Arbitration is a process in which a private firm is hired to settle a dispute without going to court. It was designed as a voluntary alternative to litigation among corporate equals. It has been twisted today into a tool by powerful corporations to force consumers and employees to surrender their right to hold corporations accountable for wrongdoing before an impartial court.
Forced arbitration clauses routinely are inserted into the fine print of contracts that people must sign to buy a product or service or get a job. Carnival Cruises uses forced arbitration – a fact that may hinder the passengers on the nightmare cruise of the Triumph. Microsoft, the company that gave us Vista, Ctrl-Alt-Delete and Clippy, is phasing in forced arbitration. The photo sharing service Instagram uses it – and some fear Instagram’s parent company, Facebook, may be next.
Under forced arbitration an individual consumers or employees must fight it out alone before a private arbitrator chosen by the company that cheated or discriminated against them. Arbitrators do not need to be lawyers or follow precedent, yet their word is nearly always final and unappealable.
Facing off against a corporation in arbitration is like playing a baseball game in which the other team hires, fires – and pays – the umpires. So it’s no wonder a study of top arbitrators for one major arbitration firm found that they rule for big business 93.8 percent of the time.
One major arbitration company, the National Arbitration Forum (NAF) persuaded corporations to add forced arbitration clauses to their contracts – clauses specifying that NAF would do the arbitrating. In other words, they marketed their services to the same companies they would be judging.
In addition, forced arbitration clauses often ban class-action suits, which allow individuals to band together to bring their common claims against big corporations.
As we said in our 2013 report, Arbitration Activism, the arbitration system gives corporations “a free pass to break the law.” In keeping with its ongoing deference to corporate special interests, the majority on the U.S. Supreme Court has effectively rewritten federal law, issuing decision after decision helping big business make the most of that free pass.
Arbitration is spreading to employment contracts, threatening to make it nearly impossible for workers to sue over race, sex or age discrimination, and to contracts between small businesses and their corporate suppliers.
When it comes to how workers fare in employment disputes, one study found that “[o]utcomes in arbitration are starkly inferior to outcomes in litigation.” Even a lawyer who specializes in representing employers says “there’s no question that [arbitration] favors the company’s interest over employers.”
- Read our blog about Microsoft and forced arbitration
- Many of these problems would be solved by legislation, the Arbitration Fairness Act.
- Read Nan Aron’s op-ed in the Los Angeles Times
- Read the letter of support for the Act from AFJ and more than 40 other organizations.
- Read the Washington Monthly’s in-depth story about the history, and harm, of forced arbitration