Good News On The Mandatory Arbitration Front

There are two encouraging developments regarding mandatory arbitration. First, a federal appeals court in Chicago has struck down an arbitration clause banning employees from joining together in legal actions, such as class action lawsuits. The ban was held to violate federal labor law. The case, Lewis v. Epic Systems, stands in contrast to other federal cases, including two from the Supreme Court in 2011 and 2013, that uphold arbitration clauses. In all likelihood, another Supreme Court decision on this issue will be needed.

Second, an agency within the Health and Human Services Department issued a rule barring nursing homes that get federal funding from imposing mandatory arbitration on claims of elder abuse, sexual harassment and wrongful death. The nursing homes covered by this rule house some 1.5 million residents. Now, those people's rights to have their claims heard by a judge and jury have been restored.

Corporations and nursing homes and their attorneys protest these developments, claiming arbitrations are far cheaper and faster than lawsuits and so represent a benefit to consumers that has now been taken away. This is a grossly misleading argument. First, while arbitrations are clearly the cheaper, quicker method of resolving claims (many can be concluded in a day, with a decision rendered within weeks), the individuals bringing the claims usually loose because of the arbitrator's bias, making arbitrations a quick and easy way to accomplish nothing.

Second, most small claims are not brought at all, because the amount doesn't justify the effort and cost of an arbitration. They're cheap, but they're not free.

Third, the entities that save the most, by far, are the corporations and employers who do not need to worry about adverse jury verdicts for millions of dollars resulting from their abuse of thousands upon thousands of their customers. In addition, the legal costs of defending arbitration claims are a small fraction of what is costs to defend a class action.

Fourth, and most important, without the class actions the bad actors have no incentive to behave. The worst that can happen to them is a handful of decisions ordering them to pay peanuts to a small number of claimants. Try threatening a bank or a multi-national corporation with arbitration over your twenty dollar claim and see how far you get.

So mandatory arbitrations, which are really an attempt by corporations to do an end run around a constitutional right, are, recently at lease, encountering some much deserved resistance.