TCA Explains: What Are Arbitration Agreements And How Do They Affect Class Action Lawsuits?

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Most people have had to sign an arbitration agreement at some point. But most also have very little idea of what they are or what’s in them.

Arbitration agreements are usually buried in contracts prior to purchase. They’re used for anything from signing up for social media, buying products and even when you sign a contract for your new job. 

What Is An Arbitration Agreement?

An arbitration agreement is a clause in a contract, often between a consumer or employee and a company. By signing the arbitration agreement, the consumer or employee agrees to settle out of court through arbitration if there is ever a dispute.

“You forfeit your Seventh Amendment right to a jury trial and are forced to submit to a secret binding tribunal where the company who allegedly cheated you picks the arbitrator,”Danny Karon, host of legal wellness site Your Lovable Lawyer, said. 

Not only does the company pick the arbitrator, but they also pay for it too. Critics of forced arbitration argue it usually benefits defendants and prevents consumers from bringing claims and workers from bringing wage and other violations. 

“The empirical data show that most of the time, you’re going to lose outright as a consumer. Or if you win, it’s going to be a lot less than you would receive had you pursued a jury trial. And why? Because the defendants are picking the decision-maker,” Karon said.

Some Arbitration Agreements Are No Longer Allowed

On March 3, President Joe Biden signed a law that ends the use of forced arbitration agreements regarding sexual harassment and sexual assault claims. This will now give victims the option to bring their disputes to federal and state courts. It will also apply retroactively to previously resolved cases. 

“When it comes to sexual harassment and assault, forced arbitration shielded perpetrators, silenced survivors, enabled employers to sweep episodes of sexual assault harassment under the rug and it kept survivors from knowing if others have experienced the same thing in the same workplace, at the hands of the same person,” Biden said before signing the bill.

He also acknowledged that some might still want to handle their claim privately, but “some survivors will want their day in court, and that should be their choice and nobody else’s choice.”

When Biden signed the law, he delivered a campaign pledge–to ban employers from requiring employees to sign arbitration agreements. The Biden Administration continues to push for legislation to crack down on forced arbitration regarding discrimination based on race, wage theft and unfair labor practices. 

Will Arbitration Agreements Be Banned?

Biden has made it clear that he thinks arbitration agreements should be banned, and some lawmakers are on board. 

On March 17, the U.S. House of Representatives approved a bill that would prohibit companies from enforcing arbitration agreements, and this would apply to any type of workplace or consumer dispute. 

The Forced Arbitration Injustice Repeal (FAIR) Act was first introduced in the wake of the #MeToo movement in 2019 but stalled in the Senate and still lacks Republican support.

Because of this, Karon said it is unlikely that arbitration agreements will be banned, at least in the short term.

“It won’t happen soon because there isn’t support, which is highly hypocritical considering the bipartisan support for banning arbitration as it concerns sexual discrimination and harassment claims,” Karon said. “Conceptually and fundamentally, isn’t unfairness an unfairness? Isn’t stealing your Seventh Amendment to a jury trial the same no matter the claim?”

What Can Someone Do If They’ve Signed An Arbitration Agreement?

Someone can try to strike the arbitration from the contract, but Karon warns that this rarely works because most contracts are take it or leave it. 

If this doesn’t work, you can file your case in small claims court. 

“Make the defendant hire an expensive lawyer to kick your case out of court and into arbitration,” Karon said. “Often this cost will exceed the value of your claim, and the company will agree to resolve your case in court after all.”

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