Mar 18, 2024

You're Constantly Signing Away Your Legal Rights and You Don't Even Know It


“To see what is in front of one’s nose needs a constant struggle.” Although author George Orwell’s famous quote refers to something else entirely, the Nineteen Eighty-Four author might as well have been talking about the dastardly hidden clauses in agreements most people never read that they nevertheless sign without pause.

What aren’t we seeing? What did we just agree to without realizing it? It could be this: Nothing less than the systematic theft of our right to go to court to seek justice against the rich and powerful corporations that wrong us.

These so-called mandatory arbitration agreements, which typically show up as clauses in contracts, require people to use private arbitration rather than courts. These are billed as cheaper, easier ways to resolve conflicts, but arbitration often favors companies, which often hire the arbitrator to oversee proceedings. Worse, unlike state and federal court judges, who generally must undergo years of training and experience to reach their positions, private arbitrators don’t need to be lawyers.

Even further, these mandatory arbitration agreements often ban people from filing class actions, which are often the only type of lawsuit that can truly allow individuals to pool their strength in numbers in order to hold a big corporation accountable.

You Might Have Already Signed Away Your Rights

In recent years, arbitration clauses have infiltrated seemingly everything. When you buy a product, enter into a phone contract, get a job, open a bank account, apply for a credit card, move into a nursing home, buy a car, undergo surgery, and many other typical aspects of contemporary life, you’re often agreeing to keep yourself — and, especially a negligent company — from the courthouse.

Pervasive arbitration clauses can also have an impact on your civil rights. For example, when a top executive at Goldman Sachs sued on behalf of bankers claiming sex discrimination and when African-American employees at Taco Bell restaurants said they were denied promotions, courts had to toss out their lawsuits because they were bound to arbitration, according to a New York Times report.

“Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.” - Federal Judge William G. Young.

Why this matters is this: Without impartial judges and juries, victims of faulty products, shoddy business practices, sexual harassment, discrimination, negligent retirement care and medical malpractice are at the whims of a system that puts them further and further away from ever getting relief.

“This is among the most profound shifts in our legal history,” said William G. Young, a federal judge in Boston appointed by President Ronald Reagan, in an interview with the New York Times. “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

When all parties agree to arbitration and are poised to be heard on an even playing field, that could be a viable way to resolve disputes, but all too often that’s not the case at all. Usually it’s one side with seemingly all the negotiating power imposing its will on another.

In this piece, you will learn more about the creeping privatization of the legal system — transition that relies on proceedings originally intended to settle disputes between businesses and which were not supposed to be proceedings in which one of the parties, an individual person, was forced to partake.

A Quick Look at the Differences between Courts and Arbitration

In certain ways it seems like the traditional court system and arbitration proceedings are similar: a complainant brings a claim against a defendant and each side presents evidence before a decider who ultimately hands down a ruling that ideally resolves the dispute.

Arbitration is sometimes billed as a more inexpensive and quicker solution for disputing parties, which given the similarity in proceedings could be attractive to an individual person, let alone a corporation looking to reduce legal costs.

Let’s say you previously signed a contract of some sort — or even clicked “agree” on that account sign-up or download — and are in a position to make a claim against a company. You might have to undergo arbitration, but what’s the big deal? After all, it’s similar to going to court but seemingly without the hassles. Right? Right?

However, there are some key differences that are impossible to ignore.

The court system is a traditional institution with professional qualifications, standards for presenting evidence and deposing witnesses, and protocol for case management, among other things. Decisions handed down in a lower-court by a judge or jury can be challenged, appealed all the way up to the high court of a state or the U.S. Supreme Court. The judge and jury are generally impartial fact-finders, and usually any judge or juror connected to a matter recuses or is dismissed, so there’s no conflict of interest. It’s a mature, traditional, and well-developed system that for the most part serves individuals, groups, and businesses alike.

Contrast that with arbitration, which is generally a private proceeding presided over by an arbitration organization, some of which are for-profit and which are hired by one of the parties to the dispute. (If both parties aren’t picking up the cost of the arbitration, often the company being sued and not the individual effectively forced into the arbitration process is the client of the arbitrator). In some cases, the proceedings are even held in places like the offices of the law firm representing the defendant. Often, the arbitrator’s client is the corporation against whom a complaint is filed.

Unlike the court system, arbitration doesn’t have a straightforward path to appeal a decision.

At least in the United States, arbitration as an alternative dispute resolution to courts dates back hundreds of years. It was largely used for resolving disputes between businesses. Nations would also rely on an arbitrator to resolve conflict.

In 1925, when the Federal Arbitration Act was passed, marking the first federal law governing the alternative dispute resolution proceedings, it was understood to apply to rows between businesses. It wasn’t until the mid-1980s that the U.S. Supreme Court started widening the net to cover a broader range of issues between corporations and their employees and customers, according to the New York Times.

Today, if a customer or employee wants to take a company to court, but is bound by a mandatory arbitration clause, the pathway looks a bit like the following:

The parties retain the services of a professional arbitrator, who works for an arbitration organization like the for-profit JAMS or the non-profit American Arbitration Association. That arbitrator acts like a judge, and sometimes is a retired judge, although he or she could also be an attorney or even someone without any formal legal training at all but perhaps has expertise in the matter at hand.

Factors such as how arbitrators are selected, where proceedings will be held, who will pay attorneys’ fees, and whether the proceedings and outcome are confidential, could be determined in the arbitration agreement you signed without realizing it. The arbitrator’s fee is typically determined by the value of the dispute.

Unlike the court system, there’s no overt appeals process. If an arbitration agreement says the arbitrator’s decision is binding, then you’re probably stuck.

The public might never know that a corporation was sued over dangerous products, an employer over a pattern of sexual harassment or racial bias, or a doctor over medical malpractice, because of a secret, rather than public, civil proceeding outside the courts. So, too, if you win.

