It's Time for Forced Arbitration to Come to an End
David Lazarus - LA Times
May 3, 2009
If you have a credit card, a cellphone or even just a job, chances are you've already signed away your right to sue if something goes wrong.
Mandatory arbitration clauses have become a routine part of the fine print in most financial, telecom and employment contracts, as well as numerous other customer agreements.
They typically require you to abandon the right to a jury trial or class-action lawsuit, and to agree instead to take any grievances to a professional arbitrator.
But because of the way the system is set up, critics say, arbitration often favors the company and not the individual. So the likelihood of a positive outcome (for you) can be less than if you had pursued litigation.
Consumer advocates, sensing a shift in the political winds under President Obama, believe the time is right to challenge mandatory arbitration and have banded together to support legislation ending the practice.
""We have no problem with arbitration,"" said David Arkush of the watchdog group Public Citizen. ""We just want people to be able to choose it if they want it, rather than having it be required.""
He was speaking on behalf of the Fair Arbitration Now Coalition, an organization of consumer and community groups. The coalition released poll results last week showing most people have no idea they're giving up a constitutional right when they sign contracts containing an arbitration clause.
When details of mandatory arbitration are made clear, 59% of Americans say they oppose the practice and would back legislation requiring that arbitration be voluntary, the poll found.
Easier said than done. Although bills have been introduced in the House and Senate ending mandatory arbitration, they're strongly opposed by some of the most powerful industries in the country, including banks, telecom providers and insurers.
""We know it will be tough,"" Arkush said. ""But we've probably got as good a chance now as we've ever had.""
One of the biggest problems with mandatory arbitration clauses is their prohibition on joining class-action lawsuits. This effectively takes away consumers' single most powerful tool in seeking redress from companies for relatively minor grievances.
More often than not, such issues would be too costly to pursue in court individually. Class-action suits allow consumers to join together in dealing with a deep-pocketed business, leveling the playing field.
Another key problem with mandatory arbitration is that the company generally gets to pick the arbitrator, often a retired judge. These arbitrators thus have an incentive to keep the company happy if they want future employment.
""If a retired judge issued a significant anti-insurance decision, for example, there is no chance an insurance company would use him again,"" said Jeffrey Ehrlich, a Claremont attorney who has handled numerous arbitration cases.
""The deck is stacked against consumers because the arbitrators don't want to offend the people who hire them.""
Fontana resident John Ramirez told me he experienced just such a situation after going into mandatory arbitration with his former employer, Tenet Healthcare Corp., in 2003.
Ramirez, 37, believed he'd been discriminated against because problems with a prosthetic leg forced him to miss about six months of work. He lost his own leg in a childhood accident.
""They started giving me a real hard time after I came back,"" Ramirez recalled. ""I was forced to work the graveyard shift.""
He filed an arbitration claim seeking back pay and compensation for his claim of discrimination. But the arbitrator ruled against him.
Ramirez thinks a jury would have been more sympathetic.
""If I could have sued, I might have won,"" he said.
Tenet declined to comment. But Wayne Kessler, a spokesman for the American Arbitration Assn., a leading arbitration provider, said procedures are in place ""that are fair and neutral, and which give all parties to a dispute an equal voice in the selection of an arbitrator.""
Or maybe not.
Geoff Lysaught, director of the Searle Civil Justice Institute at Northwestern University School of Law, said researchers have found evidence that companies involved in repeated arbitrations tend to receive more favorable outcomes than infrequent participants.
He said this may not necessarily reflect the fact that ""repeat players"" represent more revenue for arbitrators.
""The reason they may win more often is because they only arbitrate cases they think they can win,"" Lysaught said. ""They settle all the others.""
He said this theory might also explain why consumers tend to win about half the cases they bring to arbitration, whereas companies win nearly 84% of cases they initiate.
Perhaps. Or perhaps, as consumer advocates and lawyers say, it's because professional arbitrators know how their toast is buttered, and they have a built-in bias toward pleasing companies.
Seems to me that if arbitration is indeed fair to everyone, it shouldn't have to be crammed down consumers' throats. Arbitration should be offered as a cost-effective and relatively speedy alternative to litigation. But it should be just one option available, just as filing a lawsuit should be an option.
By the same token, no company should be permitted to deny customers their right to a jury trial or to participate in class-action lawsuits.
In a perfect world, such things wouldn't be necessary.
But this isn't a perfect world.