Two Democratic Congressmen have introduced a bill that would abolish mandatory arbitration. The “Arbitration Fairness Act” act would get rid of the forced arbitration clauses found in almost every credit card, employment and consumer agreement and would protect the right of consumers and workers to have their case heard in court.
Arbitration – a means for settling disputes out of court – has found increasing favor with corporations and physicians concerned about the cost and public nature of litigation including medical malpractice lawsuits. One 2008 University of Michigan study found mandatory arbitration clauses in 93 percent of the employment contracts it surveyed and in 77 percent of the consumer contracts it surveyed. In many instances, arbitration of disputes is found in the fine print of contracts and presented to consumers in a “take it or leave it” manner. In fact, some manufacturers have begun placing mandatory arbitration clauses inside the plastic wrap on their products. The moment you unwrap the plastic on some new electronic products, you’ve lost your chance to take the company to court.
Critics, however, say such practices limit consumers’ and workers’ option of deciding whether disputes should be arbitrated or taken to court. And, there are advantages to litigating a matter rather than arbitrating a dispute. For example, consumer advocates and personal injury attorneys say that mandatory arbitration clauses mean that consumers have no choice but to sign away their right to bring an individual lawsuit or to participate in a class action lawsuit. Class action lawsuits can be an important mechanism for obtaining justice when an individual claim is worth very little.
A 2012 report by Public Citizen, a consumer-oriented advocacy group, and the National Association of Consumer Advocates found that judges nationwide had thrown 76 potential class action cases out of court after the U.S. Supreme Court ruled 5-4 in 2011 that, not only is it all right for companies to put clauses in their contracts forcing customers to settle disputes in private arbitration, but they can also bar customers from bringing class action lawsuits against them or even arbitrating their disputes as a class.
“Mandatory arbitration can be a huge disadvantage to consumers, workers, and small businesses, often limiting their ability to have any meaningful legal recourse when they are wronged,” Sen. Franken (D-MN), who introduced the bill in the U.S. Senate, said in a written statement introducing the proposed legislation that mandatory arbitration can limit “meaningful legal recourse” for consumers, workers and small businesses when they are wronged.
“Forced arbitration clauses undermine our indelible Constitutional right to take our disputes to court,” according to Rep. Hank Johnson (D-Ga.), who introduced the companion bill in the House.
The Arbitration Fairness Act does not ask that arbitration be outlawed. Instead, it calls for providing consumers the option to arbitrate and to make that decision after the dispute has arisen.
A recent Maryland case illustrates the pitfalls of mandatory arbitration clauses. When LaTia Hollman went to work for Circuit City, she signed employment forms indicating that any disputes arising out of her employment would be settled through arbitration. She quit, claiming that she had been harassed by a male employee. After she received a right to sue letter from the Equal Employment Opportunity Commission, she filed a lawsuit in the Circuit Court for Prince George’s County. Acting upon Circuit City’s request, the trial court sent the case to arbitration. But, Hollman fought arbitration, taking the lawsuit to Maryland’s Court of Special Appeals, which rejected Hollman’s argument in 2005 that the agreement to arbitrate disputes was one-sided and lacked consideration – a requirement in contract law — and ordered the case to arbitration unless further appeals were filed.
So far, 18 Senators and 22 House members – all Democrats — have signed on as co-sponsors S.878/H.R.1844.
Baltimore, Maryland-based Belsky, Weinberg & Horowitz is experienced in mediation and arbitration and have been fighting for their clients who are the victims of negligence for many years. Call us at 410-234-0100 or email us for a free consultation and let us help you.