In March 2021, U.S. Senator Richard Blumenthal (D-CT) reintroduced the Forced Arbitration Injustice Repeal Act (the “FAIR Act”). The FAIR Act would do away with mandatory arbitration clauses in class actions, employment, anti-trust, and civil rights cases. Should this bill pass, it would allow consumers and employees to pursue legal action against companies and employers, rather than be limited to mandatory arbitration.

Since the late 1990s, employers and companies have made use of mandatory arbitration clauses to limit employees’ and consumers’ ability to pursue legal action against them. While employers and companies have justified the use of arbitration as a lower-cost alternative to a lawsuit, mandatory arbitration often heavily favors companies and employers. For example, the inclusion of mandatory arbitration clauses in employment contracts means that unless an employee agrees to the clause, the employee may lose the job offer. In the context of consumer rights, a company may require a consumer sign a contract that includes a mandatory arbitration clause for access to services, such as cell phone service.

The Economic Policy Institute has calculated that approximately 56.2% of private-sector, non union employees are subject to mandatory arbitration proceedings. Further, 30.1% of employers who require the settlement of disputes via mandatory arbitration were also found to have included class action waivers in their mandatory arbitration clauses. As a result, those employees would be unable to file a lawsuit individually against their employer nor be able to file on behalf of similarly situated employees, for example, those experiencing discrimination or harassment.  

It's difficult to put into words how painful and disturbing it is for an citizen to lose their constitutional right to a jury trial.  The loss of this right should be considered just as serious as the loss of any fundamental due process right we are granted under the United States Constitution.  The video posted below gives some insights on the personal stories of those who have suffered from unknowingly and unintentionally giving up their rights in an unequal bargain.  


Companies that Use Mandatory Arbitration Clauses with Consumers
Many of the world's most visible and influential companies have unfortunately made the choice to use forced arbitration to deny individuals of their most precious rights.  Just a few companies that hide clauses in their contracts to escape accountability for defrauding employees and consumers:

Fletcher Jones Motorcars Newport Beach
Facebook
Netflix
Patagonia
Starbucks
Target 
Tesla
Verizon
Airbnb
Amazon
American Express
AT&T
Chase
Comcast
Etsy
Equifax
HBO
Hulu
Lyft
Microsoft
Netflix
PayPal
Sallie Mae
Spotify
Twitter
Uber
Walmart
Wells Fargo

What exactly is mandatory arbitration?

Mandatory arbitration is a non-legal procedure with legally binding results (unless your contract says otherwise). There are no rules or laws which arbitration procedures must follow, although many law firms offering arbitration services will usually publish a set of rules they have established. Although arbitrators are often lawyers or judges, there is no rule requiring that an arbitrator have a legal background, education, or any familiarity with laws or ethics.

In practice, both sides will first choose a mutually agreed-to arbitrator, who will be paid by the employer or company alleged to have done some wrongdoing. Although that means the employee or consumer doesn’t have to foot the bill, it also creates a conflict of interest as the alleged wrongdoer is paying the person ultimately deciding how the issues will be settled. Then, the arbitrator will normally meet both sides in a conference room, where they will each give their arguments. Consumers and/or employees may be represented by an attorney, and should consider hiring one to represent them in this context. The arbitrator considers both arguments, may review any evidence submitted, and then makes a legally binding decision.

In contrast, when a consumer or employee files a lawsuit, each side must participate in discovery. This provides the consumer or employee an opportunity to ask for any and all evidence from the employer or company that supports their allegations. Depositions can also be conducted to father further relevant information from witnesses and the defendants. In addition, courts have rules of procedure which limit the admission of hearsay evidence. In short, lawsuits provide employees and consumers with an opportunity to collect information from the other side and limits the admission of certain evidence that cannot be substantiated. Lawsuits also allow employees and consumers to present their case to juries. Juries tend to be  more sympathetic to employees and consumers, thus increasing an employee or consumer’s chances of success.

When described this way, it’s not hard to see why companies and employers want to keep mandatory arbitration clauses in their contracts. Arbitration significantly decreases their obligations to disclose information and allows them to avoid the potentially costly judgments that may be imposed by juries.

What About Mandatory Arbitration in California?

In California, the McGill v. Citibank, N.A., 393 P.3d 85 (Cal. 2017) case established the legal requirement that contracts made in this state must allow an individual to pursue public injunctive relief. “Public injunctive relief” is defined as “relief that by and large benefits the general public,” and can include a court order that a company cannot continue to engage in false advertising or make false claims about its products.

While this appears to prevent mandatory arbitration clauses from being considered enforceable in California, a recent Ninth Circuit decision held that that was not the case. In DiCarlo v. MoneyLion, F.3d (9th Cir. Feb. 19, 2021), the Court of Appeals upheld the lower court’s decision that a mandatory arbitration clause was enforceable and did not violate the McGill rule because it allowed for “public injunctive relief.” The Court of Appeals interpreted the sentence stating that the arbitration agreement “authorize[s]” the arbitrator to “award all remedies available in an individual lawsuit under [California] law” as including “public injunctive relief.”

The DiCarlo decision appears to require that mandatory arbitration procedures provide the remedies available to an individual under California law. However, it is likely that, in reality, this will only allow companies to take further advantage of employees and consumers in California. The Ninth Circuit has essentially informed companies that to ensure that their mandatory arbitration clauses are enforceable in California, they only need to include a sentence about authorization to award all available remedies under California law.

It is important to note that authorization does not mean that those remedies will be granted. As explained above, arbitrators are not required to grant any relief and are likely to be less favorable than a jury.

Thus, when faced with a mandatory arbitration clause, it is important to consider the rights that you will lose when signing such a contract. In the context of consumer protection, we recommend that you consult with an experienced, California consumer protection attorney prior to agreeing to any arbitration procedure. For more information on consumer protection lawsuits, employment lawsuits, and arbitration procedures, please do not hesitate to contact AK LAW ACPC or schedule a consultation.