Arbitration Agreements - Common Misconceptions
Arbitration clauses are everywhere, and most people have no idea what they are and how they affect people legally.
You have likely clicked “I accept” on your iPhone, Facebook, Uber, Lyft, or other commonly used services, without reading what you are accepting. At your job, you have likely signed an arbitration clause. But what does that mean, and what constitutional rights are you giving up?
The Seventh Amendment to the Constitution preserves the right to a trial by jury. A trial to be decided by other members of your community. But rights can be given up. And you have likely given up your right to a jury trial, or to go to court, tens if not hundreds of times in your life.
Recently, the Economic Policy Institute explained arbitration clauses:
In the past three decades, the Supreme Court has engineered a massive shift in the civil justice system that is having dire consequences for consumers and employees. The Court has enabled large corporations to force customers and employees into arbitration to adjudicate practically all types of alleged violations of countless state and federal laws designed to protect citizens against consumer fraud, unsafe products, employment discrimination, nonpayment of wages, and other forms of corporate wrongdoing. By delegating dispute resolution to arbitration, the Court now permits corporations to write the rules that will govern their relationships with their workers and customers and design the procedures used to interpret and apply those rules when disputes arise. Moreover, the Court permits corporations to couple mandatory arbitration with a ban on class actions, thereby preventing consumers or employees from joining together to challenge systemic corporate wrongdoing. As one judge opined, these trends give corporations a “get out of jail free” card for all potential transgressions. These trends are undermining decades of progress in consumer and labor rights.
It is common for employees to be presented with terms of employment that include both a clause that obligates them to arbitrate all disputes they might have with their employer and one that prohibits them from pursuing their claims in a class or collective action in court.
Employees subject to mandatory arbitration can no longer sue for violations of many important employment laws, including rights to minimum wages and overtime pay, rest breaks, protections against discrimination and unjust dismissal, privacy protection, family leave, and a host of other state and federal employment rights.
On average, employees and consumers win less often and receive much lower damages in arbitration than they do in court.
Employers tend to win cases more often when they appear before the same arbitrator in multiple cases, indicating that they have a repeat-player advantage over employees from regular involvement in arbitration.
According to a recent Consumer Reports story:
If a bank employee opens fake accounts and credit cards in your name, as recently happened at Wells Fargo, you may be charged fees for those fake accounts, which you didn't pay because you didn't know the accounts existed. And since you didn't pay those fees, your credit report and your credit score could be hurt.
And there may not be a whole lot you can do about it.
That's the problem now facing many Wells Fargo customers. Over the course of five years, Wells Fargo employees opened as many as 2 million fake accounts in the names of Wells Fargo customers and made millions in profits for the company by charging customers overdraft fees, monthly service fees, annual fees, finance charges, interest charges, and late fees on those phony accounts.
But customers lose their right to a trial in court over the creation of those phony accounts and the damage done to their credit if a pre-dispute mandatory arbitration clause was included in their customer agreement.
A video created by Americans for Financial Reform created a video explaining how Wells Fargo was able to keep its fraud secret for years because of arbitration clauses. You can watch the video here.
The Washington Post recently weighed in with an article headlined Why Wells Fargo customers won’t be able to sue the bank over fake accounts. An excerpt:
One major group directly affected by the Wells Fargo scandal — the customers who had fraudulent accounts opened in their names — may have their hands tied.
As lawmakers pointed out at congressional hearings Thursday and last week, many Wells Fargo customers are blocked from suing the company because of arbitration clauses, little-known contracts that often ban customers from taking part in class action lawsuits. They are regularly included in the fine print for checking accounts, credit cards and other consumer products.
In the case of Wells Fargo, the arbitration clauses that customers agreed to when they opened their real accounts are being used to keep them from suing about the fake accounts opened in their names.
In a terse exchange during Thursday’s hearing, Rep. Brad Sherman (D.-Calif.) pushed John Stumpf, the chief executive, on whether the bank would waive the clause for affected customers.
Stumpf defended the arbitration process, calling it “fair” and saying that consumers would be directed to mediators.
But Sherman asked the executive to be more direct about whether customers have the ability to challenge the company in court.
“If they want to go to court are you going to let them go to court? Yes or no?” Sherman asked.
“No, but …” Stumpf responded before being interrupted by Sherman, who said he understood that the answer was no.
So what can you do about it? Call your senators, legislators. Write them. Demand that they stop mandatory arbitration. Demand that they stop companies from taking advantage of us by making us waive our constitutional right to access the courts, to access fair justice, and to have juries decide our cases. Contact our office today if you’d like us to email you our form letters to send to your elected leaders.