Chances are, you’ve signed a long contract when signing up for credit cards, purchasing a car, or even in employment agreements. But have you ever taken a look at the fine print? You might be surprised to learn that you may have signed away your Seventh Amendment right to file a lawsuit in a court of law in the event a dispute arises.
It has become increasingly common for corporations to include mandatory “arbitration clauses” in their contracts with consumers and employees. These arbitration clauses typically say that the parties to the contract may not file a lawsuit arising from their relationship in the courts we pay for with our tax dollars. Instead, all disputes between the parties must be submitted to a private arbitration company that employs lawyers and former judges to decide the parties’ dispute.
Some say that arbitration provides a neutral forum that is faster, cheaper and less complex than going through the courts, so it benefits everyone involved. Others believe that arbitration tends to be more biased in favor of businesses. According to a study published by Public Citizen, a non-profit consumer watchdog, one arbitration company decided 94 percent of cases it heard against consumers.
How might these biased results be explained? For one, the company that drafted the agreement gets to pick which arbitration company that will decide the very claims filed against them. This would be as if though a defendant facing a regular lawsuit gets to pick the judge and jury and pays them to decide the case.
Arbitration also means that many of the procedural rules and laws created by our elected officials and the courts no longer apply. Arbitrators’ decisions do not create judicial precedent, but neither are they bound by it. In fact, arbitration decisions are legally-binding, and in most cases cannot be reviewed and thrown out by courts, even if it can be shown that the arbitrator failed to properly apply the law or misinterpreted the contract.
You might be wondering – how can all of this be legal? The simple answer is that the Supreme Court has issued a series of rulings in recent years that have elevated the Federal Arbitration Act – the federal law that governs arbitration agreements – above the rights of individuals to bring their disputes before state and federal courts. The Supreme Court and lower courts have said that because arbitration agreements “are simply a matter of contract” they must be “rigorously enforced” as such. All of this assumes that consumers and employees have equal bargaining power with big businesses, are fully aware of what they are getting themselves into, and voluntarily agree to sign away their right to access the courts.
The reality is that many of these contracts are presented on a take-it-or-leave-it basis and regular people have no other option but to accept their terms or forgo essential services, products and even job opportunities unless they agree to arbitrate their claims. For example, in Texas, employers can condition continued employment on the acceptance of an arbitration plan. In re Halliburton Co., 80 S.W.3d 566 (Tex.2002). Employees who are injured on the job are frequently required to waive their rights to a jury trial in order to receive benefits under a non-subscriber employee insurance benefit plan. Even families of employees who are killed on the job may be subject to binding arbitration. That was the case in In re Golden Peanut Co., LLC, 298 S.W.3d 629 (Tex. 2009), where the Texas Supreme Court held that the widow of a deceased worker, who was not covered by workers’ compensation insurance, was required to arbitrate her wrongful death claims against the employer, even though she did not sign the agreement herself.
So what does this mean for you? Before you sign an agreement that contains an arbitration clause, make sure you read it closely and consider what it might mean for your rights should you decide to sign it. You might even be able to negotiate elimination or modification of the provision. But, if you find yourself in a dispute that involves a contract with an arbitration clause, make sure you contact an attorney who can review the terms and let you know whether you will be forced into arbitration.