In the case of arbitration agreements, what you don’t know can hurt you. A growing number of companies and professionals are slipping arbitration clauses into standard contracts. This trend is risky for consumers who unknowingly sign away their right to sue in court. An arbitration agreement shields companies and professionals from lawsuits by requiring customers and employees to resolve disputes through arbitration. Essentially, it gives companies a low-cost and convenient way to handle problems sometimes to the disadvantage of individual claimants.
What is Arbitration?
The root word of arbitrate means to be judged, but in the 21st century, the only judges you will see in arbitration are retired. Arbitrators do not need to have legal training or experience, and they are not required to follow any laws.
Arbitration is advertised as an easy way to resolve disputes outside of the court system, but companies use arbitration for other reasons. They claim that arbitration is cheaper than a lawsuit. However, it costs more to initiate an arbitration claim. The savings may come from financial recoveries that are smaller than what a jury might award in a similar situation.
With some arbitration agreements, the claimant is barred from recovering certain damages that would be available in a court case. These include compensation for emotional distress and punitive damages that are intended to punish the wrongdoer and prevent the same problem from happening to others. If you signed an arbitration agreement before filing a lawsuit, the court will tell you that the dispute needs to be resolved through arbitration. Your case will only stay in court if you didn’t sign the agreement or if there is a violation of your rights.
Disadvantages of Arbitration
Before you sign an arbitration agreement, you should understand the possible risks. Here are a few disadvantages.
- If a company insists on arbitration, you may have to pay for the process.
- If you can’t choose the arbitrator, there can be conflicts of interest.
- Arbitration agreements may prevent you from working with an attorney.
- You might be barred from certain recoveries that are available in court.
- In arbitration, the decision is usually final and cannot be appealed.
Challenges with Arbitration
Since the 1980s, arbitration has become the preferred method for solving business disputes. The American Arbitration Association says that it handles 2 million cases annually. Although arbitration agreements are fairly common among employers and financial service companies, they create numerous legal difficulties. The Equal Employment Opportunity Commission (EEOC), the Consumer Financial Protection Bureau (CFPB) and the Supreme Court have issued findings that support and challenge these binding agreements.
First, it’s important to note that an arbitration agreement between an employer and its employees cannot violate workplace rights. In 2014, the EEOC sued a casual dining franchisee that operates more than 140 chain restaurants scattered from New York to Florida. The company had thousands of employees sign mandatory binding arbitration agreements that illegally barred workers from filing complaints of discrimination and Title VII violations with the EEOC. Even doctors and nursing homes have started using arbitration agreements to avoid medical malpractice and personal injury lawsuits.
Many companies sneak a small clause or paragraph on mandated arbitration into their contracts. They cannot force you to sign the agreement. In some cases, this step is optional although it appears to be mandatory if you want to purchase a product or use a service. During the hiring process, arbitration can be a take it or leave it requirement. You might be able to negotiate the details if you are a top candidate, but it’s not easy. Some lenders allow clients to opt out of arbitration, but they need to submit paperwork within a certain timeframe, which complicates the issue and deters customers from completing this step.
If you are signing any type of contract, read every word. Some industries use arbitration clauses more than others, but you should always be on the lookout for them. The following organizations frequently use arbitration agreements.
- Auto dealers
- Credit card companies
- Nursing homes
- Sports teams
There are many good reasons not to sign an arbitration agreement. You can always shop around to find another company that offers the same products and services without mandated arbitration. Most people have never filed a lawsuit, but everyone should have the option to do so. Before you sign away your right to sue, contact an attorney. We will be happy to review a contract or stand-alone arbitration agreement for you.