Arbitration and a Snowball’s Chance

As you likely knew before you read this chapter, arbi- tration is an alternative form of dispute resolution. In theory and in practice it often is intended to save time and money and achieve better outcomes than going to court. If you haven’t actually been involved in arbi- tration, you might be surprised to know you have likely agreed to it many times without knowing it. Most cell phone, cable, Internet, online shopping, and credit card agreements now contain arbitration clauses. In the fine print of their service agreements are buried the words, “The company may elect to resolve any claim by individual arbitration.” This means the com- pany reserves the right to settle any dispute you raise as an individual, or as a group via class-action, using arbitration. You essentially forfeit your constitutional rights to sue and agree to be bound by the decision of a third party, often hired by the company against which you have a complaint.

A 2015 investigation by The New York Times re- vealed that such clauses are increasingly inserted in consumer and employment contracts as a way to work around the courts, limiting consumers’ recourse both as individuals and collectively in class-action suits. Proponents of the bans say arbitration clauses work just as intended: They save time and money by protecting companies from frivolous lawsuits, while at the same time providing a less costly, faster, and less resource-intensive route to potential satisfaction for customers.

Opponents also have much to say. They often refer to such clauses as “get out of jail free cards” for large corporations. Moreover, many critics claim that rules of arbitration favor companies, which have skill and expe- rience in arbitrating, as well as financial resources, that the vast majority of consumers lack. The deck seems stacked in the big companies’ favor.

The purpose of class-action suits is to allow indi- viduals with relatively small claims to band together and achieve some sort of recourse against an of- fending company. But courts have thrown out numer- ous class-action claims because of arbitration clauses, including a complaint against a travel- booking website for conspiring to fix hotel prices, an- other against Goldman Sachs claiming sex discrimination, and still another against Taco Bell for discriminating against African American employees. William Young, a federal judge in Boston, said of arbi- tration clauses, “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”114

There is no official tracking system for arbitration that tallies the number of cases, success rates, or amount of money awarded. But the Times investiga- tion revealed that between 2010 and 2014 a total of 1,179 class-action suits were filed against compa- nies. Eighty percent were pushed to arbitration by judges. In a single year, 2014, judges ruled against 134 of 162 class-action filings, moving them to arbi- tration or causing the plaintiffs to drop the cases. The story of individual consumer plaintiffs is even more telling. Between 2010 and 2014, Verizon faced only 65 consumer arbitrations, despite having 125 million subscribers. Time Warner Cable had only seven from among its 15 million customers. It thus seems that while arbitration is a contractual possibility, relatively few individual consumers utilize it, and groups of consumers have no choice but to do so.

What Should Be Done?

1. Nothing. Allow companies to include arbitration clauses in consumer agreements and contracts as they choose. Explain your reasoning.

2. Modify the clauses to better protect consumers. Explain your recommended modifications.

3. Do away with arbitration clauses. Justify. 4. Create and explain other alternatives.