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Private Arbitration Clauses: Why Consumers and Employees Should Read the Fine Print

Published onOct 18, 2016
Private Arbitration Clauses: Why Consumers and Employees Should Read the Fine Print

In today’s fast-paced society, written agreements are entered into constantly.  However, it is not always clear what these agreements entail.  It is difficult today to apply for a credit card, use a cellphone, or shop online without agreeing to private arbitration.  However, not all consumers are aware that these private arbitration clauses even exist or what they have agreed to.

What is private arbitration? Private arbitration is a way of settling disputes outside of court.  Arbitration involves two parties who agree to work with a disinterested third party in an attempt to resolve their disputes. There are two types of arbitration: forced or voluntary.  Voluntary arbitration is when two parties agree upfront that arbitration is the best way to handle all future disputes.  Forced arbitration, however, is when one party does not have the option to negotiate for or against private arbitration. These forced arbitration clauses are common in employment and consumer situations

There are advantages to private arbitration.  For instance, arbitration is fairly quick. Once an arbitrator is chosen, the case can be heard immediately.  Also, the parties choose their arbitrator jointly as opposed to litigation, where a judge is appointed for the parties.  Some claim that arbitration is a fair, speedy, and less costly alternative to class action litigation.  However, others see the inability to chose class action litigation as an unfair advantage in favor of big corporations.

Class actions suits are “realistically the only tool citizens have to fight illegal or deceitful business practices.”  Another disadvantage to arbitration is that the decision of the arbitrator is final.  There is no appeal in arbitration.  The right to sue is an important legal right.  Unfortunately, too many litigants have been unable to sue in court due to private arbitration clauses that the litigants were unfamiliar with but had signed nonetheless.  Mohamed v. Uber Technologies is one such case.

Mohamed involved two employees of Uber, who were dismissed due to negative information on their consumer credit reports.  The drivers claimed, among other things, that the use of their consumer credit reports violated the Federal Credit Reporting Act (FCRA). However, the drivers were denied the option of a class action suit, when the Ninth Circuit upheld the private arbitration clauses in the drivers’ employment agreements. While the arbitration clauses had opt-out provisions, neither party took advantage of the clause because the drivers claimed the provisions were hidden.  The Ninth Circuit was not persuaded by this argument, reminding that a party who signs an agreement is bound whether or not they are familiar with the terms of that agreement.

Today, it is common for an individual to sign or click “yes” to an agreement without reading it.  Agreements are often long and tedious to read.  However, with private arbitration clauses being so prevalent, it is important for future consumers and employees to ask themselves if the right to sue or join a class action is important to them.  If so, then they should be vigilant and remember to always read the fine print.

Charity Barger is a second year law student.  She received her Bachelor of Arts in Psychology, with a minor in pre-law, from the University of West Florida.  After law school, Charity hopes to work in corporate law, specializing in Mergers & Acquisitions.

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