To Protect Workers and Consumers, Congress Must End Forced Arbitration

M. Isabelle Chaudry

Aug. 2, 2021

In February, Georgia Rep. Hank Johnson, chair of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, reintroduced the FAIR Act. The legislation would protect workers and consumers by eliminating restrictive "forced arbitration" clauses in employment and consumer contracts. The bill would also allow consumers and workers to agree to arbitration after a dispute occurs if doing so is in their best interests. A companion measure has been introduced in the Senate.

Arbitration — a process where third parties resolve legal disputes out of court — is a standard precondition to most, if not all, nonunion employment and consumer contracts. It's considered "forced" because few consumers and workers are aware that they are agreeing to mandatory arbitration when they sign contracts. In most contracts, arbitration is imposed on a take-it-or-leave-it basis before any dispute even occurs; refusing to sign is rarely a realistic option because other sellers and employers impose similar arbitration requirements.

Few consumers or workers are aware of these factors when signing a contract. When signing contracts, consumers and workers agree to adjudicate virtually all types of alleged violations of state and federal laws, including those that protect them against harmful and dangerous products, consumer fraud, employment discrimination, and other forms of wrongdoing.

Consumer and workers' rights advocates have been working for years to end this practice. That's because for several reasons, arbitration benefits corporations over consumers and workers.

Arbitration is similar to a public trial but less formal in a number of important respects. For example, formal rules of evidence and civil procedure generally do not apply in arbitrations. Arbitration is also generally considered a "private" process. Unlike court proceedings, arbitration proceedings lack an impartial judge or jury; an appealable decision; and oversight and transparency. Unlike court cases, arbitration results are rarely a matter of public record, which leads to a lack of transparency and welcome secrecy for employers and corporations. For these reasons, advocates against pre-dispute arbitration clauses argue that arbitration should not be "forced."

In addition, arbitration clauses restrict consumers' and workers' access to justice by stripping them of their right to go to court. Instead, consumers and workers are forced into an arbitration system where corporations write the rules that govern their relationships with workers and consumers and design procedures to interpret and apply these rules when disputes arise. In these circumstances, arbitration proceedings are unfairly tipped in favor of corporations.

Research gathered by the American Association for Justice reveals that people of color and women are more likely than white men to be forced into arbitration, and arbitrators working on these cases are mostly male and overwhelmingly white. At the two largest consumer and employment arbitration providers in the country (AAA and JAMS), 88 percent of arbitrators are white and 77 percent are male.

This lack of diversity presents an issue, particularly for people of color and women workers and consumers interested in seeking justice. Research reveals that corporate defendants disfavor female and minority arbitrators. And when they do oversee cases, female arbitrators rule in favor of consumers and employees more often than male arbitrators.

Need for reform

In 1925, Congress enacted the Federal Arbitration Act, which provides that agreements to arbitrate disputes are enforceable by courts. The law has not been substantially amended since its passage, but modern jurisprudence has substantially expanded its scope. The U.S. Supreme Court's decisions have also supported arbitration agreements that require that disputes be arbitrated on an individual basis, precluding class actions or other collective litigation. In the century since the Federal Arbitration Act's passage, the type and number of arbitrations have increased greatly.

Proponents claim arbitration is an economical and expeditious alternative to litigation. In fact, arbitration creates one-sided agreements that deny consumers and employees advantages afforded by a judicial proceeding. In response, advocates have looked to Congress to remedy this issue. Legislation is long overdue, and Congress must act on it now to protect consumers' and workers' rights. The FAIR Act referenced above would make the first substantial amendment to the Federal Arbitration Act in nearly a century.

This is important because consumers and workers should be able to decide if they want to agree to arbitration after a dispute occurs. They should not be barred from access to court once they've signed an employment and or consumer contract. CPR will continue to push for the passage of the FAIR Act and advocate on behalf of workers and consumers.

Those interested in keeping up to date with CPR's advocacy efforts on this matter should subscribe to our email list for updates.

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