By Abi Velasco and Remington A. Gregg
Predispute, binding arbitration clauses and class action waivers, together known as forced arbitration clauses, are typically included in “take-it-or-leave it” agreements that waive an individual’s fundamental rights to seek accountability in court when they are hurt or when their rights are violated. These clauses deprive people of the opportunity to hold wrongdoers accountable, no matter how widespread or egregious the misconduct may be.
Many people in the United States have signed forced arbitration clauses that are stuck in employment contracts, but also in many different types of consumer contracts including credit cards, nursing homes, cell phones, student loans, and music streaming services, among others—and they have no idea they have signed away their rights. Thus, the workers or customer is prevented from resolving disputes in a neutral, open court. Instead, disputes are handled in private, secretive proceedings. This allows corporations to bypass the traditional protections that the civil justice system provides. As a result, companies can evade accountability, hide systemic issues of wrongdoing, and block consumers and workers from getting justice.
Arbitration Favors Corporations over People
There are no judges and no juries in arbitration. Instead, two companies, the American Arbitration Association (AAA) and JAMS, dominate the field. From 2014-2018, only 6.3% of cases arbitrated by AAA or JAMS provided consumers with a monetary award. According to one report, “Americans are more likely to be struck by lightning than they are to win a monetary award in forced arbitration.”
In addition to forcing individuals into a privatized system of justice, forced arbitration clauses are used by corporations to avoid class actions—a mechanism by which individuals can band together to bring common claims in court. Class actions give individuals with low-dollar claims the ability to hold big companies accountable when it would otherwise be cost prohibitive to do so. Banning class actions and forcing individuals into arbitration allows corporations to escape true accountability for widespread harms.
For example, Bernardita Duran, who lived in New York on $700 a month from Social Security, was scammed by a debt relief company. When she tried to get her money back, the company said that the dispute would be decided by an arbitrator in Arizona. When Duran protested that traveling was cost prohibitive because it would cost more than a month’s worth of her income and prevent her from making rent, an appeals court ruled that only the arbitrator in Arizona could decide if Ms. Duran could bring her claim in New York—meaning she would have to first travel across the country to Arizona to argue to the arbitrator that it’s unfair and unconscionable to force her to arbitrate her case there.
The Arbitration System Has Failed all People, Including Not Protecting Black and Brown People
According to at least one expert on arbitration, people of color “stand to lose the most when arbitration is substituted for litigation.” People of color are much less likely to encounter decisionmakers who come from the same background as them. In arbitration, decisions are not made by a jury of peers. Instead, there are only the arbitrators, who tend to come from corporations and big law firms.
The legal field itself still has a long way to go before it would be considered truly diverse. Lawyers of color as a demographic make up 14.6% of the profession, up from 11.2% in 2011. But the percentage of Black lawyers in America went down from 4.8% in 2011 to 4.7% in 2021. And diversity of arbitrators (comprised of lawyers and former judges) is abysmal. At both AAA and JAMS, 88% of their arbitrators are white and 77% are men. The National Academy of Arbitrators found that in its 72 year history, it has only accepted 35 people of color as members.
The lack of diversity and experiences by arbitrators can have real world consequences. Recently, a Black former Tesla employee detailed racial discrimination and harassment that he experienced at the company including racial slurs directed at him by co-workers. The arbitrator ruled in Tesla’s favor, stating that the slurs used, including the “N word,” were not racist because they were “consistent with lyrics and images commonly found in rap songs and freestyle rap competitions.”
Moreover, forced arbitration clauses are not used evenly across employment sectors. These clauses disproportionately impact women and people of color, which further compounds the gender and racial pay gaps. Women generally make less than male counterparts. However, Black women only make $0.64 and Hispanic women make $0.57 for every $1 made by white men. Therefore, when a woman or woman of color is subject to wage theft and unable to access the justice system, it is even more difficult to achieve economic security because individuals who generally are making less are further cheated out of what they have earned.
Congress Must Act to Protect Consumers and Workers
By systematically disadvantaging workers and consumers who experience discrimination, wage theft, sexual harassment, and more, arbitration clauses have been used to silence individuals and deprive them of their day in court to seek justice. Forced arbitration clauses often silence survivors from sharing their story, which compounds the trauma of sexual assault or sexual harassment. Moreover, it allows this harmful behavior to fester outside of public view. Black women disproportionately experience workplace sexual harassment.
On February 10, 2022, the U.S. House of Representatives passed the Ending of Forced Arbitration of Sexual Assault and Sexual Harassment Act. The U.S. Senate passed the bill a few days later. The legislation, which now awaits President Biden’s signature, would prohibit companies from forcing individuals into arbitration for sexual assault or sexual harassment disputes.
But Congress’s work isn’t done. Congress must pass the FAIR Act—legislation that would prohibit forced arbitration for all employment, consumer, antitrust, and civil rights disputes. This legislation is important because it will ensure that every person—regardless of the type of harassment, discrimination, or corporate wrongdoing they face—can receive full justice through the justice system.