Corporate Law

Arbitration clauses effectively eliminate consumer rights for many, New York Times reports

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Once virtually unheard-of, clauses requiring individuals to arbitrate consumer and employment disputes are now ubiquitous in documents ranging from applications for cable television service, a credit card or a bed in a nursing home to job-related paperwork.

Additionally, many such agreements also bar individuals from bringing class actions. The result is to effectively eliminate any viable avenue of redress for many people, aside from the possibility of bringing a small-claims action, reports the DealBook page of the New York Times (reg. req.) in a lengthy front-page story on Sunday.

That’s because statistics show the arbitration process, which can be costly, is much less likely to result in any award, let alone a significant one, to the individual than a court case, the newspaper says. However, most people don’t read the fine print, and don’t realize unless a dispute arises that they have signed away their right to bring suit.

“This is among the most profound shifts in our legal history,” U.S. District Judge William Young, a Reagan appointee to the Boston bench, told the Times. “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

In a follow-up DealBook (reg. req.) article, law professor Myriam Gilles at the Benjamin N. Cardozo School of Law said: “This amounts to the whole-scale privatization of the justice system. Americans are actively being deprived of their rights.”

Companies and their lawyers have pointed to reduced costs for consumers overall, as a result of lower litigation expenses, and predict that arbitration will be more commonly used as individuals become more familiar with the process.

A number of arbitration clauses contain opt-out provisions, the Times notes. However, few individuals utilize them within the required deadline, and many probably don’t realize they exist.

See also: “Will consumer agency ban mandatory arbitration in consumer contracts? Study could be first step”

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