John and Georgia McGinty were both seriously injured in a February 2023 auto accident when they were passengers in an Uber that crashed into another car. Their driver was at fault so the McGintys sued the ride-sharing company.
But their lawsuit went nowhere. The New Jersey Court of Appeals rejected the case because Georgia McGinty previously placed an order with Uber Eats and agreed to terms of service that require arbitration rather than lawsuits.
Even though the McGintys argued that it was their daughter who placed the most recent order, using her mother’s phone, attorneys for Uber argued that the family had agreed to arbitrate any disputes with the company. A lower court ruled in favor of the McGintys but the appellate court reversed the ruling.
"We hold that the arbitration provision contained in the agreement under review, which Georgia or her minor daughter, while using her cell phone agreed to, is valid and enforceable," the court wrote in its ruling. "We, therefore, reverse the portion of the order denying arbitration of the claims against Uber."
It’s happened before
While arbitration clauses have become more common requirements in contracts for cellphones and other services, the linkage to affiliate companies is fairly new.
A recent lawsuit against Disney brought forced arbitration to light when Jeffrey Piccolo's wife died after experiencing an allergic reaction at a Disney World restaurant. He tried to sue Disney, but attorneys for the entertainment giant cited a forced arbitration clause.
Piccolo had not signed a contract with the restaurant but he had agreed to those terms when he subscribed to Disney+ and ESPN+. Attorneys argued that those terms and conditions covered all of Disney’s businesses.
In this case, however, Disney relented. It waived its right to forced arbitration and agreed to allow the matter to proceed through the courts.
Some members of Congress want to amend laws to give consumers more rights in these situations. Legislation – the Forced Arbitration Injustice Repeal Act, H.R. 2953 and S.1376 – has been introduced in both houses of Congress.
What is forced arbitration?
Forced arbitration is a clause often found in the fine print of contracts that requires consumers and employees to resolve disputes with a company through private arbitration instead of going to court. This means giving up your right to sue, participate in a class action lawsuit, or appeal the decision.
Here's how it works:
You sign a contract: When you sign up for a service, get a credit card, or even start a new job, you might unknowingly agree to a forced arbitration clause buried in the terms and conditions.
Dispute arises: If you have a problem with the company, like a faulty product or unfair wages, you can't take them to court.
Forced into arbitration: You must resolve the issue through a private arbitrator chosen by the company.
Binding decision: The arbitrator's decision is usually final, and you can't appeal it in court.
Is it bad for consumers?
Generally, yes. Here's why:
Bias: The arbitration process can be biased in favor of the company, especially if they frequently use the same arbitrator.
Lack of transparency: Arbitration proceedings are private, so there's no public record of the outcome. This makes it hard to hold companies accountable for wrongdoing.
Limited recourse: You have fewer options to fight an unfair decision in arbitration compared to court.
Costly: Arbitration can be expensive, and consumers may have to pay some of the costs.
Prevents class action: Forced arbitration often prevents consumers from joining together in class action lawsuits, making it harder to fight widespread corporate misconduct.
Examples:
You buy a defective phone, but the company refuses to replace it. With forced arbitration, you can't sue them in court.
You're wrongly fired from your job, but the arbitration clause prevents you from taking legal action.
A credit card company charges unfair fees, but you can't join a class action lawsuit to fight back.
In conclusion:
Forced arbitration takes away consumer rights and often favors corporations. It limits access to justice and makes it harder to hold companies accountable. While arbitration can be useful in some situations, forcing it on consumers is generally considered harmful.