One of the nation's most prominent arbitration firms will no longer enforce contracts that bar consumers and employees from bringing class-action cases before its neutral adjudicators.
The decision this month by Irvine, Calif.-based Judicial Arbitration and Mediation Services (JAMS) is a major victory for plaintiffs' lawyers and consumer advocates who have long argued that the growing use of arbitration clauses by employers, financial institutions, retailers and telephone companies was an attempt by companies to avoid potentially costly class-action lawsuits.
In the past decade an increasing number of firms, including credit card issuers, insurance companies, car dealers and computer makers, have rewritten employment contracts and sales agreements to require employees and customers to agree, in advance, to give up their right to sue. They are required to submit any disagreements to a third-party arbitrator, usually one selected by the company.
A number of companies give customers the choice of the nation's three largest arbitration firms: the American Arbitration Association, the National Arbitration Forum and JAMS.
Companies say mandatory arbitration helps resolve disputes more quickly and less expensively than in the courts. But lawyers and other experts say that for consumers, arbitration can cost more, with fees that can run into thousands of dollars. Arbitration also permits less evidence-gathering that can help win a case and usually doesn't allow for appeals.
The arbitration requirements usually bar consumers from bringing complaints as a group. Consumer advocates say that means consumers and employees who have small monetary disputes with a company have no financial incentive to file an arbitration claim, and lawyers would be reluctant to represent anyone individually because any monetary gain would be too small.
In announcing its decision, JAMS said the class-action restriction "is an unfair restriction on the rights of the individual consumer."
Consumer advocates and corporate lawyers disagree on the merits of JAMS's action, but both sides said it will prompt plaintiffs' attorneys to file class-action cases with JAMS.
"It's an open invitation for plaintiffs' attorneys who have clients who are subject to arbitration agreements to simply file a class-wide arbitration in front of JAMS," said Philadelphia lawyer Alan S. Kaplinsky, who has encouraged many financial institutions to adopt arbitration clauses.
"I know of several attorneys who are" preparing to do that, said F. Paul Bland Jr., staff attorney for Trial Lawyers for Public Justice, which opposes arbitration provisions.
Kaplinsky said the decision was wrong. "It's not up to the arbitration administrator to unilaterally decide the provision of an agreement is invalid," he said. As chairman of the American Bar Association's committee on consumer arbitration, he said he hoped to encourage other lawyers to put pressure on JAMS to change its policy.
At least one other arbitration firm might follow JAMS's lead. Edward Anderson, head of the National Arbitration Forum, said his firm did not plan to change its policy, but American Arbitration Association spokeswoman Kersten Norlin said her company was reviewing the issue.