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Consumer Litigation Associates
“Signing Away Your Day in Court?”
Estimated Read Time: ≈ 10 minutes

If you’ve ever signed a credit card agreement, started a new job, or clicked “I agree” on a website’s terms of service, there’s a good chance you agreed to an arbitration clause without even realizing it. These clauses are often buried in the fine print, but they carry major implications for your legal rights. This blog post will explain what arbitration is in plain language, why arbitration clauses have become so common in consumer and employment contracts, the key legal developments (especially U.S. Supreme Court decisions) that fueled their rise, the practical consequences of agreeing to arbitration (including losing the right to go to court or join a class action), and why so many people find themselves bound by arbitration clauses unwittingly. We’ll also highlight the industries where arbitration clauses are most common—such as credit cards, cell phone contracts, auto sales, employment agreements, and online terms of service. Our goal is to inform and raise awareness in a straightforward, reader-friendly way about what it really means when you agree to mandatory arbitration.

What Is Arbitration?

Arbitration is essentially a way to resolve disputes outside of court. Instead of suing in front of a judge or jury, the parties bring their disagreement to a neutral third-party arbitrator (or a panel of arbitrators). The arbitrator functions like a private judge—hearing both sides’ arguments and reviewing the evidence before issuing a decision that is usually final and binding, meaning there’s typically no right to appeal. Arbitration hearings are typically private (not in an open courtroom), and the results often remain confidential.

When you agree to an arbitration clause in a contract, you’re usually waiving your right to sue in court and even waiving the right to an appeal of the arbitrator’s decision. In other words, you’re signing away your right to bring a claim before a judge or jury and are agreeing to let a private arbitrator decide the issue. Businesses often promote arbitration as a faster, less formal, and cheaper way to settle disputes than court litigation. But the trade-off is that you lose some of the safeguards of the court system. There’s no judge or jury, limited oversight, and very limited ability to appeal if you think the arbitrator got it wrong. In many cases, the arbitrator’s decision is the end of the road.

Why Are Arbitration Clauses Everywhere in Consumer and Employment Contracts?

Arbitration clauses have become extremely common in all sorts of agreements that consumers and employees sign. Originally, arbitration was used mostly for resolving disputes between companies of equal bargaining power. But today, these clauses are routinely found in “take-it-or-leave-it” contracts with unequal power dynamics, like a contract between a big company and an individual consumer or worker. Over the past few decades, more and more employers and businesses have started requiring arbitration as a condition of offering you a job, service, or product. In fact, most employers in the U.S. now require employees to accept a mandatory arbitration agreement, waiving their right to sue in court, just to get hired. For consumers, companies frequently slip arbitration clauses into the fine print of product warranties, service contracts, and user agreements for things like credit cards and cell phones.

Why do companies embrace arbitration clauses? From a business perspective, forcing disputes into arbitration helps limit legal exposure. It allows companies to avoid jury trials and large court judgments, and especially to prevent class-action lawsuits where many consumers or employees band together. In arbitration, each person usually has to go it alone, which means it’s harder to bring claims that are small individually but significant in the aggregate. Widespread arbitration clauses (often paired with class-action bans) give corporations a “get out of jail free” card against many kinds of claims. Companies know that if they can compel individual arbitration, they are much less likely to face large-scale liability for wrongdoing. Arbitration proceedings are also private, so bad publicity can be minimized, and the procedures can be tilted in subtle ways that advantage repeat corporate users (for example, the company might be involved in many cases with a given arbitrator, who may be incentivized to appear business-friendly).

Another reason arbitration clauses are everywhere is that courts have generally upheld them, giving businesses confidence that these clauses will stick. For consumers and employees, these clauses are almost always presented as non-negotiable fine print – you typically must accept arbitration or give up the product, service, or job. It’s a “take it or leave it” proposition. Naturally, few people turn down a cell phone contract or a job just because of an arbitration clause, and companies know this.

Supreme Court Rulings and Legal Landmarks Driving the Rise of Arbitration

One of the biggest reasons for the surge of arbitration clauses is a series of U.S. Supreme Court decisions over the last few decades that have strongly favored enforcement of arbitration agreements. These decisions interpreted the Federal Arbitration Act (FAA) of 1925 in ways that expanded arbitration from a niche practice into a broad mandate affecting consumer and employment disputes.

Starting in the 1980s, the Supreme Court reversed earlier assumptions and held that the FAA applies broadly to contracts involving ordinary consumers and workers, even overriding state laws that tried to limit arbitration. The Court adopted a “national policy favoring arbitration,” making arbitration clauses just as enforceable as any other contract term. This was a turning point that has been referred to as “the hidden revolution” in civil justice.

