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The Pitfalls of Mandatory Individual Arbitration
Will arbitration clauses eventually circumvent the rights of people to join together in class-action lawsuits and deny them their day in court in Canada? This is currently the case in America where many applications for credit cards, internet services or even jobs now have clauses barring class-action suits being brought against them by mandating “individual arbitration” in the contract language. This can also be the case when renting a car, shopping on the internet, or accessing medical care. Businesses in the U.S. have increasingly inserted class action waiver clauses in standard contract forms – often the clauses are buried deep within the contract and consumers are not aware of the clauses or the potential ramifications until problems arise. In order to obtain compensation for damages, instigating class action law suits is an affordable way for individual consumers to pool their resources in order to address unjust or deceitful business practices used by the businesses they deal with. Class actions are a critical tool in keeping businesses from taking advantage of the public. Because of arbitration and waiver of class action clauses, consumers are faced with the insurmountable cost of taking on large corporations on their own. Individuals in the U.S. are being forced to submit to excessive fines and cancellation fees added to their bills without an affordable avenue of redress. Class-action law-suits launched on behalf of groups of workers that have been discriminated against by their employers have also been blocked based on contract language allowing only individual arbitration to settle disputes. In the U.S. – it appears that the Federal Arbitration Act supersedes consumer protection and class-action legislation.
It appears Canadian legislation to protect the consumer in many provinces bans class-action waivers or mandatory arbitration clauses. Legislators in Quebec, Ontario, Alberta, and British Columbia have mandated contract language to prohibit mandatory arbitration and waiver of class action clauses in contracts. For example, the Ontario Consumer Protection Act in Section 7 (2) has language that limits the terms within consumer contracts in relation to mandatory arbitration. (2) Without limiting the generality of subsection (1), any term or acknowledgment in a consumer agreement or a related agreement that requires or has the effect of requiring that disputes arising out of the consumer agreement be submitted to arbitration is invalid insofar as it prevents a consumer from exercising a right to commence an action in the Superior Court of Justice given under this Act. Also relevant in Section 8: (1) A consumer may commence a proceeding on behalf of members of a class under the Class Proceedings Act, 1992 or may become a member of a class in such a proceeding in respect of a dispute arising out of a consumer agreement despite any term or acknowledgment in the consumer agreement or a related agreement that purports to prevent or has the effect of preventing the consumer from commencing or becoming a member of a class proceeding. http://www.piac.ca/wp-content/uploads/2014/11/manditory_arbitration.pdf
Arbitration used to be considered contrary to the fair administration of the law by the Supreme Court in Canada. The pendulum has swung to the other side and the Supreme Court now upholds arbitration as a legitimate method of accessing justice for the public. For example, in 2006, AMEX chose ADRIC (Alternative Dispute Resolution Institute of Canada) to assign arbitrators to resolve disputes brought forth by credit card holders against them. http://adric.ca/services/adr-outsourcing/ This program was presented to consumers as beneficial to them as a cost saving device to effectively resolve disputes with AMEX. The limitation to individual arbitration is a clause in the Canadian AMEX consumer contract. There are also numerous other contracts that now enshrine the limiting clauses. For example, in Square Canada’s consumer contract, item 50 states that individual arbitration is the avenue agreed to for dispute resolution. https://squareup.com/ca/legal/ua Consumer behaviour is rapidly evolving and law revisions and updates are hard pressed to keep up with the ever increasing demand to protect consumers from the influx of electronic agreements that abound within the day to day online commerce that has become the norm. Consumers themselves have become careless and with a single click – can sign away rights that may become pivotal to fair redress when things go side-ways. In order to fully understand any contract entered into by a consumer, they would need legal advice and review. Clearly not a rational alternative when buying software or signing a term for internet service. Legislation needs to recognize that the behaviour of the consumer (signing a contract without reading it) is rational based on the difficulty presented by the length of contracts and the abundance of fine print. Also, the consumer would not have access to the desired product or services if they refuse the terms of the contract mandated as essential by the corporation offering the service or product. There are many administrators over-seeing arbitration procedures in Canada such as the ADRIC http://adric.ca/ the BCCAC http://bcicac.com/ and the ICDR Canada https://www.icdr.org .
The goal is to keep the arbitration process transparent, fair, accessible and affordable in Canada. Consumer confidence needs to support the use of arbitration in its role as a viable alternative to court action and litigation. Justice must prevail or the system will fail to meet its purpose. In the end, a decision for someone to enter into arbitration should only be made when they are fully informed of all the ramifications of giving up their right to access the justice system. The decision should be voluntarily made at the time the dispute has become an issue and not previously mandated before a dispute has arisen. There is always a need to reform legislation that governs arbitration clauses in contracts, especially when related to mandatory arbitration. The internet has pitted countries against each other as they struggle to enforce their laws that are often contradictory. Which legal system to use is at issue. http://digitalcommons.law.ggu.edu/cgi/viewcontent.cgi?article=1430&context=pubs Mandatory arbitration is beginning to be favoured in areas such as new home warranty disputes and disputes in the condominium industry. Some provinces are actively promoting these changes in the contract language. Other cases supporting mandatory arbitration have set precedents in Canada such as Kanitz vs. Rogers Cable Inc. http://arbitrationplace.com/digitallibrary/Ontario%20Arbitration%20Act%201991%20Cases/Section%201/Kanitz%20v%20Rogers%20Cable%20Inc%202002%20CanLII%2049415%20(ON%20SC).pdf Businesses need to understand that forcing mandatory arbitration undermines the premise that arbitration should be the preferred method of dealing with disputes. The public needs to be better educated as to the risks involved when entering into a contract blindly, no matter how inconsequential the circumstance may appear to be at the time of signing.