By Sally Greenberg, Chief Executive Officer
July 6, 2023: Several decades ago, clever lawyers for large corporations came up with a scheme to prevent their clients from being held accountable for wrongdoing. They did so by putting “forced arbitration clauses” in consumer and business contracts. The effect was to block consumers and others from getting access to the courts, and instead force them into arbitration, which is a private system for deciding legal cases that is controlled largely by the corporation itself.
It was a sad day for consumers when the Supreme Court gave its blessings to this underhanded scheme; today forced arbitration clauses are put into virtually every contract that we as consumers are forced to sign in exchange for services like cable, cell phone, credit cards, mobile homes, and car sales.
Class action lawsuits have served as a critical safeguard for consumers against powerful corporate interests; they remain an essential pillar of corporate accountability. These collective legal battles help to restore consumer rights and maintain marketplace ethics. Landmark cases such as the Enron scandal, which highlighted fraudulent accounting practices, class actions against the makers of addictive opioids and against those responsible for the Deepwater Horizon oil spill illustrate again the power of collective legal action.
But now, as consumers are fighting back and cleverly using forced arbitration in their favor, corporate America is crying foul. The very companies that championed forced arbitration and blocked class actions don’t much like it when they have a taste of their own medicine.
According to Consumer Reports, for example, a new strategy, mass arbitration, has already had a significant impact. It has pressured several corporate defendants—including Uber, DoorDash, Samsung, Chipotle, and DraftKings—to grapple with accusations they otherwise could have swatted away. And it reportedly led at least one corporate giant, Amazon, to remove mandatory arbitration provisions altogether from its retail website’s terms of use.
According to the magazine, a group of enterprising lawyers representing about 40,000 TurboTax customers employed a kind of legal jiujitsu: They simultaneously filed thousands of arbitration claims, swamping Intuit with fees, prompting the company into a hasty retreat. But it was too late for the company: Several judges have refused to let Intuit out of the arbitrations, with one commenting that the company has been “hoisted by [its] own petard.”
Sadly, the companies are nevertheless employing delaying tactics, exploiting loopholes, and resisting the system they once endorsed and in fact created, all of which points to the need for an overhaul of the system.
Recent arbitration reforms in California offer a glimmer of hope. They champion a justice system built on fairness, transparency, and accountability. Reforms must tackle forced arbitration clauses and corporations from exploiting system vulnerabilities and face strict penalties for stalling or refusing to engage with the system they created.
As consumers, employees, and members of society, we must insist on corporate transparency and accountability; giving consumers a fair shake is more important than ever. Only then can we end corporate evasion, restore balance in our dispute resolution processes, and protect individual consumer rights against corporate wrongdoing.
