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Can a Class Action Suit Prevail Against a Binding Arbitration?

On Behalf of | Sep 30, 2021 | Class Actions

It is the “epidemic of arbitration.” Recently, many large corporations have resorted to binding arbitration clauses in their contracts in the event of a dispute. The result is an inability on the part of employees and customers to sue for particularly egregious behavior.

Corporations insist these clauses intend to preserve fairness for all involved. Consumers and workers, on the other hand, point out that arbitration impedes legal oversight of bad actors and is sought by businesses who know their actions are unethical and malicious. Is it possible to attack a binding arbitration contract through a class action suit?

Class action suits spurred arbitration

It is significant to note that industries like banking, insurance, hospitality and business services began to institute binding arbitration in their contracts with workers and clients largely because of class action suits. More than 40% of arbitration agreements specifically prohibit class-action suits.

There are ways to overcome arbitration clauses

In recent years the courts have made a number of rulings about the validity of arbitration agreements. Some of these have opened doors to attack arbitration and restore a citizen’s right to participate in class-action suits:

  • Courts have invalidated some financial industry arbitration clauses, especially regarding lending agreements
  • A consumer must have acknowledged and entered into arbitration willingly
  • Consumers might void arbitration by refusing to participate or to pay the arbitration fees
  • Courts may rule clauses unconscionable if they place too great a burden on the consumer

Binding arbitration is a new tool large firms use to avoid class-action legal suits. Fighting this requirement is difficult but not impossible.