The Founding Fathers believed your right to a jury trial is so important, they enshrined it in Article III of the Constitution. In 1791, “the right to a speedy and public trial” was reinforced by passage of the 6th Amendment.
These rights pertain to criminal trials rather than civil matters, but the framers’ philosophical embrace of everyone’s right to a day in court is clear.
Yet many large companies are determined to strip you of that right. If you want to do business with them, you have to agree that you can’t sue either individually or as part of a class action.
Instead, you must agree to arbitrate any disputes — a private, nonjudicial system that critics say overwhelmingly favors companies over consumers.
“There are many harms for consumers from arbitration,” Imre Szalai, a professor of social justice at Loyola University New Orleans, told me.
He called mandatory arbitration provisions in contracts “practically a license to steal” on the part of companies.
I bring this up because AT&T is currently notifying millions of wireless, phone and internet customers that it’s doing them a favor by combining separate user contracts for each service into a single agreement.
“Your continued use of AT&T service tells us you accept and agree to be bound by the Consumer Service Agreement and its updated arbitration clause,” the company says in its notification email.
Since few consumers actually read these voluminous documents, you may not fully understand what you’re accepting and agreeing to. I can help.
But first, is arbitration a good thing, as AT&T and other companies insist?
Jim Kimberly, an AT&T spokesman, told me that “arbitration is a faster, less expensive, easier means of resolving disputes.”
This is a mantra in the business world. A few years ago when JPMorgan Chase imposed an arbitration clause on millions of credit card holders, a spokeswoman told me that arbitration is “faster, less expensive and provides better outcomes for our customers.”
For businesses, arbitration is indeed faster, cheaper and easier than dealing with complex, potentially costly lawsuits, particularly class actions involving numerous plaintiffs.
For consumers, don’t be fooled.
A 2015 study by the Consumer Financial Protection Bureau found that “arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year.”
The agency passed a rule preventing financial firms from blocking class actions, but the regulation was subsequently overturned by Republican lawmakers and President Trump.
Study after study has shown that arbitration clauses work against consumer interests. Along with bans on class actions, these provisions typically allow the company to pick an arbitrator — a decidedly unfair advantage.
Researchers at Stanford University and the University of Texas at Austin analyzed almost 9,000 arbitration cases. They found that companies routinely select arbitrators with track records of making industry-friendly decisions.
They also found that arbitrators know that the more they rule in favor of businesses, the greater the likelihood they’ll be tapped for future cases — and future paychecks.
“A company will use the same arbitrator over and over and over again,” said Remington Gregg, an attorney with the advocacy group Public Citizen. “Arbitrators know how their bread is buttered.”
The U.S. Supreme Court has upheld arbitration clauses because, in theory, consumers are voluntarily consenting to waive their right to a jury trial.
However, many of these provisions are offered on a take-it-or-leave-it basis, meaning if you don’t agree to the terms, you face a cutoff of service. This may not leave consumers with much choice when it comes to internet access, say, or cable TV service.
That’s why consumer advocates prefer to call these clauses “forced arbitration,” because there’s actually little if any choice involved.
Moreover, many of these clauses are presented to consumers in such a way that it’s difficult if not impossible to understand the full import of what you’re consenting to.
A 2003 case involving AT&T alleged that the company deliberately made its arbitration clauses hard to understand. Since then, said Loyola’s Szalai, the company has done a much better job of communicating its actions and providing customers with at least a degree of flexibility.
AT&T’s latest arbitration clause reflects that. It’s certainly more generous than many other such provisions I’ve looked at.
For any “non-frivolous claim” not exceeding $75,000, AT&T will cover all arbitration costs. It will allow you to seek compensation for attorneys’ fees if you prevail and, “under certain circumstances,” will increase the size of any monetary award.
It allows the arbitration to take place in your home county — some such provisions require you to travel — and permits you to participate by phone or Zoom if desired. It even leaves open the possibility of pursuing individual cases for less than $10,000 in small claims court.
These are good. But make no mistake: The heavy artillery of this and all other arbitration clauses is that you have to forgo a jury trial or participation in a class action.
It’s that last stipulation that’s everything.
“Suppose AT&T cheats a bunch of its customers out of $30 each,” said Jeff Sovern, a law professor at St. John’s University. “Plenty of studies show that customers won’t bother suing over such a small amount.”
On the other hand, if hundreds or even thousands of aggrieved customers banded together in a class-action lawsuit, that would not only make litigation worthwhile but could potentially result in a huge financial penalty for the company.
Businesses that don’t have to worry about class actions, Sovern said, “can be much freer about taking advantage of consumers.”
Remember when Wells Fargo opened millions of accounts without people’s permission from 2002 to 2015? The bank insisted that its arbitration clause prevented consumers from joining in a class action.
Public pressure forced Wells to back down and allow a class-action suit to proceed. The bank subsequently agreed to a $110-million settlement.
That, in a nutshell, is why class actions are a crucial tool for holding companies accountable, and why forced arbitration is almost always not in consumers’ best interest.
Which isn’t to say arbitration should not be an option. If both the customer and the company want to take this road, they should have that choice.
And if arbitration is as great as AT&T and others say it is, many people will willingly choose to pursue this alternative.
But making arbitration the sole recourse, that’s just putting a thumb on the scale so the odds are in the company’s favor.
“Corporations use forced arbitration as a get-out-of-jail-free card to avoid legal accountability when they injure, rip off, discriminate against, defraud or cause some other harms to people,” said Christine Hines, legislative director for the National Assn. of Consumer Advocates.
“Companies are betting on consumers being unwilling to individually arbitrate,” said Myriam Gilles, a law professor at Yeshiva University.
For companies, she said, forced arbitration “reduces their liability costs by a significant sum” and allows them to indulge in untoward behavior “without real fear of legal repercussions.”
So go ahead and agree to AT&T’s new arbitration clause if you want (or if you have no choice).
But don’t think the company is doing you any favors.
