Forced arbitration

Forced Arbitration is a practice in which businesses can require their customers to resolve disputes through arbitration, instead of a traditional court system. Per Wikipedia: "Arbitration is a formal method of dispute resolution involving a third party neutral who makes a binding decision."

How it Works

Businesses will typically add an arbitration clause to their Terms of Service or Terms of Use. This clause generally outlines how disputes are handled between the consumer and the business. A good example of a typical arbitration clause can be found in Instagram's Terms of Use, which, as of January 6th, 2025, is under Section 7.4 - How We Will Handle Disputes:

"Except as provided below, you and we agree that any cause of action, legal claim, or dispute between you and us arising out of or related to these Terms or Instagram ("claim(s)") must be resolved by arbitration on an individual basis. Class actions and class arbitrations are not permitted; you and we may bring a claim only on your own behalf and cannot seek relief that would affect other Instagram users."

Currently, in the United States, arbitration clauses such as this one are legal under the Federal Arbitration Act (FAA). However, efforts have been made to prohibit forced arbitration, most notably the Forced Arbitration Injustice Repeal (FAIR) Act of 2023.

Why It's a Problem

Revocation of Rights

The practice of Forced Arbitration is one that is designed to revoke the rights of the consumer. In this case, the consumer's right to sue or participate in a class action against a business. Instead, the consumer must work with an arbiter of the businesses' choosing behind closed doors to resolve claims, which is widely believed to result in biased outcomes.

Inconvenient Opt-out Procedure

Arbitration is often made inconvenient for users to opt-out of. Instead of giving users the option to do so at sign-up digitally, most businesses will require users to send a handwritten letter within 30 days of their sign-up to opt-out of arbitration. This type of opt-out clause can also be seen in Instagram's Terms of Use:

"You can opt out of this provision within 30 days of the date that you agreed to these Terms. To opt out, you must send your name, residence address, username, email address or phone number you use for your Instagram account, and a clear statement that you want to opt out of this arbitration agreement, and you must send them here:" [Address redacted]

This practice is similar to how gyms will often require members to travel to their location or send snail mail to cancel a membership, while an online system could easily be put in its place.

Conflict of Interest

Companies track performance of arbitrators over time, and as such, are able to pick arbitrators that lean towards the industry rather than the consumer. While both the consumer and company theoretically have some control over the selection of the arbitrator, the company generally has an information advantage in the selection process. Furthermore, individual arbitrators have a long-term financial incentive to bias their rulings in favor of corporations, as the corporation is much more likely to become a "repeat customer" than the consumer. In extreme cases, entire arbitration firms may have a material conflict of interest.

Examples

Some examples of arbitration clauses in terms and conditions include:

Instagram Terms of Use - Section 7.4 - How We Will Handle Disputes

Sony PlayStation Network Terms of Service - Section 14 - Binding Individual Arbitration

Ticketmaster Terms of Use - Section 17 - Mandatory Arbitration Agreement and Class Action Waiver

In Section 27.1 of Zoom's Terms of Service, says "You and Zoom agree that any dispute or claim between you and Zoom arising out of or relating to this Agreement or the Services (a “Dispute”), including any related software, hardware, integrations, advertising or marketing communications, your account, or any aspects of your relationship or transactions with Zoom, will be resolved by binding arbitration, rather than in court."