Mandatory arbitration clauses – what you need to know

By Leah Rush

Consumers, patients, and employees sign contracts all the time – from employment contracts to consent forms at the doctor's office, most of us have signed more contracts than we care to remember. Sometimes we sign contracts in a high-pressure sales environment or when we just don't have time to read the fine print. It's a common mistake, but because of mandatory arbitration clauses, it could cost you your right to recovery for an injury.

Mandatory arbitration clauses mean that you agree that if you ever have any problems with the terms of the contract, you will have a hearing where a neutral third party will listen to both sides and give a binding opinion or judgment. That may sound reasonable – but it means you lose your right to go to court and have a jury trial.

There's another problem with these clauses: the employer, hospital, or corporation who writes the contract usually insists on choosing the arbitrator, which may give them an unfair advantage over you. They may also require a limitation on the amount of money you are able to get through arbitration.

Even worse, many times the arbitration agreement will cover much more than it seems to at first glance. For instance, if you're signing a contract for the purchase of a big-ticket item, the contract may say something like, "the signor agrees that all claims arising from or relating to the contract will be submitted to arbitration." This means that not only would a conflict over the terms of the contract itself require arbitration – but so would any injury that occurred from use of the item.

Trying to get out of a mandatory arbitration clause once you've signed the contract can be tricky. You'll have to get an attorney's help to figure out what you can do. There are some state consumer protection laws that may help you, but the United States Supreme Court has adopted a policy in favor of arbitration which sometimes overrules these state laws.

Sometimes courts will release a person from a contract because of unequal bargaining power between him and the company, but that's not likely to happen in Texas, where the Texas Supreme Court has held that "unequal bargaining power between an employer and employee is insufficient to defeat an arbitration agreement." So, if a Texas court finds that a valid arbitration agreement exists, the judge has to enforce the agreement.

The bottom line? Read any contract you sign in its entirety – and double-check for a mandatory arbitration clause. They're easy to overlook, but too important to miss.