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Nine Scary Words: “…may elect to resolve any claim by individual arbitration.”

These words about arbitration have been showing up more and more on consumer contracts and have been proposed as part of employment agreements. For example, in a credit card agreement, these words prevent customers from filing class action suits by insisting on individual arbitration.
Class action suits have been effective in the past for fighting deceitful or illegal business practices. They allow individual consumers to band together, sharing resources, information, and experiences that show a pattern of deceitful or illegal activity.

However, those Nine Scary Words are the individual arbitration clause in contracts that prohibits individual consumers from banding together. Because it is close to impossible for one individual to take on a corporation with unlimited resources, some judges have called individual arbitration a “get out of jail free” card.

This is an issue that was brought to my attention by one of my clients as a rising concern for employers. My client asked, “Can we institute an HR policy that requires private arbitration in the event of an employee lawsuit?” My initial response was, “Arbitration is a term generally used in connection with unionized workforces. Labor issues are typically arbitrated between the union and the employer. They either reach agreement on the issue or the employees go on strike until an agreement is reached.”

Then I asked, “What do you think your employees are going to sue you over? I don’t know if private arbitration would apply when, in most cases, your employee could be represented by the Human Rights Commission, Department of Labor, OSHA, or other agencies. Your Workers’ Compensation Insurance protects you from your employees’ suing you if they get hurt at work.”

It has been getting harder to apply for a credit card or shop online without agreeing to private arbitration. If the same applies to accepting a job or hiring employees for a job, I’m not sure I understand the pros and cons well enough to make a recommendation at this time. However, I’ll do some research and have a recommendation in my next blog.

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