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Forced Arbitration: The Fine Print That Takes Away Your Rights

forced-arbitrationGeneral Mills gave itself something of a Public Relations black eye when it got caught slipping some tricky new language into its “terms of service” agreement. Unnoticed by most consumers, the company had imposed restrictive new legal conditions on anyone who unsuspectingly redeemed an online coupon for a cereal or baking product, or clicked “Like” on a General Foods Facebook page, or entered a sweepstakes or otherwise received a “benefit” from the company (other than, for example, the thrill of watching one’s children savor their Count Chocula).

The updated language took away the consumer’s right to sue General Mills in court and required them to submit to submit any grievances against the company to an arbitrator. It also banned them from participating in class action suits. Because they were engaged in routine online activities, few General Mills customers understood that they were entering into a contract at all, much less renouncing their right to sue the company.

This misdeed generated a few days of media outrage, and due to a furious – if short-lived – backlash the company was persuaded to rescind the new terms. But in reality, General Mills’ only “crime” was getting caught. Although the media chose this particular incident to spend fifteen minutes on, there was nothing illegal or even unusual about inserting restrictive clauses into an online usage agreement. In fact, compelling consumers to surrender their right to legal redress in the courts – generally known as forced arbitration – is quickly becoming standard corporate practice.

It Doesn’t Sound Nice and It Isn’t
Forced arbitration legally compels the customer to submit disputes to a binding adjudication process as a condition attached to purchasing a product or service from the company. Even if the product is defective, the service is not as promised, or you suffer hurt or injury, you the citizen have waived the right to sue the company. Instead of a court of law, you have been exiled to a private tribunal controlled by the company.

The arbitration organization is appointed by the company, but you as a claimant may be required to pay forum fees and other costs. You can’t choose your own lawyer. The location is usually not optional and may require you to travel at your own expense. There is no judge or jury in a forced arbitration scenario. Furthermore, the arbitrating company isn’t under any obligation to follow accepted principles of law or take legal precedent into account. The complainant is not able to obtain evidence from the opposing attorneys, and no appeal is generally permitted even if the arbitrator makes a legal error. Often, the outcome of the proceedings are sealed, even if (or perhaps especially if) you win. It’s like playing basketball against a team that has the referees on its payroll on their homecourt in front of a controlled audience.

I will leave it to you to form an opinion regarding how objective such a process is likely to be.

The use of these mandatory arbitration clauses is only increasing since the U.S. Supreme Court has ruled that this is permissible in commercial or consumer transactions. It is virtually assured that your cell phone service, broadband provider, bank, credit card and basic consumer goods companies have already gotten you to agree to forced arbitration. The reality of the situation is that it is becoming more and more difficult to find consumer companies that are not perpetrating a similar restriction on their customers.

Although you may have performed some action (clicking a box on a terms of use page, for example) that made the acceptance of the terms legal, the odds were stacked against you recognizing exactly what you were agreeing to. Even more alarming but increasingly possible is a scenario in which you actually did nothing except visit a company website. So called “browsewrap” agreements provide links to a separate “Terms of Service” page, while advising you under their breath that you are agreeing to the conditions of service just by being there (it didn’t look like a bad neighborhood).

In order to help you not find them, arbitration clauses are typically buried within a much long user agreement. The company has little interest in you reading this document in general, but if you should scroll down searching for problems, you might find such legal euphemisms as “dispute resolution mechanism” to describe a process that is stacked against you at every stage.

Interestingly, the same corporations that force you into “mandatory dispute resolution” are highly averse to entering into such an agreement in their own business dealings. No corporate attorney in their right mind would voluntarily consent to forced arbitration on their client’s behalf. That should tell you all need to know.

As troubling as this trend should be for consumers, more worrisome is the fact that forced arbitration has rapidly migrated into many other aspects of our lives. Mandatory private mediation is being incorporated into the fine print in employment contracts, leases and car loans, credit card terms of agreement, investment accounts, insurance coverage and nursing home contracts.

Forced arbitration conditions can be particularly egregious in the area of employment contracts. In order to get a job, you may be presented with a document that exposes you to discrimination based on race, religion, sex or disability. You may even be throwing away hard won Civil Rights protections against retaliation for whistleblowing, family medical leave or workplace injury.

Fighting Forced Arbitration.
Other than living off the grid – which turns out to be more expensive than you might think – how do you avoid signing away your rights as a consumer, employee or citizen to hold corporations accountable in the public court system you pay for? To be realistic, the odds are against you for the time being, but gaining an awareness of the problem is a good start. The next logical step is to do your best to spend your money with firms that don’t impose forced arbitration on their customers. Sometimes this is easily achieved.

For example, in 2008 a Texas Whataburger restaurant posted a sign on its doors advising customers that the act of entering the store automatically revoked their right to sue the company for anything and, furthermore, any legal disputes would be handled by the American Mediation Association. In this case, the remedy for consumers should be obvious: head to another restaurant.

But most of the time avoiding forced arbitration takes some work and attention, especially in critical areas of your life where you have little choice for the time being. But that doesn’t mean you are helpless. While you are likely already locked into arbitration for your cell phone, cable and credit cards, some of these corporations provide an opt out. It’s worth scanning the paperwork to find out.

It’s when you decide to change suppliers for any product or service that you gain leverage. That’s the time to search for companies that don’t require forced arbitration. Consumer advocacy organization Public Citizen’s Forced Arbitration Rogues Gallery page on their website is one excellent resource to get you started.

A New York Times Upshot October research report found that 68 out of 200 online stores attempted to impose some sort of mandatory arbitration and that about one third of the 500 most visited sites did the same. But that leaves two thirds remaining who don’t. If forced arbitration bothers you, don’t shop at retailers that make you agree to it as a condition of spending money with them. Post your own terms and conditions for doing business with corporations on social media. While the trend is against consumers now, you will be surprised how sensitive the corporate world is to public push back. The marketing people can override the attorneys if they think they are going to lose business.

Ultimately, the only way to really stop this forced arbitration juggernaut and the loss of other consumer rights is for legislators to address the problem. There is some hope that there may be movement in this area. When Congress passed the Dodd-Frank Act in 2010, it requested that the Consumer Financial Protection Bureau study forced arbitration. The CFPB has the authority to limit the use of these clauses by the industries it oversees. This won’t happen fast or without a fight, but if citizens begin to make some noise, the odds improve.

On July 31, 2014, President Obama signed the Fair Play and Safe Workplaces executive order. This little noticed act included a provision that bans employers from requiring workers to mediate discrimination, assault and harassment through forced arbitration. The order only applies at this point to corporations that have federal contracts of over $1,000,000, but it’s another positive step, and a sign that the administration is aware of the problem.

You don’t have to be a professional consumer activist to understand that this issue is important to every consumer, and your representatives should be made aware of your position. That’s how democracy works, but it requires engagement on the part of every citizen.