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June 13, 2014 1:29 PM The Arbitration Shield For Corporate Misbehavior

By Ed Kilgore

Today’s economic landscape is full of examples of the folly of conservative ideological claims that corporate misbehavior towards consumers, workers, shareholders and even communities are all the result of arms-length agreements among equals whereby victims of misbehavior have “freely” sacrificed their rights. But perhaps the most egregious example, and one that has been sanctioned by the five-judge conservative majority on the U.S. Supreme Court, is the use of mandatory arbitration clauses in contracts to ban access to judicial relief.

In the new issue of the Washington Monthly, the New American Foundation’s Lina Khan provides a comprehensive look at how arbitration, originally designed to adjudicate highly complex disputes between corporations, has become an all-purpose corporate shield. Khan notes that the ongoing class-action suits against Target in connection with its recent mega-security-breach are a bit of an anachronism:

To understand this new legal environment, consider, by contrast, what would have happened if Amazon had exposed its 215 million customer accounts to a security breach similar to Target’s. Since Amazon has taken advantage of the Court’s recent decisions, even Amazon users whose bank accounts were wiped clean as a direct result of the hack would not be able to take the company to court. “The lawsuits against Target would almost certainly not be possible against Amazon,” says Paul Bland, executive director of Public Justice. “It’s got its ‘vaccination against legal accountability’ here.”
Following the 2011 and 2013 Supreme Court rulings, dozens of other giant corporations—from Comcast and Wells Fargo to Ticketmaster and Dropbox—have secured the same legal immunity. So have companies ranging from airlines, gyms, payday lenders, and nursing homes, which have quietly rewritten the fine print of their contracts with consumers to include a shield from lawsuits and class actions. Meanwhile, businesses including Goldman Sachs, Northrop Grumman, P. F. Chang’s, and Uber have tucked similar clauses into their contracts with workers.
Hastily clicking through terms of service is now all it can take to surrender your rights to these companies. Once you do, your only path for recourse if you’re harmed by any one of them is “mandatory arbitration,” where the arbitrator is often chosen by the corporation you’re challenging, and any revelations about the company’s wrongdoing tend to be kept secret. Rather than band together under the light of the public courtroom, each individual has to work through the darkness of a private tribunal, alone, where arbitrators can interpret laws however they wish. Certain inalienable rights, the Court has ruled, are actually kind of alienable.

Khan documents the judicial trend towards allowing these bars to litigation; its relationship to the rise of the conservative legal movement; the parallel “tort reform” initiatives Republicans are promoting at every level of government; the impact on particular types of suits aimed at vindicating basic rights; and remedial legislation being sponsored by congressional Democrats.

Before you surrender your own rights with a “click,” learn what it means by reading Khan’s important article.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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