The Federal Government Is Acting On Forced Arbitration

In September, the U.S. House of Representatives passed the Forced Arbitration Injustice Repeal Act, or FAIR Act. This bill addresses the forced arbitration clauses included in many employee and consumer contracts and seeks to wipe them out of existence completely. The bill has an uphill battle ahead of it in the Republican-controlled senate, but there is a chance it could gather enough support to change the trend of adding arbitration requirements to contracts to prevent individual and class-action lawsuits.

What Arbitration Is

An arbitration is essentially an alternative to a lawsuit. The idea is that both parties agree that a lawsuit would take too much time and cost too much money, so instead they will present their case to a panel of arbitrators and abide by their decision. There are no appeals to worry about, no jury to call in, and no court fees to pay, so the cost of arbitration is fairly low.

However, arbitration also has some downsides. The arbitrators called in to judge a case tend to be industry experts, and their opinions often skew more towards the businesses than the individuals with a complaint. Arbitration has no class-action system, and so if a corporation injures a large group of people they all have to individually bring their case to arbitration instead of pooling their resources. Also, while you can issue subpoenas during arbitration to get important documents, the documents don’t always become public the way they do during a trial.

Why Corporations Use It

When one party signs a contract presented by a second party, both of them normally have a right to bring any disputes between them to court. If an employee doesn’t get paid on time or gets fired for a discriminatory reason, they can sue. If a consumer experiences a lot of service disruptions or gets a product that doesn’t work right, they can sue.

An arbitration clause says that the signing party gives up this right to sue and will only resolve disputes using arbitration. A corporation will say that they include this clause to save on legal costs, and by avoiding legal problems they can provide cheaper services or higher wages. However, it’s very hard to show exactly how much of these savings they’re giving back to their employees or customers, and it’s quite obvious why they would want to avoid the bad publicity of a court case.

Why It’s Possibly Illegal

Arbitration clauses seem legal when you take them at face value. After all, everyone in America is entitled to bring a dispute to court, but everyone can also choose to settle their disputes independently. The problem is that in many situations both consumers and employees might not have other alternatives. A homeowner might only have one cable provider in their area, and their alternative to a forced arbitration clause is to not have an internet connection at home. An employee may have only one or two job offers, and both jobs come with forced arbitration.

Forced arbitration clauses are also frequently hidden under pages of legal paragraphs, so consumers and employees might not even realize they’ve signed away their right to a lawsuit. Because of these unfair practices, forced arbitration clauses are routinely struck down when employees and customers bring their cases to court anyway. However, this only happens contract by contract, and many more end up going to arbitration and don’t get the compensation they deserve.

The FAIR Act could put an end to this practice once and for all if it manages to get past the senate and the president’s desk. However, until that time comes it’s important to remember that you still have a right to a trial and even in an arbitration you have a right to hire a legal representative.


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