Mandatory Binding Arbitration
As a Delaware business attorney, one of the issues I discuss with clients who want to have a contracted prepared is mandatatory binding arbitration. The rest of this article is taken from a report issued by the American Association For Justice.
Mandatory binding arbitration clauses are hidden in the fine print of various consumer contracts which run the gamut from credit cards and cell phone contracts to nursing home care and employee contracts. Consumers and employees are often forced to sign these clauses in order to receive services or get hired. In the event of a dispute with the corporation, mandatory binding arbitration says that a consumer or an employee cannot take their case to court but instead must take it to a private arbitration forum. Often times the company picks the arbiter who will decide the outcome. The consumer can never take legal action and binding arbitration applies even if a consumer is seriously injured by a product or service. Americans overwhelmingly disapprove of mandatory binding arbitration (81 percent) when presented with all the facts.
Mandatory arbitration clauses are one-sided, pre-emptive and non-consensual; they legally bind people to arbitration at the time of purchase or signing, in order to receive a good or service, but are rarely known to those whose rights are taken away by them. Since these binding mandatory arbitration clauses are presented on a take-it-or-leave-it basis, people have no choice but to waive their rights.
Jamie Leigh Jones was raped, drugged, beaten, and then confined to a shipping container by KBR/Halliburton employees while working in Iraq. Because of a clause placed in her employment contract, KBR is trying to force Jamie to submit to a binding, secret, non-appealable arbitration. Jamie is now fighting to obtain access to the justice system because she unknowingly signed an arbitration clause as part of her 18-page employment contract.
In her testimony before the House Education and Labor’s Health, Employment, Labor and Pensions Subcommittee, Jamie revealed, “At age 20, I had no idea what arbitration was…,” and further explained in her testimony that, “I had no idea what an arbitration was other than a tiny paragraph included in the lengthy document that mandated that I could not get justice from the civil court system.”
Arbitration providers are biased decision makers, organized to serve corporations. Since only businesses are repeat users of an arbitrator, there is a disincentive for an arbitrator to rule in favor of a consumer if he expects further retentions. A September 2007 Public Citizen report on credit card arbitration analyzed more than 19,000 credit card arbitration cases in California, and found that the arbitrators ruled in favor of the corporation almost 95% of the time.
Consumers are also forced to pay steep filing fees just to initiate a case—seldom less than $750 – and pay their share of the arbitrator’s hourly charges, which are routinely $400 or more per hour. In addition, arbitration clauses often allow the corporation to choose the location, regardless of how inconvenient or costly travel will be for the consumer. Although corporations have the cash to pay these costs, many consumer do not and are forced to drop their cases.
In November of 2006, Erika Ricer thought she had purchased a safe car that would last her family for a number of years; however, the night Erika drove the car home, the wind shield wipers quit working while she was driving her six-year old daughter in a rain storm and the next morning on her way back to the dealership, the “Check Engine” light went on. Despite being assured by the dealer that the car had undergone quality assurance inspections and had never been in an accident, Erika was actually sold a rebuilt wreck that had been in a crash where the car was seriously damaged and the air bags deployed. Erika’s contract with the dealership contained a mandatory arbitration clause and a box that if checked, the buyer acknowledges the agreement contains an arbitration clause. Despite never checking the box, Erika is being forced into arbitration by the car dealership’s lawyers, a costly process she can not afford.
Before the Subcommittee on Commercial and Administrative Law, Erika testified “I can’t even afford the cost of going through with the arbitration process the dealer is demanding. In order to just start the process of arbitration, I would have to pay half or more of all the costs of arbitration. I have learned that arbitrators’ fees usually range from at least $700 - $1800 per day, with an average of $1300. In addition to the arbitration fees, I would also have to pay half of the administrative fees. I know that the cards are totally stacked against me in the arbitration process that the dealers want me to go through.”
Binding mandatory arbitration clauses often severely restrict the individual’s ability to argue their side of the case and obtain necessary evidence – which they would be allowed to obtain in court. Courts can also provide a range of remedies not available in arbitration and while proceedings and records of the courts are open to the public, most arbitration clauses require that proceedings be kept confidential, even if the case raises vital health and safety issues.
