New bill aims to restore rights lost in forced arbitration clauses

Unknown to most Americans, clauses buried in the fine print of everyday contracts compel them to give up their legal rights. These clauses — called “forced arbitration provisions” — have invaded numerous facets of our daily life and, when in place, consumers and employees wronged by companies are forced to take their grievances to a closed arbitration proceeding rather than a court. The rapid emergence of forced arbitration clauses is extremely dangerous. Far from being a forum for fair resolution of disputes, arbitration is heavily weighted against the less powerful party. Most people do not even realize that forced arbitration clauses are buried in the fine print of contracts for employment, consumer products, financial goods and services, and student enrollment agreements at for-profit schools.

{mosads}The proliferation of forced arbitration agreements results from a distortion of the Federal Arbitration Act (FAA), a statute enacted in 1925 to aid enforcement of private, voluntary arbitration agreements entered into by companies of equal bargaining power, not intended to impact individual consumers. However, a series of recent U.S. Supreme Court decisions have interpreted the FAA so expansively that the law has become an enormous gift to powerful corporate interests that can now effectively say “no thanks” to judicial scrutiny of their wrongdoing. As a consequence, Americans are being denied their right to go to court for claims of misconduct as egregious as discrimination, wage theft and consumer protection violations.

Forced arbitration subverts the rights guaranteed to citizens under the laws of our country.

Not only does the corporation that wrote the contract unilaterally set the terms of arbitration; often, it decides on the arbitrator. Arbitrators do not have to be trained in the law, nor are they required to follow the law. Arbitration lacks many of the fundamental guarantees of fairness that a court provides. There are no juries; discovery of relevant evidence may be severely limited; arbitration decisions are generally not made public; and the losing party’s right to have a court review an arbitrator’s decision is very limited. They rely on a business model that gives them incentives to rule for the corporation — the party that is likely to bring them repeat business. For these reasons, arbitration can, and often does, render constitutional rights and statutory protections meaningless.

A course correction is urgently needed. The Restoring Statutory Rights Act, introduced Feb. 4 by Sens. Patrick Leahy (D-Vt.) and Al Franken (D-Minn.), would make significant improvements in three ways. First, it would exempt from the FAA claims brought by individuals or small businesses arising from violations of federal or state law, the U.S. Constitution or a state constitution, and accordingly, would permit these claims to proceed in a court of law. (Arbitration is still an option if the parties voluntarily choose to arbitrate a dispute after it arises.) Second, the bill would allow federal and state courts to apply their respective jurisdictional laws concerning contract interpretation to find arbitration provisions unconscionable or unenforceable notwithstanding the FAA. Third, the bill would give to the courts, not arbitrators, the essential task of determining whether an arbitration agreement is enforceable in the first place.

Neither the drafters of our Constitution, nor Congress or state legislatures, could have predicted that wrongdoers could easily dilute constitutional and statutory rights simply by opting out of the civil justice system through forced arbitration clauses. Congress should swiftly enact the Restoring Statutory Rights Act to protect Americans’ rights under the laws.

Gilbert and Gill are the director and civil justice and consumer counsel, respectively, for Public Citizen’s Congress Watch.