Arbitration clauses: Beware of the fine print

In the last ten years business in the U.S. have turned to arbitration to create an alternate system of justice where “rules tend to favor businesses, and judges and juries have been replaced by arbitrators who commonly consider the companies their clients.” Those are the conclusions after a New York Times investigation found a disturbing trend.

The change has been swift and virtually unnoticed, even though it has meant that tens of millions of Americans have lost a fundamental right: their day in court.

“This amounts to the whole-scale privatization of the justice system,” said Myriam Gilles, a law professor at the Benjamin N. Cardozo School of Law. “Americans are actively being deprived of their rights.”

What has been happening is that companies, large and small have been adding arbitration clauses to contracts and agreements that take away people’s right to sue in a court of law should the situation arise. These simple clauses can take away a person’s right to sue for medical malpractice, sexual harassment, hate crimes, discrimination, theft, fraud, elder abuse and wrongful death.

The family of a 94-year-old woman at a nursing home in Murrysville, Pa., who died from a head wound that had been left to fester, was ordered to go to arbitration. So was a woman in Jefferson, Ala., who sued Honda over injuries she said she sustained when the brakes on her car failed. When an infant was born in Tampa, Fla., with serious deformities, a lawsuit her parents brought against the obstetrician for negligence was dismissed from court because of an arbitration clause.

Little is known about what goes on in arbitration hearings due to confidentiality provisions and the fact the cases don’t have to be reported to the federal government.

The Times also reports this disturbing issue

Unfettered by strict judicial rules against conflicts of interest, companies can steer cases to friendly arbitrators. In turn, interviews and records show, some arbitrators cultivate close ties with companies to get business.

Arbitrators aren’t required to follow legal procedures like discovery, which enables you to request information from the defendant. Also, there is no regulation or rule that requires arbitrators to take the law and legal precedent into account in making their decisions. They’re supposed to, but aren’t legally required to do so.

And here is probably the most important aspect of arbitration, in most decisions cannot be appealed.

Mandatory arbitration is a lose-lose situation. Don’t deal with anyone who requires a mandatory binding arbitration clause. If you find they do require one, walk away and explain why you are doing so. Read every contract and look for the clause. The clause isn’t always straight forward. They can say it various ways, such as “dispute resolution mechanism.”