Consumer Contracts | Arbitration Clauses
Updated: May 20, 2022
It’s a simple task. Just sign on the line or click “Agree” at the bottom of the window. Tap the check box and continue. But do you really know what you are agreeing to when you sign, click or tap the bottom of a contract or agreement?
We are presented with many contracts including:
Home improvement contracts
Liability waivers for children’s events
Buying or selling a home
Appliance purchase, repairs, and installation agreements
Signing a lease for an apartment
Employment agreement
Personal care home and elderly care contracts
Agreements and disclosures with doctor and dentist offices
Alternate energy utility provider agreements
Loan agreements
Car rental agreements
Gym memberships
Many of these agreements include a forced arbitration provision. These provisions are often used to limit your rights in the event of a dispute.
What is arbitration?
Arbitration is an alternative method of resolving disputes. Two parties present their individual sides of a complaint to an arbitrator or panel of arbitrators. The arbitrator decides the rules, weighs the facts and arguments of both parties, and then decides the dispute. Arbitration may be voluntary or mandatory.
What is voluntary arbitration?
In voluntary arbitration, both sides in the dispute voluntarily agree to submit their disagreement to arbitration after it arises rather than filing a lawsuit in court. Arbitration can be less expensive than a conventional lawsuit and get to a result faster.
What is forced arbitration?
In forced arbitration, a company requires a consumer or employee to submit any dispute that may arise to binding arbitration as a condition of employment or buying a product or service. The employee or consumer is required to waive their right to file a lawsuit in the local court, to participate in a class-action lawsuit, or to appeal an arbitrator’s decision. Forced arbitration is mandatory, the arbitrator’s decision is binding, and the results are not public.
Where is forced arbitration commonly used?
Forced arbitration is being written into more and more terms of agreements and contracts, including those used for employment, insurance, home-building, car loans and leases, credit cards, retirement accounts, investment accounts, and nursing facilities, to name a few.
Are these clauses easy to find in the paperwork?
Generally not because most consumers don’t know to even look for the clause. This is largely because people generally do read contracts before signing them, sometimes because they are not given enough time before signing. If you do not understand the downsides of forced arbitration, the presence of the clause may not concern you at all.
What’s wrong with arbitration?
Nothing, if it’s “voluntary” arbitration. In fact, you always have the right to arbitrate even without the clause in the agreement. If both parties agree, there are many arbitration services available. But you never want to give away the right to sue if arbitration does not work. Companies want you to give away that right because they have the advantage in arbitration and can evade accountability.
Is arbitration cheaper?
One of the alleged benefits of arbitration is that it costs less than litigation, but sometimes this is not true for consumers and employees. Forced arbitration can cost more than taking a case to court, especially in Pennsylvania for disputes where $13,000 or less is in dispute. Claims of that size can easily and cheaply be filed with your local district magistrate and in most cases, you’ll have a hearing within sixty days. With arbitration, individuals often have to pay a large fee simply to initiate the arbitration process. If they are able to get an in-person hearing, individuals sometimes have to travel thousands of miles on their own dime to attend the arbitration, especially if the arbitration clause requires the hearing to take place where the company is located instead of where the consumer lives. In the end, the loser may also be required to pay the winner’s costs and the legal fees. That’s not necessarily true for regular lawsuits and can be a big risk for consumers, often dissuading them from demanding arbitration in the first place.
Why should you be concerned about forced arbitration?
Forced arbitration is preferred by companies because it benefits companies – not the employee or consumer. Here are some problems and dangers:
Individuals are often unaware they’ve agreed to forced arbitration. Most Americans have accepted goods or services for a job with forced arbitration as a condition; and yet, very few individuals report having noticed a forced arbitration clause in the terms of agreements or contracts they’ve accepted.
Forced arbitration severely limits consumer options for resolving a dispute. Before any problem arises, you lock yourself into only one option—forced arbitration—for resolving all future disputes or problems. The contract typically also names the arbitration company that must be used – the one preferred by the company because its rules are slanted in favor of the company.
Forced arbitration clauses generally bind the consumer—not the company. The way many forced arbitration clauses are written, the seller retains its rights to take any complaint to court while the consumer can only initiate arbitration.
Arbitration is a private system without a judge, jury, or a right to an appeal. Arbitrators aren’t required to take the law and legal precedent into account in making their decisions. There is no appeal or public review of decisions to ensure the arbitrator got it right.
Employees cannot sue for discrimination, harassment, abuse, retaliation, or wrongful termination. In forced arbitration, the laws that protect employees from discrimination based on age, sex, religion, race, disability, and unequal pay for equal work, such as the Civil Rights Act and the Equal Pay Act, become meaningless and unenforceable in court. Employees lose important protections for blowing the whistle on waste or fraud or for fighting retaliation for taking the family medical leave.
Consumers cannot sue for negligence, defective products, or scams. Just by buying a product or service, consumers can lose their right to hold a company accountable. Even if a retirement account disappears, a home is dangerous and defective, or a loved one suffers harm in a nursing home, a forced arbitration clause means there is no right to take the company responsible to court.
What can I do about the problem?
Cross out the arbitration clause, initial the area, sign and return the contract and see if the company notices at all. They may not. If not, then you’ve probably succeeded in voiding that provision. If the company notices and asks you to sign an unmarked copy, try to negotiate this term of the contract. Perhaps ask that the arbitration take place in your town or that the company pays the arbitration fees. But ultimately, in order to ensure that you can buy products and services and be employed without giving up your legal rights, legislation must be passed to ban forced arbitration.
Seek Legal Advice
You don’t have to try and interpret contracts and their jargon on your own before you sign to something you may be unfamiliar with. The knowledgeable lawyers at Fiffik Law Group are ready to assist you in your contract needs. Contact them today with any questions you have or to schedule a meeting to go over your own contracts or agreements.