Forced Arbitration

women going over documents together on a desk

“A forced arbitration clause is a get-out-of-jail card that takes away consumers’ day in court, forcing them into a tribunal that is often biased, secretive, and lawless.”

Forced arbitration is a bad trend. According to the National Association of Consumer Advocates, forced arbitration is when a company “requires a consumer or employee to submit any dispute that may arise to binding arbitration as a condition of employment or buying a product or service. The employee or consumer is required to waive their right to sue, to participate in a class action lawsuit, or to appeal. Forced arbitration is mandatory, the arbitrator’s decision is binding, and the results are not public.” The National Consumer Law Center puts it even more bluntly: One place where arbitration clauses have become increasingly common is at assisted living/memory care facilities. These institutions often prefer arbitration to the legal system because they can better control the situation and keep any wrongdoing on their part under wraps. For instance, if someone is injured in an assisted living facility because of negligence, they or their family might want to sue the facility. However, if there’s a signed arbitration contract, then the family can’t sue; they must try to seek justice through the arbitrator, who might have been chosen by the other side. The victim and his/her family might be restricted from speaking about the incident, thereby protecting the facility from negative publicity. In a recent example of this, a man with dementia was beaten in his room at an assisted living facility by a fellow patient, who used the lid of a toilet tank to bash him in the head while he slept. He was rushed to the emergency room with fractures and serious lacerations. His family had installed a Ring camera in their father’s room, so they saw what happened. When they found a lawyer and attempted to sue the facility for failing to keep their father safe, they discovered that they’d unknowingly signed an arbitration clause when they filled out a mountain of paperwork the day their father was admitted.

In 2019, Medicare outlawed the mandatory signing of arbitration clauses at nursing homes (meaning, you couldn’t be denied admittance to a nursing home that accepts Medicare simply for refusing to sign an arbitration clause). The same rule is not in place for assisted living and memory care facilities. Assisted living facilities are not the only place where forced arbitration is running rampant. Banks are also frequent users of arbitration agreements, and there’s a reason why: According to a report by the American Association for Justice, “Just 237 Americans out of 13,179 won monetary awards against banks and other financial services companies in forced arbitration at the American Arbitration Association (AAA)—the largest arbitration provider in the country— during the five years from 2017 to 2021, making for a win rate of just 1.8%. That makes the likelihood of winning a forced arbitration case against a bank nearly half the overall win rate against all corporations, which was already a pitiful 4.8%.” Forced arbitration often skews in favor of the big financial corporations. In fact, people who bring cases against big banks often end up paying money themselves rather than receiving compensation. The AAJ cites a study they did that looked at over 100 cases where Americans who brought forced arbitration cases against a bank were actually ordered to pay the bank, at an average of around $24,000.

Another downside of forced arbitration is that it’s sometimes hidden in the fine print. Oftentimes, people don’t even know that they’ve “agreed” to an arbitration clause. One consumer who was sexually assaulted at a massage parlor where she had a monthly membership downloaded the company’s app in order to cancel her membership. By agreeing to the “terms and conditions” when she downloaded the app, she was inadvertently giving up her ability to sue the massage chain. Another couple got a new roof on their house but discovered within a couple of years that the shingles were crumbling. When they tried to sue the supplier of the defective shingles, they were told that they couldn’t, because there was an arbitration agreement written on the outside of the packaging of the shingles. They didn’t even open the packaging – their roofer did. Even if you’re aware of arbitration agreements and trying to avoid them, it’s next to impossible. So what do you do if you’re asked to sign an arbitration clause? First, be absolutely sure that it’s mandatory. Some businesses would rather have your business than make you sign an arbitration clause. If the other party insists, stand strong. If they tell you that you can’t get a bed in a facility or take out a loan if you don’t sign the agreement, ask for that in writing. If you don’t have another good option, contact your lawyer before you sign, particularly for a huge investment. Andrew once walked away from buying a car (much to his wife’s chagrin) because the car dealership insisted that he sign an arbitration agreement. If there’s an option not to sign, don’t sign. In short, arbitration agreements are designed to protect big companies, not the rest of us. Be wary when you sign paperwork. Try to take your business to companies that do not force you to sign arbitration agreements. And don’t hesitate to give us a call if you need advice on an arbitration agreement.