Challenging the Vulnerable Arbitration Clause

Francesca-Castagnola

Francesca Castagnola

July 14, 2021

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Challenging forced arbitration is often an uphill battle for plaintiffs. Arbiters are more likely to enforce arbitration clauses than strike them down, and the process is less transparent than litigation and can be costly for plaintiffs. But not all arbitration clauses are as ironclad as they may appear.

In the first webinar of the CLE-eligible “Justice Talks” series, presented by Western Alliance Bank and hosted by Public Justice, Paul Bland, Executive Director of Public Justice and Staff Attorney, Ellen Noble, discuss the potential challenges to mandatory arbitration provisions and explain how plaintiffs’ counsel can spot and effectively argue them.

“Challenging the Vulnerable Arbitration Clause: The Defenses Still Available in Many Cases” is hosted by Public Justice—a national nonprofit legal advocacy organization—in support of the continued advancement of economic, racial and environmental justice.

Here are some key takeaways:

Contract formation challenges: Plaintiffs’ counsel can challenge an arbitration clause by alleging contract formation issues. Disagreement over contract formation is always an issue for the court – often a more favorable venue for the plaintiff. Forgery cases and employee handbook issues are some of the most frequent contract disagreement arguments that plaintiffs’ counsel raise. Another successful emerging challenge centers on arbitration clauses posted in small print on a company’s website. Courts often agree that because a customer does not have to actively agree to the arbitration clause, it is not a valid contract.

Developments in federal law: Federal arbitration law has grown significantly since the 1920s. In a key 2019 Supreme Court decision, the Court ruled that a truck driver who was an independent contractor involved in interstate commerce was exempt from arbitration clauses under Section 1 of the Federal Arbitration Act. Courts have also ruled that workers who prepare products and goods for interstate commerce, even if they themselves do not cross state lines, are exempt from arbitration.

Legal doctrines that plaintiffs can deploy: Plaintiffs’ counsel have used several legal doctrines successfully over the years. Courts have invalidated arbitration by finding that arbitration precludes plaintiffs from vindicating their statutory rights. Counsel can also argue the clause is unconscionable – the plaintiff might have experienced a language barrier, medical emergency or time constraint. Counsel can also argue substantive unconscionability, or that the arbitration clause is too vague or expensive. In order for the judge to strike the clause down, plaintiffs’ counsel must argue that the unconscionability is integral to the entire clause. Fatal forum column has also been a successful doctrine for plaintiffs’ counsel, who argue that a clause refers to arbitration rules that do not exist or an arbiter that is defunct, in which case the clause is considered invalid. Further, if a company fails to comply with the arbitration clause in its contract or arbitrated in bad faith, the plaintiff can argue the defendant waived its right to arbitration.

To watch this webinar, please visit Public Justice and login.

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