Arbitration agreements are hiding in those terms and conditions you don’t read
Arbitration agreements are hiding in those terms and conditions you don’t read
Earlier this week, Disney backed down from its claim that a man whose wife died at Disney World could not take the company to court because he had signed away his right to sue when he signed up for a Disney+ trial years earlier.
What he had signed was something called an arbitration agreement, which has become an increasingly common section buried in the terms and conditions users must agree to in order to use apps, websites and services.
“Marketplace Morning Report” host Sabri Ben-Achour spoke with David Horton, Martin Luther King Jr. professor of law at UC Davis, about the rise of arbitration agreements and how they affect a person’s ability to seek legal recourse. The following is an edited transcript of their conversation:
Sabri Ben-Achour: So, for starters, what exactly is an arbitration agreement?
David Horton: So an arbitration agreement is an agreement in which the parties agree that they will forego access to the court system to resolve any dispute that they might have and instead will resolve the dispute privately in front of an arbitrator, who is essentially acting like a private judge.
Ben-Achour: How do people usually get into these agreements?
Horton: For most everyday people going through their lives, they will enter into these agreements without realizing it, by doing things as simple as deciding that you want to sign up for a streaming service, joining a gym, accepting a job. Studies show that these agreements tend to exist in roughly 80% of all contracts that are drafted by Fortune 500 companies. So they really are sort of everywhere in society, even though we don’t realize it.
Ben-Achour: Are there situations where an arbitration agreement would — from a common sense perspective — be a good idea or make sense?
Horton: Definitely. So arbitration has a lot of virtues. For example, it’s generally considered to be faster than the court system. So if you want to resolve a dispute, but you have to go to court often, you have to wait, you know, a year or two years or even longer to have your case heard. But with arbitration, you get to have your case heard almost immediately. You basically skip the line because you’re hiring a private judge, rather than sort of like waiting in the oversaturated court system. There’s also some evidence that arbitration may be cheaper for the parties because of the fact that they don’t have to pay their lawyers as the months and years go on. So there are good reasons to send certain disputes to arbitration, but the reason why forced arbitration is controversial is because those reasons are arguably outweighed by the fact that plaintiffs don’t have the same procedural and evidentiary advantages that they do when they’re in the court system.
Ben-Achour: In these arbitration agreements, is there anything by law that guarantees the hired judge who’s doing the arbitrating is fair?
Horton: So there are some limitations. For example, courts can refuse to send disputes into arbitration if there’s any sign that the arbitrator is going to be biased. But one of the critiques of the institution of arbitration is the fact that arbitrators generally are picked by the parties. And when you have these corporations who are repeat players in arbitration, they arbitrate again and again and again, they have financial incentives to pick arbitrators who are going to bend their rulings to favor the company. And the arbitrators get paid by the hour, unlike judges, so they also have incentives to favor the company and get selected again in the future.
Ben-Achour: This guy signs a contract for a Disney+ free trial, and then Disney says, “Well, that also applies to you eating at a Disney restaurant.” How common is that kind of a situation where you find yourself in an arbitration agreement for one situation because of something you signed in a completely different situation?
Horton: So 20 years ago, this type of situation was extremely rare, but the U.S. Supreme Court decided a bunch of cases in the 2010s that essentially made these arbitration clauses more valuable to businesses, because they effectively blocked the ability of individuals to band together in a class-action. And because of that, companies began drafting what I’ve called the “infinite arbitration clauses” — clauses that say that not only do you agree to resolve any future dispute that you might have that relates to this contract that you just signed, but you agree to resolve any future dispute that you have in arbitration with us ever regardless of what the subject matter is.
Ben-Achour: Are there situations like that just all around us, and we just don’t know it?
Horton: Companies are more and more trying to invoke these ultra-broad arbitration clauses that you might have signed with even say like one of their subsidiaries or affiliates, so it may not even be the same company. There’s an example that’s been going through the court system recently where AT&T Mobility, the cell phone company, has an arbitration agreement that says that it applies to all members of the AT&T corporate family. And so now companies that seem to have no facial affiliation with AT&T or AT&T Mobility, like DirecTV, the satellite television provider — they’re trying to send disputes to arbitration based not on their contract but on this AT&T Mobility contract.
Ben-Achour: The Seventh Amendment protects the right of citizens to a jury trial. The Fifth and 14th Amendments guaranteed due process. How is it legal for a company to essentially use economic leverage to get you to circumvent that whole set of rights?
Horton: Arbitration has been popular in the business community for a long time, and about 100 years ago, Congress began debating passing a federal arbitration statute that would allow businesspeople to settle disputes through arbitration. And at that time, courts held that it was perfectly consistent with the Seventh Amendment right to a jury trial to waive that right voluntarily and end up in arbitration. But what those courts didn’t really have in mind is sort of the common situation today where you don’t have two businesspeople or people with, you know, relative economic parity. Instead, you have these large companies that are putting these fine print clauses in their contracts that nobody reads or understands that waive the right to have a jury trial in court. And so courts have not distinguished between sort of the original understanding that you can voluntarily waive your Seventh Amendment rights and the way most people agree only in name but not in any meaningful sense.
Ben-Achour: Is there any effort to change this, to modify this, how this all works, either in Congress or state legislatures anywhere?
Horton: There’s definitely been a very strong pushback to the use of what some people call forced arbitration, which are these fine print arbitration provisions. In Congress, there’s been very limited success, in part because there are powerful interest groups that oppose any attempt to reduce the prevalence of arbitration clauses. But there have been some success stories. And in fact, the Disney+ story — believe it or not, this is, I think, the third sort of high profile situation in which a company has tried to send a dispute into arbitration, and for some reason, it’s captured the public imagination, and the pushback has been enough that the company has voluntarily decided to reverse course. It happened a few years ago with General Mills, the cereal maker; it announced that it was going to deem any interaction on social media with any of its accounts to be the same as agreeing to arbitrate any future dispute you might have. And as you might imagine, there was enormous outcry, and so the company dropped that policy.
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