Forced arbitrations finally under fire

Bill Knight column for Thursday, Friday or Saturday, June 9, 10 or 11

In labor agreements, arbitration is a joint procedure to avoid a work stoppage or other disruption, a system where unions and employers agree on a professional arbitrator from the non-profit American Arbitration Association or similar group to consider and resolve contractual disputes.

Outside of union contracts, arbitration can work differently. Positive experiences include alternatives in family disputes, for instance. But negative experiences include “forced arbitration” when other avenues to resolve disagreements are fairer.

Forced arbitration isn’t uncommon any more. Whether you’re applying for a low-wage job or buying something from a web site, you sign papers or hit “agree” without reading lengthy text. And you give up your right to go to court.

The country now faces this from the cradle to the grave, as businesses requiring arbitration include obstetric clinics and funeral homes, but also restaurants and retailers, and internet and tech companies.

Preventing workers or consumers from going to court, corporations weaken or prevent most challenges to a host of concerns: medical malpractice and wrongful death, wage theft and discrimination, sexual harassment and fraud, predatory lending and elder abuse.

Arbitration only works if both sides want to participate, said Cliff Palefsky, an attorney who’s helped develop standards for the system and testified before Congress on the issue.

“Once it’s forced, it is corrupted,” he’s said.

Arbitration isn’t like court. Instead of people getting a hearing before a presumably neutral judge, forced arbitration sends disputes to a third party usually picked by the company. In court, parties can question testimony and evidence and appeal.

However, reform may be possible. The Consumer Financial Protection Bureau last month proposed a federal rule that would ban mandatory-arbitration clauses in financial services, from banks and credit card companies to insurers and investment firms. The CFPB wants to prohibit companies from putting forced arbitration in contracts preventing class-action lawsuits. Under the proposal, companies would still be able to include arbitration clauses in their contracts, but clauses would have to say that they cannot stop consumers from being part of a class action in court.

It’s a small step, protecting class-action suits more than limiting forced arbitration for individuals. Still, it’s significant because corporations have increasingly forces plaintiffs in class-action suits into arbitration as individuals.

“If you have a dispute with the company, you no longer have your constitutional right to civil jury trial,” said Joanne Doroshow, founder and director of the Center for Justice and Democracy.

“You must resolve that dispute in a corporate-designed arbitration system, run by an arbitrator who may or may not even be a lawyer, who doesn’t have to follow any rules of law,” she continued. “It’s secret; there’s basically no appeal; you are basically subject to the biases and manipulations of the arbitrator and the company who hired that arbitrator.”

Class-action lawsuits are often the only way citizens have to fight dishonest or illegal business practices. Class actions allow people who lost small amounts of money or shared a common injustice to join together to seek relief. Indeed, the New York Times in a series published this winter showed that requiring arbitration discourages complaints – arguably Big Business’ purpose. Once blocked from going to court as a group, most people drop their claims, the Times reported.

F. Paul Bland Jr., director of consumer-advocacy group Public Justice, said, “Corporations are allowed to strip people of their constitutional right to go to court. Imagine the reaction if you took away people’s Second Amendment right to own a gun.”

The forced-arbitration tactic emerged from a 1999 effort by a Wall Street-led coalition of credit-card companies and retailers, according to the Times. John Roberts, now the Supreme Court’s Chief Justice, represented the credit-card company Discover then, and in 2011 and 2013, the Supreme Court approved the corporate-friendly tool. Leading the charge was the late conservative Justice Antonin Scalia – whose hostility toward class-action suits was shown in opinions like his majority view in “Wal-Mart v. Dukes,” where he wrote that women workers at Wal-Mart couldn’t bring a class action against the giant retailer for paying and promoting them less than men because the company was too big to discriminate and could be trusted to be fair.

Supreme Court Justice Elena Kagan in a dissenting opinion wrote, “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”

Congress had largely ignored the issue, but CFPB’s proposal may spark action. U.S. Sens. Al Franken (D-Minn.) and Patrick Leahy (D-Vt.), and U.S. Rep. Hank Johnson (D-Ga.), are pushing the Arbitration Fairness Act.

For now: Read the fine print, know what you’re surrendering, and ask employers, businesses and elected representatives to restore Americans’ right to a day in court.

[PICTURED: Jen Sorensen cartoon from The Labor Paper, which used by permission.]