If you live and work in America, you've probably signed away your right to bring a legal action in court against your employer, your cell phone or cable company, your parents’ nursing home, or any other big institution in your life.[i] Instead, you've probably agreed to private, binding arbitration.[ii] But even though you've signed this arbitration clause, there may still be a way to avoid arbitration and reclaim your right to sue in court.
What is Arbitration?
Examine the last “terms of service” you accepted, and you will likely find a clause agreeing to waive your right to bring a dispute in court, and instead agreeing to bring any dispute in binding, individual arbitration before a private arbitration provider chosen by the company.
In private arbitration, the arbitrator—usually a lawyer or retired judge—makes the rules and acts as judge and jury for your case. Because private arbitration companies are businesses, they’re usually more efficient and streamlined than the courts. But this efficiency can come at the price of your rights.
Because arbitration is a private industry, arbitration presents three giant hurdles that can unfairly tilt outcomes in favor of the very companies that choose arbitration in the first place: (1) repeat-player bias, (2) lack of transparency, and (3) class action waivers. These three hurdles can often leave you worse off than you were to begin with.
Repeat-Player Bias: Relationships Between Arbitrators and Companies
Arbitration companies, like other businesses, are dependent on their customers. Since the companies that choose arbitration are often the ones paying the fees (which can be as high as $15,000 per day)[iii], there exists a strong incentive for arbitration providers to foster their business relationships with these companies.
As you’d expect, studies show that people usually lose to companies in arbitration. One study examining employment disputes found that employees only won about 20-30 percent of the time in arbitration, as compared to 50 percent in state court.[iv] An examination of consumer disputes similarly found that the consumer win rate was 20-30 percent, as compared to 80 percent in small claims court.[v]
Potential financial bias in favor of defendants can be explicit, too. For example, at a recent hearing in a lawsuit against DoorDash, the plaintiff’s attorneys accused DoorDash and its attorneys of working behind the scenes with a new arbitrator to rewrite the rules of arbitration to favor DoorDash.[vi]
In court, a company being sued cannot meet privately with the judge to discuss its pending case, much less rewrite the law in its favor. But because arbitration is private, companies can gain advantages they never could in court.
Lack of Transparency: Denying Precedent and Public Access to the Courts
The fact that so much of arbitration happens out of public view is particularly troubling. Whereas court dockets are generally presumed to be public, arbitration dockets are kept behind closed doors by the private arbitration providers. That means someone trying to sue their employer—for example, for wage theft or fraud—might not be able to conduct a fruitful pre-lawsuit investigation to find out if and how many times the company has been sued in the past; or look through the briefs and filings in past cases to devise a winning strategy. This lack of transparency chills access to justice for the people who need it the most.
Critically, in situations where a pattern of behavior is necessary to prove the claim—like in some types of discrimination cases—lack of public access to similar past complaints can dissuade the victim from filing suit in the first place.
Private arbitration also denies decisions in the case of any precedential value, which means future courts can’t look back on the decision and use it for guidance, effectively preventing the development of the law in that area.
Class Action Waivers: Losing Your Right to Even the Playing Field
Even if a single person manages to win an arbitration against a company, the class action waiver in many arbitration agreements means that the victory does not help the countless other people who have been mistreated in a similar way.
Class actions enable large numbers of people, arm in arm, to rise up against the institutions that hold all the bargaining power, and to effect systemic, lasting change. But most arbitration clauses mandate “individual” arbitration and waive the person’s right to bring or be a part of a class action.
That means it’s just you, alone, against a very large corporation. Even if another person before you brought your exact claim and won, there’s no guarantee you will have the same result. Because individual arbitration enables companies to fight off each claimant one at a time, the companies have no incentive to change unfair or unlawful practices on a companywide basis.
Opting-Out of Arbitration and Protecting Your Rights
The good news is that, even if you're signed an arbitraiton agreement, you may still be able to protect your rights and even the playing field.
Many arbitration clauses have an “opt-out” clause that allows you to opt out of arbitration within 30 days of signing and retain your right to bring a class action in court. These opt-out clauses often require that you send a letter or email to a specific address stating that you are opting out of the arbitration clause. The arbitration and opt-out clauses may be hard to find, so if you’re presented with a contract or terms of service and you have any concerns, you should talk to an attorney immediately.
Here is an example of the opt-out clause within grocery-delivery company Instacart’s terms of service as of March 2020:
There are also a number of different defenses and exemptions under which an arbitration agreement may be unenforceable or inapplicable. These include defenses like unconscionability (the arbitration clause unfairly gives the company more rights) and fraud (the contract was presented under false pretenses). Many of these defenses have state-specific nuances, so it’s important to talk to an attorney in your area if you have a dispute against a company that’s governed by an arbitration agreement.
It can seem nearly impossible to decline terms of service when you have to accept them in order to use your new phone, to get internet working at your house, or to start your job and get paid.
But you can opt out of many arbitration clauses. You can seek a free consultation with a lawyer about the validity of an arbitration clause. So, the next time you click through terms of service and see an arbitration clause, ask yourself if you're comfortable waiving your right to access justice in a court of law simply because that's what the big company wants.