New York -- Do you think that you were fired unfairly? Did your bank harm your business by incorrectly bouncing some checks? When you call a lawyer, you may be surprised to learn that you're not allowed to sue. Increasingly, you have to arbitrate.
Last June, the San Francisco-based Bank of America imposed compulsory arbitration on its customers, joining the growing list of corporations that force you to settle complaints out of court. Most brokerage firms already put compulsory arbitration into their customer agreements. So do some auto and health insurers.
A year ago, the U.S. Supreme Court upheld an employer's right to enforce a compulsory arbitration agreement in an age-discrimination case. Expect to see more of these agreements, restricting your right to sue over job bias, sexual harassment or wrongful discharge.
In arbitration, each party to a dispute submits arguments to an independent panel. The panel reaches a decision based on that information, and most decisions are binding. You cannot appeal a loss in court.
Arbitration usually suits consumers fine. For complaints involving small amounts of money, you generally retain access to small-claims court. For larger claims, arbitration is cheaper and easier than bringing a full-blown lawsuit. Even without a formal agreement, you can arbitrate disputes as long as the other party agrees.
What's stifled by compulsory arbitration are the jackpot jury awards that some cases win. Arbitrators rarely grant huge judgments, and are loath to hand out "punitive" damages for willful corporate wrongdoing. Arbitration procedures also make it hard to pursue class-action suits that may broaden consumer rights.
These are the very reasons that so many corporations now seek the arbitration shield. If you own a small business or apartment house, you might want to write compulsory arbitration agreements for your tenants, employees and customers.
At the Bank of America, an individual lawsuit can now trigger binding arbitration. Class action suits trigger "judicial reference" -- a legal procedure that's similar to arbitration but allows the parties to appeal the decision in court. These new rules cover holders of the bank's credit cards, as well as customers with checking or savings accounts.
Wells Fargo, another bank with its headquarters in San Francisco, is taking a different approach. Since September, unsettled disputes over $25,000 must go to compulsory mediation. Mediation differs from arbitration in that decisions can be appealed -- either to binding arbitration or to court.
Expect other banks to follow these leaders. Arbitration attorney Steven Saxe, at Pillsbury Madison & Sutro in San Francisco, says he's advising some 50 community banks on whether to try some form of alternative dispute resolution, and how they might use it.
The loudest objections to compulsory arbitration come from consumer groups and from lawyers who prosecute class-action cases. Patricia Sturdevant, whose San Francisco law firm of Sturdevant & Sturdevant has brought more than 15 class-action suits against banks, is challenging Bank of America in court.
Bank of America spokesman Peter Magnani says there's no violation. If customers don't want compulsory arbitration, they can close their accounts and go somewhere else. But imposing compulsory arbitration isn't like changing an interest rate or service fee, Sturdevant argues. The court will decide.
Lawyers who earn fees by suing companies can be expected to complain. But compulsory arbitration holds dangers for consumers, too.
In arbitration, corporations are famous for failing to disclose critical internal documents that might help to prove your case. There's heated debate over issues like whether arbitrators are qualified to handle charges of age bias or sexual harassment, and whether it's unfairly coercive to require compulsory arbitration as a condition of keeping your job. Voluntary arbitration is admirable. But compulsory arbitration needs a careful look.