US House Passed the FAIR Act–Restricts Arbitration

Law could Restrict Arbitration Clauses in Employment and Consumer Contracts

This column has previously brought attention to the scourge of private arbitration contracts and how they restrict access to justice and unfairly tilt the playing field in favor of large companies and against individuals. An “Arbitration Clause” is language in a contract for goods or services that states that the parties agree to waive their rights to trial before a judge and jury. Instead, they agree to resolve contract disputes by a private arbitration. The concern is that consumers and employees rarely, if ever, actually realize they are agreeing to this waiver.

These clauses can exist in all sorts of contracts. They are virtually always written by the lawyers for a very large company, and are printed in a form that does not suggest that the terms are negotiable.  And now are included in “Terms of Service” click-thru agreements that consumers do not take the time to read).

Arbitration is a Loser for Consumers

The danger is that when a consumer waives their rights to trial by judge or jury, they are almost certainly waiving their rights altogether. The reason is that Arbitration is a rigged game. Proponents have often framed the benefits of this resolution process by extolling the efficiency and reduced costs to the sides. But ‘cost savings’ is a dubious claim when the likelihood is that an employee, bank customer, or cable customer is simply going to lose their case in the first place. And efficiency is not a virtue in a biased process.

The White House opposes the FAIR Act with the same tired, old language used to justify a system that disadvantages consumers in a rigged system for decades.

In a statement on Tuesday, the Office of Management and Budget said the bill would “increase litigation, costs, and inefficiency, including by exposing the vast majority of businesses to even more unnecessary litigation.”

The reality is that consumers and individuals lose their Arbitrations at an alarming rate. One review of data from the private American Arbitration Association that is used by parties to have arbitration hearings determined that employees won about 1.8% of their cases. The process is secretive. It is not open court. And Arbitrators have an obvious incentive to rule in favor of the company: hiring for future cases. Whereas the consumer is likely having their lone arbitration.

With House Passage Bill Heads to US Senate

The FAIR Act would change all of this. A version has passed the US House that would restrict the silent insertion of these waivers into consumer contracts. That is why this is your chance to act. Call your Senators. Urge them to vote in favor of the FAIR Act. Frankly, it is fair that Americans deserve to have their disputes resolved in open courts, subject to the rule of law, not a separate, secret system run by the country’s largest corporations.

And as for click-thru, it is not simply a matter of consumer laziness. The terms are arcane, dense, legalistic and thickly-drafted. They are included on a page that must be agreed to in order to complete a transaction at the late stages of an online process. The language is in these service agreements is lengthy. And the sheer number of providers that a consumer transacts with makes it impossible to actually all the terms.

Justice is difficult enough to obtain in the first place. Unfair charges on a cable bill, disputes over cell phone billing services; overcharging or improper charging by your bank, unfair labor practices, these disputes can mean a great deal to you. You deserve to have the dispute resolved in a fair, open court.