The horrible injustices hidden in your cell phone contract

Check out this hot new innovation in corporate law: Tricking people into signing away their right to a trial by jury.

It's called arbitration, and it's perfectly legal (in addition to being hugely profitable). But as an abuse of power, it can and should be ended.

The New York Times dug up all the details on this practice in an excellent three-part investigation. Here are the basics: Thousands of everyday contracts and terms of agreement — like the kind you unthinkingly sign off on when applying for a credit card, agreeing to a smartphone contract, or buying a used car — have arbitration clauses in them. By signing on the dotted line, you agree to give up your right to a jury trial in favor of arbitration. And many of these contracts come with another clause banning class-action lawsuits, making it impossible for large groups of people who have been similarly injured to band together to share legal fees.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

The arbitration process is vastly more favorable to corporations than a regular trial. There is no appeal process. The "neutral" arbitrators are often chummy with the corporate lawyers, or have egregious conflicts of interest. The Times reports that of the class actions they could find that had been pushed into arbitration, four-fifths were won by the company.

Corporate motivation here is stone obvious. Making it nearly impossible for consumers to avenge themselves when abused or defrauded cuts costs. And some companies can even use arbitration to actively profit.

A short Times documentary found a couple (one of whom is active-duty military) who had traded in two cars to JD Byrider for a better car, but didn't look closely enough at the fine print. The contract contained an arbitration clause plus a bunch of ridiculous flaming hoops to jump through — 24 personal references, proof of residence, automatic payment setup, etc. — all inside of a week. When the couple didn't get the paperwork done in time, JD Byrider forcibly repossessed the car — and refused to return the down payment or either of the trade-ins.

The couple filed suit. The case was sent to arbitration. They got the down payment and the trade-ins back, but no other damages. Even the arbitrator admitted it was a raw deal: "It's possible they might have recovered more money in front of a jury, because a jury would have responded more to their emotional reaction to what happened."

It's important to be clear about the mechanics of what is happening here. Contract enforcement means that one party runs to the violent arm of the state — the courts and the police — and demands that the government coerce the other party into compliance. People tend to forget this fundamental truth: Without the backing of the state, contracts are nothing but paper.

The arbitrator in the used car case, for example, admitted his sympathy with the couple, but argued his hands were tied due to the existence of the contract. "I hate to admit this, I probably shouldn't admit it publicly," he said. "I thought what happened wasn't, at the end of the day, really fair. But if you signed a contract, you're bound by it. Caveat emptor, let the buyer beware."

Taken to its logical endpoint, this is nonsense. There is a yawning abyss in power (and legal resources) between the average individual and the average corporation, making the idea of a contract as a free agreement between equals ludicrous. Totally unlimited contracts would be monstrously unjust. For instance, it used to be commonplace for employers to force new employees to sign "yellow dog" contracts, which forbade them from joining a union as a condition of employment. Sign away your right to organize, or your family starves. Ain't freedom to choose grand?

Because of such obvious power disparities, and the fact that contracts are a claim on the state's power, yellow dog contracts have been illegal since 1932, along with a slew of other stuff. (You can't sign yourself into slavery either.)

This might be changing. As Brian Beutler documents, libertarian legal activists have been quietly installing right-wingers throughout the legal system and the media determined to return American jurisprudence to the pre-New Deal era. In those days, reactionary judges basically held that the state existed solely to enforce unlimited contracts and property rights — hence, federal child labor bans or minimum wage laws or limits on the working day violated the Constitution, because derp. Supreme Court Chief Justice John Roberts has been somewhat involved with this effort for years, first as a lawyer for Discover Bank setting up some of the first cases enabling class-action bans, and then as a Supreme Court justice handing down corporate victories in 2011 and 2013.

The fact that this movement requires operatives scattered throughout the violent arm of the state gives the game away — it's Big Government Judicial Activism clear to the bone. Therefore, it would be perfectly legitimate to do the opposite, and pass a law declaring that the state will no longer enforce arbitration agreements. Ironically, it would be deregulation. Instead of the state fussing around trying to enforce every single clause in the foot-thick contracts modern corporations are cooking up, it would say that certain legal structures are none of its business.

But the point is that the injustice of arbitration is state-backed action. And as such, it can and should be changed should the government wish it.