Arbitration is nothing new. It is a way for the parties of law suit to sit down, in front of an arbitrator, to resolve the dispute. The problem begins with when the arbitration becomes mandatory and not just an option, by consent, to resolve the dispute. The New York Times recently published an article entitled "Arbitration Everywhere, Stacking the Deck of Justice." This article is a must-read for those interested in this topic area as it highlights specific cases where plaintiffs were adversely affected by an arbitration clause, the pros and cons of the system, and how the current state of law in favor of arbitration clauses came to be.
The New York Times article states that arbitration clauses were a way that large corporations were able to avoid class-action suits. Class-action lawsuits are designed by their very nature to allow for those with a small claim, to unite together, to combat alleged wrongdoing against a larger defendant-corporation. Essentially, plaintiffs harmed for a nominal amount would likely never sue a large corporation, but knowing their attorney fees could be paid and the lawsuit would have a higher chance of success, would opt to join together with similarly harmed plaintiffs in a class-action suit.
Today it has become almost impossible to avoid these arbitration clauses. They are in credit card applications, cellphone contracts, cable and internet agreements, job applications, and part of the terms and conditions of online retailers. By circumventing class-action lawsuits through mandatory arbitration clauses, individuals who are subject to predatory lending, wage theft, discrimination, or any other illegal or deceitful business practice, are unlikely to be made whole again. "The New York times found that between 2010 and 2014, only 505 consumers went to arbitration over a dispute of $2,500 or less...roughly two-thirds of consumers contesting credit card fraud, fees or costly loans received no monetary awards in arbitration."
Proponents of arbitration clauses state that class-action lawsuits yield little relief to plaintiffs, favor settlement, and are simply a way for plaintiffs' attorneys to make large salaries. Wells Fargo, Discover, Bank of America, JPMorgan Chase, Amazon, Netflix, Travelocity, eBay, DirecTV, Sears, Toyota, General Electric, Verizon, Sprint, and AT&T are just some companies that have arbitration clauses in their agreements and terms of service. Plaintiffs harmed by these (and other companies requiring arbitration) have no right to a trial by jury and instead are forced to take on costly legal bills and fight with corporations who appear to have limitless resources to defend their actions. When cases go to arbitration, other plaintiffs who are experiencing similar harms are likely to not even hear about the case.
Some states have struck down specific arbitration clauses claiming that they shield the defendant-company from liability, while other states allow those clauses where the companies gave a small window to opt-out of arbitration. As always, it is important to carefully review all applications, documents, and terms of service to preserve your legal rights.