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Arbitration clauses in consumer, employment, and franchise
agreements may soon be absolved in most cases. The US Congress is currently
considering the Arbitration Fairness Act of 2007 (AFA), which declares that no
arbitration agreement in place prior to an arising dispute shall be valid or
enforceable if it arises under any statute intended to protect civil rights or
other contracts between parties of unequal bargaining power. The validity of
such agreements shall be determined by a court under federal law, not by an
arbitrator. Collective bargaining agreements are exempt from AFA’s auspices.
Consumer groups note many problems with arbitration. Particularly,
consumer advocates argue that arbitration is often biased in favor of the
larger corporations that routinely hire the arbitrators, because the
arbitration boards want repeat business. Costs are also higher to consumers,
who must pay for arbitrators, compared to lower costs in small claims courts.
Arbitrators are also not subject to judicial review like small claims or
district courts. Finally, arbitration almost always precludes class actions,
which are a very efficient way of addressing consumer matters without burdening
every consumer to handle an individual civil action to address inadequate
service.
Business interests argue that arbitration is generally a
faster, less formal and less expensive process to resolve disputes than
litigation. This is occasionally true of very large actions, but in consumer
matters, almost always amounting to less than a few thousand dollars,
arbitration can often be much more expensive compared to already-efficient
small claims courts.
The act is of particular interest to consumers of wireless
phone services, internet access providers, and similar technology services
targeted at consumers. A classic example of provider arbitration tactics was
recently seen in Comcast’s decision to mandate arbitration for consumers in
Maryland. Montgomery County, Maryland officials immediately spoke out against
the change. One council member described the change “simply
anti-consumer."
Bottom Line:
Arbitrations clauses are less worrisome in very competitive markets. In
technology services, however, where there tend to be two or three dominant
firms, these types of clauses leave consumers with virtually nowhere to turn.
The AFA of 2007 is very good legislation that does little more than solidify
the already-present rights of consumers to seek redress in the judicial arena.
It may not be the preference of technology providers to defend the occasional
consumer suit, but the omen of having to answer for truly inadequate service
serves as motivation to maintain acceptable levels of technical and consumer service.
It is hard to argue with the pursuit of such a goal, unless you happen to be
Comcast.
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