The Secret Courts Companies Use To Evade Justice

Politicians like to talk, often vaguely, about the “rigged system.” A report released Tuesday offers clear insight into how big companies actually do the rigging: Forced arbitration, requiring consumers and workers to sign away their right to take a grievance to public court.

Women with sexual harassment claims, consumers who’ve been unfairly charged extra fees by their bank, restaurant servers accusing their employer of wage theft: These are just a few of the types of cases that wind up in arbitration ― private courtrooms, without juries, or clear methods of record-keeping.

The new report from the American Association for Justice shows that not only do companies typically emerge victorious from arbitration, but, perhaps more damning, they rarely even have to use the process.

While hundreds of millions of consumers and 60 million workers are subject to these kinds of agreements, only a handful of cases actually end up in arbitration.

The researchers looked at consumer and employment cases filed over a five-year period ending in 2018 at the two major arbitration companies ― the American Arbitration Association (AAA) and Jams ― and discovered only about 30,000 recorded cases on file.

By comparison, about 2 million cases are filed in small claims court every year in the United States, the researchers point out.

“When you look at this data, the amount of people that ever go to arbitration, forget about getting any money,” said Julia Duncan, public affairs director at AAJ. “It is so small that what you find is that forced arbitration is not really an alternative forum, it’s virtual immunity [for companies].”

The AAA and Jams did not immediately have comment on the study.

The report found some stunning numbers. Take Amazon, for example. Though it has 101 million Prime members and millions of other customers ― some of whom presumably have grievances ― it faced only 15 forced arbitrations over the five-year period. Walmart had just two.

“[Forced arbitration] keeps people from getting any measure of justice while companies continue to break the law,” Duncan said.

The practice of forced arbitration has undergone renewed scrutiny in the Me Too era over the way companies use arbitration to isolate women who’ve been sexually harassed.

Former Fox News anchor Gretchen Carlson drew attention to the process when she was blocked from suing her former employer in court, thanks to an arbitration agreement. Carlson figured out a way around the ban by directly suing her former boss, Roger Ailes.

In the intervening years, there’s been more movement and protest against the practice ― even as a few Supreme Court rulings have OK’d the practice, leading more companies to use forced arbitration.

The court has said that the only way to stop companies from using forced arbitration is for Congress to actually ban the practice.

On Tuesday afternoon, the House Judiciary Committee will consider a bill, the Forced Arbitration Injustice Repeal Act, that would ban companies from using forced arbitration with customers and employees. It’s possible that the FAIR Act, which is co-sponsored by 218 Democrats and one Republican, will come up for a vote in the House next week, though its chances of passing the Senate are pretty dim.

While the AAJ researchers weren’t able to view the full details of each of the 30,000 cases, they were able to learn what companies were involved in arbitration and to single out some heavy users of the practice.

Darden Restaurants, owners of the Olive Garden and LongHorn Steakhouse chains, was the company with the most employment arbitration cases at the AAA, the researchers found.

Darden has faced many lawsuits in public courts ― but the differences between what happened to the company in court versus in arbitration are striking.

Since 2005, when arbitration was in less widespread use, Darden has paid over $14 million to settle lawsuits filed in court over wage theft.

In arbitration, it’s fared much better. Over the five-year period the researchers looked at, the Olive Garden owners faced 329 claims from workers. But in only eight cases did the company have to pay out damages ― for a total of $73,961.

Overall, employment cases that landed in arbitration didn’t fare very well for workers, the AAJ researchers found.

Of the 60 million employees subject to forced arbitration, only 11,114, or 0.02%, went to arbitration. And only 208 of these workers won money damages.

The number is tiny. For comparison, companies paid out $134 million in 2018 alone in sexual harassment cases that were brought to the Equal Employment Opportunity Commission, which is responsible for enforcing workplace discrimination laws. That year alone, over 26,000 charges of sexual harassment were filed at the EEOC. And that’s just one type of employment claim, too. 

Workers often don’t even know they’re subject to arbitration agreements. They can be hidden away in employee handbooks or buried in the fine print of an employment contract.

Consumers are even more in the dark, the researchers said. Often these forced arbitration agreements are hidden away in the terms of service that people click “agree” on hastily when downloading an app.

Hundreds of millions of Americans are boxed in by such agreements. Even at Sweetgreen, the popular salad spot, if you sign up for the company’s app ― you sign away your right to sue.

The researchers found a wide range of companies that used arbitration ― not only financial services firms and nursing homes, two well-known users of the process, said David Ratcliff, a researcher at AAJ who worked on the project. 

“It’s everything,” he said. “Salads, professional dancers, dating apps. It just tricks you everywhere.”

CORRECTION: An earlier version of this story misspelled David Ratcliff’s surname.