Mandatory Arbitration Continues to Pose Real Threat to Consumers' Rights

74,000 words. What does that number mean? It’s just under the length of the first Harry Potter book. It’s just over The Catcher in the Rye. It’s twice the length Old Yeller and The Lion, The Witch and the Wardrobe. It’s also, according to a study by James Gibson, a law professor at the University of Richmond, the average length of most modern terms and conditions contracts – the kind we all “sign” every day by clicking “yes” when we shop online, when we download software, and even when we accept a new job.

The fact is, most people don’t read the thousands of words they’re agreeing to. It’s even become something of a cultural joke; an entire episode of South Park poked fun at Apple users who fail to read the company’s updated terms of service and unknowingly sign their freedom away. It’s easy for people to imagine the contracts are “boilerplate” or simply a case of companies covering their backs, but you could be signing away vitally important legal rights – and, specifically, your ability to sue a business if things go wrong.

Welcome to the world of mandatory (or forced) arbitration agreements - clauses in contracts that require individuals to settle disputes, including consumer problems, employer disputes and even civil rights cases, in privatized arbitration systems, rather than the U.S. courts. What’s more, businesses often get to play a role in deciding the arbitrators to be used – and arbitrators with links to the companies in question are by nature less consumer-friendly than any truly impartial court.

Arbitration, and its increasing use in the United States, is a hotly contested issue. We’re written about it multiple times before, always maintaining that the process is heavily biased in favor of companies. Thankfully, we’ve also reported on cases where courts have overruled companies’ attempts to use mandatory arbitration agreements to prevent consumers from taking part in class action lawsuits.

Last year, two Congressmen introduced a bill, the Arbitration Fairness Act, to protect individuals’ rights to avoid arbitration “if it requires arbitration of an employment dispute, consumer dispute, antitrust dispute, or civil rights dispute.” In its opening, the Act explains that:

“(1) The Federal Arbitration Act was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power.

(2) A series of decisions by the Supreme Court of the United States have interpreted the Act so that it now extends to consumer disputes and employment disputes, contrary to the intent of Congress.

(3) Most consumers and employees have little or no meaningful choice whether to submit their claims to arbitration. Often, consumers and employees are not even aware that they have given up their rights.

(4) Mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review of arbitrators' decisions."

The Federal Arbitration Act was passed in 1925, making it more than 90 years old. The time seems right for an update to federal law, and while the original Act’s intentions were praiseworthy (enabling businesses to resolve disputes privately), its extension to consumers and employees against their will is grossly unfair and, many argue, counter to the law’s intended purpose. Groups such as Fair Arbitration Now have been set up to support the passing of the Arbitration Fairness Act and share forced arbitration horror stories, and even this month, the U.S. Court of Appeals for the Ninth Circuit continued its trend of declining to enforce arbitration clauses in cases where consumers claim they never agreed to such a contract. The court has now ruled against both Barnes & Noble Inc. and Sirius XM Radio Inc., with judges agreeing that plaintiffs did not know they were entering into contracts with arbitration provisions.

It’s important – and a good step forward – that the Ninth Circuit has made it clear that the burden to compel arbitration lies with companies (meaning they must justify its use, and show both parties have expressly agreed that arbitration will be used to settle disputes), but it’s still not enough. There’s still a lot more to be done to protect consumers from being dragged into unfair dispute settlements, but it does look like things are moving in the right direction. Earlier this year, General Mills quietly retracted its own ban on consumer class action lawsuits – a move credited in part to increasing consumer awareness about arbitration. That’s always a good thing, and the more people who know about and reject forced arbitration, the quicker things like the Arbitration Fairness Act can become redundant.