Furthermore, the amount of money you could get, or the type of justice handed down, could be muted if you do win, but there’s a very firm likelihood that you couldn’t possibly win. After all, the arbitrators are often paid by the corporations and are therefore their clients. What incentive is there for an arbitrator to rule against a client that could offer repeat business?

A Lifetime of Arbitration: From the Neonatal Unit to the Nursing Home and Even the Cemetery

In the early 2000s, Wall Street attorneys helped pioneer a way to force individuals into arbitration and waive their right to class actions over a variety of claims against banks and other financial-sector organizations, according to the NY Times.

Since then, thanks to U.S. Supreme Court decisions in 2011 and 2013, the scope has only gotten wider.

Private schools, funeral homes, nursing homes, doctors offices and hospitals, and employers have all been known to use clauses to shield themselves from exposure to the courts in a variety of disputes, according to the New York Times. In the world of consumer goods, it could simply be a matter of opening a box that binds you to bringing your claim individually in a forum that doesn’t give you equal footing with a big, financially powerful corporation.

In addition to causing headaches for consumers overburdened by exploitative or unexplained fees and business practices of their banks and cell phone and cable providers, the arbitration epidemic also extends to life-and-death matters, such as the care of your family.

Doctors at the nursing home wouldn’t treat a patient with severe bed sores that needed quick attention until her guardian agreed to arbitration."

In one instance, an attorney who was legal guardian of a 90-year-old woman with dementia was flabbergasted when he received a fax from the Illinois nursing home where she lived: doctors at the home wouldn’t treat her severe bed sores, which needed quick attention, until the lawyer agreed to arbitration, according to the NY Times.

Another example the Times gave involved a Tampa-area ob-gyn office that requires patients to waive their right to take doctors to court if an issue like a botched C-section of vaginal delivery occurs. Additionally, according to the Times, at Evergreen Cemetery in Chicago, families technically are agreeing to arbitration when burying their loved ones there.

But what about those banks? Shouldn’t people be able to band together in a class action to challenge seemingly widespread and nefarious business practices, such as shady fees that bring in billions a year or the massive scandal at Wells Fargo that involved employees opening up two million fake accounts in customers’ names?

In the case of Wells Fargo, the arbitration agreements that account holders signed when opening up their legitimate accounts might have barred them from challenging the bank in court, class or individually. This is because anyone who opened an account with the bank was agreeing to an “exceedingly broad” arbitration agreement, according to the Michael Hiltzik of the Los Angeles Times.

When account holders tried to take Wells Fargo to court over the bogus accounts — which employees had created using forged signatures in order to meet quotas — courts had to toss them out. The bank argued that despite the fact that the accounts are fake, they are drawn from legitimate accounts the victims had opened, “in which they agreed to submit any future disputes with the bank to an arbitrator,” Hiltzik writes.

Although the bank did have to pay out $185 million in fines to officials in the Los Angeles and federal governments, that could be seen as leaving out the thousands upon thousands of Wells Fargo customers whose lives were negatively affected because of fake accounts in their names.

How Do We Get Out of This Mess?

It’s easy to feel like there’s nothing we can do about this, but that’s not the case. You have some power in this situation, and there are legislators always looking for a way to fight mandatory arbitration agreements.

Consumers opposed to getting stuck with arbitration in financial or mobile-phone contacts can shop around for companies that don’t use them. Midsized banks and credit unions are more likely to not force arbitration, according to Consumer Reports.

Additionally, you can try your hand at opting out. Some agreements allow for a grace period in which you can opt out of arbitration, but they do a great job of trying to hide that fact. It’ll be a struggle to wade through the dry legalese of a consumer agreement, but it’s worth it if you have the ability to opt out.

There’s also your voice. Consider the General Mills case. When consumers learned that they were being forced into mandatory arbitration by merely downloading coupons or participating in company-sponsored sweepstakes, they raised a stink and General Mills changed course.

There is the opportunity to at least try to tackle mandatory arbitration clauses at the legislative level.

For example, U.S. Senators Kirsten Gillibrand, D-NY, and Kamala Harris, D-Calif., along with U.S. Rep. Cheri Bustos, D-Ill., have recently introduced a bill that would eliminate forced arbitration clauses in employment agreements.

The lawmakers say forced arbitration, and the silence it carries, have made it harder for women to fight sexual harassment and gender bias in the workplace, a fact that’s come to light in recent months. Given that as much as 56 percent of American workers are subject to mandatory arbitration, according to the Economic Policy Institute, legislation like this could have a huge impact.

The financial side of things has seen activity, too. The Consumer Financial Protection Bureau had issued a rule that prohibited companies from forcing people to sign away their right to file class actions over shady financial dealings. However, Congress and President Donald Trump overturned that in October, obliterating what was a strong method for holding large companies accountable.

However, in the future it is possible that with public pressure lawmakers and regulators could re-examine the rule, resurrecting a tool consumers could use to get justice for customers exploited by credit card companies, banks, and other financial institutions.

There is also activity in the governments of certain states. Most specifically, California. Spurred by the overturning of the CFPB, Golden State lawmakers are going after mandatory arbitration clauses in a bid to protect consumers, employees, and anyone else forced into signing away their right to sue. Success of this remains to be seen, but California often leads the way when it comes to policy.

Not Sure If You Can Go to Court? An Attorney Could Help You Figure That Out

If you were injured by a product, had your life changed by shoddy financial practices, or your employment was negatively affected in some way, and you’re not sure if you’re bound by forced arbitration, contact our attorneys at Morgan & Morgan today for a free, no-risk case evaluation.

For more information on how mandatory arbitration impacts communities, check out's elaborate coverage.