Corporations love forced arbitration. Innovators hope to make them fear it.

courtgavel-billoxford-300x166Although big businesses in recent years have developed their legal equivalent of a great white shark — a big system churning along to savage disputes involving potentially many small claimants — innovators may have found a new way to start to tame beastly aspects of the process known as forced arbitration: Scoop up lots of small fish and jam them into the menace’s maw so it cries mercy.

Metaphors aside, the New York Times reported that legal startups have already “scared to death” corporations that swear by this dubious legal practice.

Forced arbitration is a booming part of the legal system that rips important constitutional protections away from ordinary individuals who have disputes with big businesses, compelling them to have their cases considered in private systems with huge ties to the very corporate interests that appear in them as parties in legal controversies.

Consumers, often under time and resource duress, may fail to scrutinize long, wordy documents they may be asked to review and then sign — including when they may need medical services (with doctors and hospitals) or if they have an elderly and vulnerable loved one needing nursing home care. They unwittingly may give up their right to seek redresses later in the civil justice system, getting their disputes heard, instead, by purportedly independent arbitrators.

Those individuals often may work for large organizations that make their bread and butter by handling many claims from corporations. The complaints aren’t heard in public and decisions often may be kept private. Forced arbitration has become corporate compulsory in sweeping fashion, intruding in Americans’ lives — not just in health care but also with: child sexual assault, credit cards, banks, debt collectors, data breaches, video gaming, home and car buying, vehicle rentals, concerns about colleges’ quality, student loans, ticket brokers, travel websites, wage theft, and workplace discrimination (claims both of racial and gender bias).

But the prevalence in the Silicon Valley of both forced arbitration in job agreements and “gig work” by supposedly independent contractors has led to unintended legal consequences for this unhappy legal practice, defended by employers as a swift, fair, and efficient way to resolve disputes.

The New York Times reported that startups took a fresh look at forced arbitration, technology, and the likelihood that many parties might have similar claims against companies. They have figured how to take the many, small, and familiar claims and put them together, telling companies, in effect, to choke down mass actions that may look akin to the class-action lawsuits that were a major target that forced arbitration sought to bar.

Companies have panicked when confronted with their own agreements, requiring them to use specific arbitration companies at specified rates. The cases, which once were small fry too inconsequential for most complainants to consider pursuing, can suddenly blow up, with corporations facing arbitration fees alone running into millions of dollars.

Then, suddenly companies found the system that they had fostered to be unfair and unworkable. As the newspaper reported, quoting Cliff Palefsky, a San Francisco employment lawyer who has worked to develop fairness standards for arbitration:

“There is no way that the system can handle mass arbitrations. The companies are trying to weasel their way out of the system that they created.”

Companies have turned, instead, to federal courts to seek relief. No way, U.S. District Judge William Alsup in San Francisco told at least one party, with the New York Times quoting him as telling its pricey counsel from a giant firm:

 “Your law firm and all the defense law firms have tried for 30 years to keep plaintiffs out of court. And so finally someone says, ‘OK, we’ll take you to arbitration,’ and suddenly it’s not in your interest anymore. Now you’re wiggling around, trying to find some way to squirm out of your agreement. There is a lot of poetic justice here.”

In my practice, I see not only the harms that patients suffer while seeking medical services, but also the damages that can be inflicted on them and their loved ones by abuse and neglect in nursing homes.

Nursing homes have fought tooth and nail for arbitration, contending it protects them against frivolous suits and provides a speedier, more efficient, lower cost, and fair way to resolve claims. But 16 states and the District of Columbia disagreed. They and other consumer groups said arbitration hid bad care and too many patient-consumers were treated unfairly. They pushed the Centers for Medicare and Medicaid Services to issue a new rule barring nursing home arbitration clauses. The agency since has reversed itself and leaned in favor of nursing homes and arbitration.

The gig worker cases that are testing the forced arbitration system, the New York Times reported, have extra pertinence in the time of the Covid-19 pandemic, as “independent” individuals may put their health at risk delivering food and other goods — even as they forego with arbitration clauses possible protections for their wellbeing afforded “regular” company employees. It will be notable to see how many residents of nursing homes and other long-term care facilities and their families also may have similar, collective, and significant claims that may be put together to raise legal causes of action, outside of forced arbitration, about their care and appropriate shielding from coronavirus protection. (I’m posting separately, for example, about the dismal record with Covid-19 matters that is building for senior facilities.)

While lawmakers have pressed to eliminate forced arbitration in certain specified areas, caveat emptor and always be careful about pieces of paper pushed at you to sign, especially in challenging times. But maybe the health menace we’re battling through may lead to some important and needed changes, not just in health care but also the law.

Patrick Malone & Associates, P.C. listed in Best Lawyers Rated by Super Lawyers Patrick A. Malone
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