The Pervasive Evils of Forced Arbitration

The Seventh Amendment of the U.S. Constitution guarantees the right to trial by jury in civil cases over disputes that exceed $20. This right is as old as our democracy itself. The Seventh Amendment, introduced by James Madison, was included among the original Bill of Rights.

Arbitration is a proceeding governed by an agreement of parties, whereby a dispute between them is resolved by a neutral third party, rather than by a jury, whose decision will be final and binding on the parties. Arbitrators are most often lawyers or former judges, rather than people of diverse educational and occupational backgrounds that comprise most juries. Unlike jurors, arbitrators are paid handsomely to decide cases.

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Arbitration was initially devised to provide a more cost and time efficient alternative to jury trials, which merchants in commercial transactions could utilize if they unanimously chose to do so. However, our arbitration structures now work primarily to stifle claims and prevent just outcomes when consumers or employees have been cheated or harmed by big businesses.

Research done by Consumer Reports and authors of a 2019 article in the UC Davis Law Review reveal that in 2018 there were at least 826,537,000 consumer arbitration agreements in force in America during the year 2018, and that 81 of the Fortune 100 largest companies in America had compulsory arbitration agreements incorporated somewhere in the small print of their purchase or service agreements or embedded in the product package labeling or warranty language.

Today, “a person cannot open a bank account, buy a car, or use a cell phone without contracting away the Seventh Amendment right to a jury trial.”

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Consumers and workers fare poorly against big businesses in arbitration. The American Association of Justice (AAJ) conducted a study of compulsory arbitration. That study revealed that in a period of five years though the year 2018, there were approximately 30,000 consumer arbitrations conducted by the two most predominant arbitration providers. Of those 30,000 arbitrations, only 1,909 consumers won, an average of 382 consumer winners per year for each of five years.

Over the same period, consumers pursued 6,012 financial claims against credit card companies or banks through forced arbitration. They won monetary awards in only 131 cases. Workers who pursued claims in arbitration against their employers were similarly unsuccessful.

Large corporations also use arbitration clauses to prevent formation of consumer class actions. In 2010, the U.S. Supreme Court issued a ruling in the case of AT&T Mobility, LLC v. Concepcion. That case was a dispute over a cellular phone contract. Concepcion, a California resident, claimed AT&T charged him money for a phone it should not have because it advertised the phone itself as free. Concepcion was not alone in making this complaint. He filed his case in court and then his claim was consolidated as part of a class action of consumers who had made the same allegations. However, embedded in Conception’s cellular service contract was language that the consumer waives the right to participate in a class action against AT&T.

AT&T moved to compel Concepcion into arbitration. Conception opposed the motion, citing a specific California state law that expressly deemed consumer class action waiver provisions in contracts as per se unenforceable and “unconscionable.”

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Nonetheless, AT&T prevailed. SCOTUS ruled that the Federal Arbitration Act of 1925 preempted application of the California state law. The decision sounded a “death knell of consumer class actions.”

The pervasive use of forced arbitration clauses in consumer employment agreements has resulted in a destructive transformation of the civil justice system that harms the American public – where big businesses, when they harm consumers or employees, are less accountable for misconduct than ever before. And according to the Supreme Court, that’s the American way.

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