations by giving the consumer a very short time to start the arbitration process. For example, if a company’s product injures a consumer, the consumer has a specific number of years to take legal action in the courts. However, that company’s arbitration clause might give you as little as 90 days.
How Court Rulings Have Expanded Corporations Efforts to Shield Liability With Arbitration Clauses
In 1925, a federal law, the Federal Arbitration Act (FAA), was enacted. The original law provided that a court must stay (stop) litigation if a contract had an arbitration clause. The original law only applied to a specific type of case, not cases involving consumers or employees. The law also stated that a ruling through arbitration could only be set aside if the arbitrator was biased, if the ruling was based on the fraud of one of the parties, or if the arbitrator exceeded their power or refused to hear relevant evidence.
The Federal Arbitration Act in the 1980s and Later
Through a series of cases in the 1980s, the Supreme Court radically expanded the role of the Federal Arbitration Act, including deciding the act applies to all types of disputes instead of only business contracts. It governs even cases brought in state courts, including New York.
In the early 20th century, consumers could have a court overturn an arbitration agreement. The New York Chamber of Commerce and the American Bar Association enacted a law called the New York Arbitration Act of 1920. The two organizations then went to Congress, and the 1925 FAA was enacted. It is this law that is being constantly changed in favor of large corporations.
Between 1985 and 2015, the Supreme Court ruled on over 24 cases relating to arbitration. Nearly all of those cases expanded the scope of the Federal Arbitration Act, extending it to consumers and employees and restricting states’ ability to make laws protecting the two classes.
It is challenging to avoid arbitration if the consumer cannot afford it or if the contract is unconscionable, illegal, or unenforceable through separation clauses and/or the separability doctrine.
Finally, the last nail in the coffin: The Supreme Court ruled that arbitration clauses could also include class-action waivers, making it impossible for a class of consumers to sue a large corporation in a class-action lawsuit. Instead, each injured person must attend arbitration.
Congressional Intervention
At this point, the only way to return these rights to the consumer is via legislation. In 2017, the Consumer Financial Protection Bureau tried to create a rule to regulate arbitration agreements and give some rights back to consumers and employees.
However, Congress intervened, and the Senate voted in a 50-50 decision, with the Vice President of the United States (the President of the Senate) voting to disapprove the final rule, thus allowing big corporations to continue bullying consumers and employees.
Use of Mass Arbitration
Today a handful of firms – including Zaiger LLC – are fighting to rebalance the scales by utilizing what has become known in the past several years as “mass arbitration.” This is where a significant number of employees and consumers file individual arbitration claims against a company on the same or similar issues. Companies’ efforts to fight back, thus far, have been rebuffed as utterly hypocritical, with several courts noting that these companies have been “hoist with [their] own petard” after fighting so long to include class action waivers. Companies efforts to fight back back creating additional obstacles standing in the way of due process are ongoing and it remains to be seen how much they can get away with before arbitrations clauses–and class action waivers–are deemed unconscionable. Stay tuned!
If you have a complaint against a company or employer subject to an arbitration provision, contact Jeffrey Zaiger, founding partner of Zaiger, LLC, to help with your business litigation and/or arbitration.
Contact Info:
Name: Jeffrey Zaiger
Email:jeffreyzaiger4@gmail.com
Organization: Zaiger LLC
Website: https://jeffreyzaiger.com/
