Restoring Rights: The Fight to End Forced Arbitration

Companies insert forced arbitration clauses in many types of contracts, including employment agreements, service agreements, and agreements concerning the purchase of consumer goods. Forced arbitration clauses require people to accept that any future disputes between them and the company must be addressed by an arbitration firm and not heard by a judge in public court. This means that people often become bound by forced arbitration clauses without realizing it when they do things like purchase a ticket, open a consumer account (for example, a cellphone or credit card account), purchase a car, or sign an employment agreement. Most people simply don’t have time to review long contracts, and thus do not really understand what they are “agreeing” to: giving up their right to bring disputes in court. Moreover, people can’t negotiate the terms of these agreements with the corporation – their only option is to not use the service, take the job, or use the product. This is an especially difficult feat with widely utilized services and for desperately needed employment. Often, but not always, these clauses are included in online terms of service agreements that are referred to as “click-to-accept” or “clickwrap” agreements that consumers must click to access a website or download an app to obtain a service (i.e., to make a purchase or payment, access social media, access cloud storage, etc.).

The impact of forcing consumers and workers into arbitration often favors corporations. In addition to preventing people from suing companies directly, these clauses also bar consumers from joining class action lawsuits– an especially burdensome limitation for consumers with small-dollar claims. Arbitration proceedings are also notoriously secretive since proceedings and decisions are, with few exceptions, not made public or required to be reported to state or federal courts or agencies. Some terms of service related to arbitration also include strict confidentiality provisions, preventing consumers from discussing the outcomes of the arbitration they have been forced into and thus taking away their ability to warn other consumers or workers of potential pitfalls.

Corporations imposing forced arbitration clauses on their clients and employees typically name specific arbitration firms within the contract. Because arbitration firms rely on return-business to make a profit, arbitrators have an incentive to rule in favor of the corporation to cultivate a happy return-customer relationship with the corporation. People should not be forced into arbitration and away from the courts prior to a cause of action taking place, especially when peoples’ only option to avoid them is to reject the companies’ terms or to not access the service or not take the job.

Even when consumers agree to terms of service without a forced arbitration clause, the agreement can be changed or updated to include one without their knowledge or consent. Corporations can, and often do, update their terms of service with limited – and sometimes no – prior notice to the consumer or employee. Sometimes, corporations will update their terms of service in anticipation of a legal dispute, allowing them to adopt more favorable terms for themselves. Moreover, arbitrators are not required to follow state and federal court procedures. Arbitration firms also have ongoing problems making diverse arbitrators available to hear cases, making it especially difficult for consumers of color and consumers from disadvantaged communities to be heard by an arbitrator with similar life experiences. It’s no wonder that consumers feel that the deck is stacked against them when it comes to asserting their rights against powerful corporations.

Our History of Advocacy

We have a long history of fighting companies’ use of forced arbitration in contracts with consumers and employees. We have:

• Called out the impact of forced arbitration on consumers after the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion. In a 5-4 decision issued on April 27, 2011, the Court held that corporations can bar consumers from pursuing cases as a class, even where state laws protect their right to do so.
• Called out the ubiquity of forced arbitration clauses in the building industry, in Amtrak tickets, in credit cards, in broker-dealer contracts, and other industries.
• Called out individual corporations for their use of forced arbitration provisions and  pro-forced arbitration stance.
• Raised awareness of the negative impact forced arbitration clauses can have on employees and consumers generally as well as on consumers of color.

What’s Being Done Currently to Ban Forced Arbitration?

We have seen some wins regarding forced arbitration. For instance, several tech companies have agreed to limit their use of forced arbitration provisions in employment contracts. The Department of Education has enacted a rule prohibiting schools from using forced arbitration clauses in student contracts. And in 2022, President Biden signed the Ending Forced Arbitration of Sexual Harassment Act into law. The wins that have been accomplished against forced arbitration have been hard fought – but our work is not done. We will continue to advocate until all consumers and employees are free from being forced into arbitration. Some of the bills and actions we support include:

The Forced Arbitration Injustice Repeal (FAIR) Act of 2023, H.R. 2953, introduced by Representative Hank Johnson (D-GA) and Senator Richard Blumenthal (D-CT), would ban the use of forced arbitration clauses in future employment, consumer, antitrust or civil rights contracts.

The Ending Forced Arbitration of Race Discrimination Act of 2023, S. 1408, introduced by Senator Booker (D-NJ), would end the practice of forcing individuals who allege race discrimination into arbitration.

The Investor Choice Act of 2024, H.R. 7688, introduced by Representative Foster (D-WI), would prohibit pre-dispute mandatory arbitration clauses and ban prohibitions on class action lawsuits in certain financial sectors.

The Protecting Older Americans Act of 2023, S. 1979, introduced by Senator Gillibrand (D-NJ), would bar enforcement of forced arbitration clauses that prevent those alleging age discrimination from seeking justice and public accountability in court.

In September 2023, Public Citizen joined eight other consumer protection organizations in submitting a petition for rulemaking with the Consumer Financial Protection Bureau (CFPB) asking the Bureau to create a rule to restore the right of all Americans to decide to file a case in court rather than be forced into arbitration by big banks and other financial services corporations. More than 100 consumer protection, civil rights, and organized labor organizations filed a comment in support of this petition. As of November 2023, approximately 2,600 Public Citizen supporters signed a petition asking the CFPB to issue a rulemaking banning forced arbitration.

On January 31, 2024, Public Citizen and 16 other advocacy organizations submitted a letter to the Securities and Exchange Commission asking Chair Gary Gensler to issue a rulemaking banning forced arbitration in federally registered broker-dealer and investment adviser contracts.

On April 9, 2024, the U.S. Senate Committee on the Judiciary held a hearing titled Small Print, Big Impact: Examining the Effects of Forced Arbitration. Public Citizen submitted a comment to the Judiciary Committee in support of the Forced Arbitration Injustice Repeal (FAIR) Act of 2023, H.R. 2953.

Public Citizen will continue working to ban the use of forced arbitration until everyone can individually decide to have their claim heard in public court – join our movement here.