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Dismantling Forced Arbitration: A Political Winner

Millions of Americans are signing away their right to legal recourse with little alternative.

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Credit: Stock Studio 4477

There is a legal issue looming that has the potential to descend from the legal academy into mainstream conservative thought. This is the conservative legal nerd’s dream, because I am speaking, of course, about tort reform and arbitration agreements. As Sohrab Ahmari has pointed out, this is an issue that presents an opportunity to level the playing field between big business, ordinary consumers, and workers. This issue can help address the disturbing practice of personal data collection from big tech companies. It presents an opportunity to restore due process, the right of normal Americans to seek justice through courts of law without elites blocking them via arguably coercive contracts.

Forced arbitration agreements are the center of the problem. Such agreements are essentially a contract between two parties who agree that, in the event of a dispute, they will submit their legal issue to a private arbitration panel rather than a court of law. On its face, this may seem harmless enough. Arbitration, at least in theory, can be a simpler, more streamlined process that costs less for each party and brings the issue to a quick, efficient conclusion without dragging through the court system for months or even years. 

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Yet arbitration agreements come with serious downsides. First, the landscape has changed due to the existence of contracts between parties that are created, not by reviewing and signing a physical contract, but by clicking “I Agree” on a simple terms of service agreement. Millions of consumers are signing away their right to sue in a court of law without ever having read the forced arbitration provision or even realizing that they are agreeing to a legally binding contract at all.

These legally binding terms of service agreements are common practice in the digital era. An incredible amount of modern economic activity flows through these platforms—from ordering food or a ride via Uber to contact with tech giants like Samsung that collect large amounts of intrusive personal data—and takes place completely online. Many of these transactions include the consumer agreeing that he will submit any complaint to arbitration and that he cannot file suit in a court of law or appeal the arbitrator’s decision. With such a wide range of economic activity governed by these online relationships, consumers are being forced into arbitration and denied the right to begin a cause of action in a court.

It is important to find common ground within conservatism. There are some issues where there are deep divides on the right—free market absolutism vs. openness to using government power for the common good, for example. These conversations need to occur; the future of the Republican Party and the conservative movement requires serious conversations about policy, principle, and guidelines to hold corporations accountable. In the midst of such conversations and disagreements, it is important to grab and highlight issues where there are common interests and the ability for coalitional agreement and action. The forced arbitration issue has been highlighted as problematic by diverse voices from Josh Hammer to the Economic Policy Institute to Americans for Tax Reform. Ending forced arbitration should appeal to libertarians, free marketeers, and “new right” folks alike.

So what is the case against forced arbitration agreements? In the world of “click to accept” agreements, the very nature of entering into a contract has changed. There has always been a danger of coercive contracts. But parties used to review a proposed contract on paper, a physical thing to read and sign. Today, a consumer buying online accepts a lengthy, in-depth contract when he makes a purchase. Yes, the consumer has the ability to click and find a copy of what he is agreeing to, but almost nobody does that because it simply doesn’t seem necessary. Click yes and buy what you want. Why sift through page after page of legalese?

The fact that millions of people are agreeing to legal contracts they have never read is bad enough. The arbitration agreement, however, is particularly concerning because one is signing away a central legal right: the right to sue in a court of law and have a trial to address a wrong done. 

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Rights are not absolute and the person possessing them can forego them. For example, a criminal defendant can waive his constitutional right to representation by counsel and to a trial by jury. These examples demonstrate the very problem of online forced arbitration agreements: when a criminal defendant waives an important right, the judge is careful to explain that the person has this right and should not waive it lightly. The goal is to ensure that when people are giving up rights, they are doing so knowingly and voluntarily. The fact that nearly every consumer in the country has unknowingly waived his right to a civil trial via an online purchase is troubling.

Then there is the reality of arbitration itself. Depending on the language of the arbitration agreement, there will be either one arbitrator or several in place of a judge. Those arbitrators may follow legal precedents, or they may not. If they do not, there is little to no right to appeal the decision. The arbitration may take place in New York or California or overseas, depending on the venue provision of the contract, inevitably crafted to be convenient for the corporation, not the consumer. With all these variables, parties agreeing to arbitration rather than litigation may simply be getting essentially the same rights that they would in court. Or they might not. A consumer might find himself subject to an agreement requiring him to settle his dispute before private arbitrators, thousands of miles from his home, with rules that force a quick and informal proceeding and leaving no right to appeal. 

In an attempt to level the playing field, consumer advocates and litigators have countered this trend by applying similar principles and strategies of the class action system. While this has proven to be an effective strategy, it has had the unexpected effect of making these arbitration agreements, crafted by corporate attorneys to avoid accountability, problematic to the very companies that created them. 

For example, last year Uber had its own arbitration agreement used against it by plaintiffs’ lawyers. Since arbitration agreements preclude plaintiffs from filing a class action lawsuit, attorneys collected thousands of consumers with legal grievances against Uber Eats for a reverse race discrimination claim. Since each arbitration request requires both the consumer and the corporation to pay part of the legal fees for arbitration, the massive claim resulted in Uber being forced to pay arbitration fees of over $90 million. 

Similarly, in the Samsung case cited earlier, nearly 50,000 individual consumers pursued arbitration against Samsung, claiming the company’s facial recognition technology violates a state law restricting the collection and use of biometric data. The company has balked at paying its share of the arbitration fees mandated by its own terms of service, and the dispute over arbitration has ironically wound up in the courtroom it was supposed to avoid. While the case is ongoing and the court order requiring Samsung to pay the arbitration fees has been temporarily blocked, Samsung could ultimately be on the hook for over $100 million in arbitration fees.

Ending the forced arbitration regime altogether should be a legal issue that unites the right—and perhaps many on the left as well. These arbitration agreements are coercive to the consumers who unwittingly sign them, have created unintended consequences for businesses, and generally force parties out of courts of law and into private arbitration, subject to varied and questionable rules and procedures. Whether one wants to protect ordinary Americans against coercive big business, ensure that market transactions are clean and not burdened by unnecessary, inefficient deadweight, or simply want to make sure that people have access to courts of law, arbitration agreements are an easy target.

Perhaps a bottom-up movement could begin to raise awareness: Consumers could refuse to buy from companies who include these forced arbitration clauses in their agreements. Yet the practice is so prevalent that this might not be possible. A top-down approach through government legislation has been proposed that would prohibit forced arbitration agreements. There are polls showing that, while some politicians beholden to big business might hesitate, these proposals are overwhelmingly popular among both Democrat and Republican voters. 

Someone should take this popular issue and run with it. There is no reason big businesses should force those with whom they do business to forgo their right to a civil jury trial as a condition of buying a product or service. Do we want free and fair markets? Corporate accountability? Freedom to access the courts? Justice for the aggrieved little guy? An end to coercive “click to accept” contracts where millions of people are unknowingly signing away their rights? This should be an easy one. Forced arbitration agreements should be tossed into the ash heap of history, an attempt to unfairly benefit big corporations that actually benefited nobody at all.

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