Mandatory Arbitration Clauses: What?s at Stake for You

The explosion in mandatory arbitration clauses has drastically altered the legal environment of business. The possibility that a court will step in to enforce the law is what motivates businesses to voluntarily comply with the law. Arbitration clauses ensure that a company will not be held accountable in court. Without that crucial backstop, it becomes possible to take advantage of individuals in several contexts:

Your job: Arbitration firms have convinced employers that the solution to discrimination lawsuits is not to monitor offices and shop floors for harassment, but to impose so-called "early dispute resolution" on employees. Unlike the neutral fact-finding and mediation offered by state and federal civil rights agencies, arbitration is not intended to resolve complaints, but to place a barrier between employees and the courts. The result: employers have reduced incentive to keep workplaces free from harassment and discrimination; employees victimized by such conduct are denied an inexpensive, impartial forum.

Your home: In an era when shortages of skilled labor and new synthetic building materials have led to increased complaints about defective construction, homebuilders use arbitration clauses to deflect lawsuits. Arbitration clauses are also an important tool in the predatory lender's bag of tricks. Homeowners who discover that they have been ripped off by a shady mortgage broker or home improvement scam are unable to turn to the courts to redress fraud.

Your bills: Class action lawsuits force businesses to provide refunds for unfair billing practices. Mysterious credit card "surcharges," padded cell phone minutes, inflated co-payments demanded by HMOs, and delayed posting of payments to charge bogus "late fees" are just a few examples of billing scams that have been discovered and remedied in past class action litigation. Because arbitration clauses prohibit class actions, all these practices are expected to proliferate as the clauses become more widespread.

Your health: Arbitration clauses are frequently used by insurance companies to stave off appeals of denied medical coverage, and by HMOs to avoid medical malpractice suits. Now their use is spreading to nursing homes and even physicians. The hurdles raised by arbitration clauses make it easier for health insurers to deny coverage, and reduce incentives for doctors and nursing homes to provide high-quality care.

Your business: Operating a franchise, dealership, or livestock growing operation is difficult enough without worrying about termination or unfair treatment by a powerful corporate partner. Arbitration clauses make it harder to redress bad faith practices and easier to mistreat franchisees, dealers, and contract farmers.