In the past few years, have you:
- Purchased a new car?
- Upgraded your cell phone plan?
- Used a ride share?
- Made an online purchase?
- Placed a loved one in a nursing home?
- Filled out the warranty for your child’s football or bike helmet?
- Opened a brokerage or bank account?
- Bought home, health, or car insurance?
If you have entered into a contract or agreement of any kind, in virtually any industry, you may be surprised at what is almost certainly hiding in the fine print of the “terms and conditions”, namely, a mandatory arbitration clause. Arbitration clauses have become nearly ubiquitous in American business and yet a recent study found that most consumers are unaware that they have agreed to arbitration in the event of a dispute with the company. Moreover, anyone who thinks they’ve never entered into an arbitration agreement has likely done so without even knowing.
What Is Mandatory Arbitration?
Despite having inadvertently agreed to it (or been forced to agree due to compelling circumstances), many people don’t know what mandatory arbitration is. Briefly stated, it means that if you ever have a dispute with or complaint against the company, you agree in advance to give up your right to sue in court. Arbitration clauses preclude civil trials and replace them with the murky option of having ostensibly neutral arbitrators resolve all disputes, including those involving product defects, abuse, neglect, or any other corporate malfeasance resulting in serious injuries or even death. These clauses effectively eliminate your right to your day in court.
Can They Really Take Away My Rights Like That?
Perhaps most frustrating is the fact that you often can’t access the service or purchase the product without signing on the dotted line or clicking “I agree.” In some instances, you don’t even have to sign or click anything to be bound by arbitration. The clause can appear on warranties, in user manuals, on product packaging, or even just in a website’s terms of use. While this may not seem fair to the consumer, multiple courts have now ruled that even for contracts one party did not see before signing or had no choice but to accept, mandatory arbitration clauses are legally enforceable.
Do Arbitration Clauses Give Corporations an Edge?
When it comes time to arbitrate, the defendant company will often present the plaintiff with a list of arbitrators to choose from. In some cases, the entity responsible for administering the arbitration hearing (e.g. The American Arbitration Association) may already be described in the terms of service. The list invariably includes arbitrators who have provided the company with favorable outcomes in the past, putting consumers at an immediate disadvantage. For example, research from Stanford University found that brokerage firms keep “strike lists” of arbitrators who are more “consumer friendly,” allowing them to strike out those arbitrators from the selection process. This practice is common across industries and gives arbitrators an incentive to favor companies that arbitrate frequently in the hopes of getting repeat business. The National Consumer Law Center calls arbitration clauses “a tool used by corporations to eliminate consumers’ rights.”
Uber’s All-In Approach to Arbitration Clauses
Uber has spent tens of millions of dollars defending against challenges to its mandatory arbitration clause brought by app users and drivers.
In 2021, Uber suffered a blow when the Supreme Judicial Court in Massachusetts ruled their arbitration clause unenforceable. Kauders v. Uber Technologies, 486 Mass. 557 (2021). In that case, the SJC sided with app users and held that extensive legal terms and conditions made as part of the registration process were unenforceable when they failed to require some review and acknowledgement of the terms.
Following this decision, Uber promptly changed the language in its app and required users to click a box that they confirmed the terms and conditions. A challenge was again made to Uber’s arbitration clause claiming that this was not sufficient to put app users on notice of Uber’s mandatory arbitration clause.
In 2024, the SJC heard another challenge to Uber’s mandatory arbitration clause. This time, the SJC sided with Uber and ruled that the arbitration clause embedded in a “clickwrap” agreement was enforceable because the user had to check a box to confirm understanding the contents.
Presently, all cases against Uber in Massachusetts, with the exception of sexual assault, are subject to mandatory arbitration. And barring legislation striking down these clauses as against public policy, mandatory arbitration of these claims is here to stay.
Why Does It Matter?
The widespread use of mandatory arbitration clauses raises serious concerns, including:
- Reduced compensation for plaintiffs: When you lose the right to a jury trial, you also eliminate emotional jury reactions to highly offensive conduct by the defendant(s). Research shows the individuals are less likely to prevail in arbitration than in court, and even if they do, the absence of a sympathetic jury can significantly impact the amount of the financial award.
- Loss of injunctive relief: Arbitration can limit or eliminate the ability to seek injunctive relief, which can be crucial for stopping harmful practices and preventing future harm.
- No class actions: Arbitration clauses prohibit plaintiffs from joining together, making it harder to address widespread corporate misconduct.
- Lack of transparency: Because arbitration proceedings are private and confidential, companies can use them to conceal product defects or other threats to public safety. Consumer Reports writes that arbitration allows companies to preemptively crush consumer challenges to their practices, no matter how predatory, discriminatory, unsafe, or illegal they may be, leading to a lack of corporate accountability.
- Limited discovery: Arbitration clauses often restrict the amount of “discovery”, or background information, that can be gathered, further reducing transparency and accountability, and making your case more difficult to prove.
- Higher costs for plaintiffs: Arbitrators’ fees can be substantial, unlike court systems, which typically charge only an initial filing fee.
- Inability to appeal: The results of an arbitration are binding which means the plaintiff loses the right to appeal, even in the case of a legal error that would otherwise provide the right to a new trial.
Parker Scheer’s Thoughts on Mandatory Arbitration
Parker Scheer Partners Susan Bourque and Eric Parker have both previously served as past Presidents of the Massachusetts chapter of the American Board of Trial Advocates (ABOTA), which counts among its primary missions, to protect the civil jury system against the infiltration of mandatory arbitration clauses. While we do believe that arbitration has its place in the spectrum of legal options available to consumers wronged by large corporations, the decision should be arrived at voluntarily, that is, by agreement between consumer and corporation after a harm is suffered, not at the time an initial agreement is formalized. People seriously injured or killed as a result of a defective product or through negligence should retain the right to have their day in court, if so preferred. If you or a loved one has been seriously injured as a result of the negligence of another person or entity, call the personal injury team at Parker Scheer. There is never a fee to discuss your case and all information shared will be kept strictly confidential.