In the 21st century, a trilogy of major Supreme Court cases cemented the dominance of arbitration clauses – especially with class-action waivers attached. In AT&T Mobility v. Concepcion (2011), the Court struck down a California rule that had barred class-action waivers, effectively green-lighting businesses to include provisions that ban class actions in arbitration agreements. The Concepcion decision has been described as a “watershed moment” because the Court effectively gave companies the green light to use arbitration clauses to block class-action lawsuits. Next, in American Express Co. v. Italian Colors Restaurant (2013), the Supreme Court went further and held that arbitration clauses with class-action bans are enforceable even if they make it economically impractical for individuals to pursue their rights at all. In that case, a small business argued it would cost far more to arbitrate an individual claim than they could possibly recover, but the Court still enforced the arbitration agreement – essentially saying that the inability to effectively vindicate a claim is not a reason to invalidate arbitration. Finally, Epic Systems Corp. v. Lewis (2018) confirmed that employers can require employees to arbitrate disputes individually, despite laws like the National Labor Relations Act that protect collective action by workers. In short, the Supreme Court made clear that federal arbitration law trumps other laws – companies can require arbitration on an individual basis, and courts will almost always enforce those agreements.

These legal landmarks have had a dramatic impact. As one analysis put it, over the last two decades the Supreme Court’s arbitration decisions have “transformed the landscape” such that many consumer protection and employment laws are “virtually unenforceable” in practice. Even though the laws giving you rights (against fraud, discrimination, wage theft, etc.) are still on the books, if you’ve agreed to arbitrate, you often can’t take those claims to court. The result is that corporations, armed with arbitration clauses, can avoid much of the accountability they would face in public courts. Arbitration clauses frequently come hand-in-hand with class action bans, so consumers or workers cannot join together to challenge systemic wrongdoing. This legal backdrop – a corporate-friendly Supreme Court and a string of pro-arbitration rulings – encouraged companies across industries to adopt arbitration clauses in virtually all contracts with their customers and employees. In short, the highest court has given its blessing to these clauses, and businesses have taken full advantage of that green light.

What You Give Up When You Agree to Arbitration

Agreeing to an arbitration clause may not feel significant when you sign a contract or click “agree,” but it has serious consequences. The most important thing you give up is your right to take a dispute to court. If something goes wrong – say, you’re overcharged, sold a defective product, harassed at work, or denied overtime pay – you cannot sue the company in court if an arbitration agreement covers the dispute. You also give up the right to a trial by jury, and typically the right to participate in a class action lawsuit with others in the same boat. Instead, you must pursue your case individually in a private arbitration forum.

This means you also lose many of the procedural protections and leverage that exist in court. In arbitration, there is often limited discovery (the process of obtaining evidence from the other side) compared to court litigation, which can be a serious disadvantage – for example, in an employment discrimination case, you might need company records or witness testimony that are harder to compel in arbitration. Appeals are extremely limited in arbitration: if the arbitrator makes a legal or factual error, you usually cannot appeal to an independent court (unlike a court verdict, which can be appealed to a higher court for review). The arbitrator’s decision is usually final, even if it’s wrong or unfair in your view.

Another consequence is that arbitration often tilts in favor of the company – what some call the “repeat player” advantage. A big corporation might go before the same arbitration provider or even the same arbitrators time and again, whereas you as an individual are likely there just once. Studies have found that **employees and consumers win less often in arbitration than in court, and when they do win, they tend to get much lower damages awarded. Meanwhile, companies (especially those who frequently arbitrate cases) tend to win more often, possibly because arbitrators know that being too plaintiff-friendly could cost them future business from the companies.

Arbitration also usually happens in secret. Unlike court rulings, which are public record, arbitration results are often confidential. Consumers and employees can’t easily learn about others’ experiences, and patterns of misconduct can stay hidden. Public accountability is reduced. For instance, companies can avoid the public scrutiny that comes with a big court trial or verdict – there’s no open courtroom or publicized judgment to warn others of wrongdoing.

Perhaps most importantly, by giving up the ability to join with others in a class action, individuals with small-dollar claims lose any effective remedy. A classic example: imagine a company overcharges 100,000 customers $30 each. No single customer will find it worthwhile to spend the time and money arbitrating over $30 – in fact, the cost of pursuing the case might far exceed $30. In a class action, those claims could be bundled together, and a lawyer could advocate for the entire group. In arbitration with a class-action ban, that never happens – the company keeps the ill-gotten gains if individuals don’t or can’t pursue solo arbitrations. In short, agreeing to arbitration can mean certain rights and legal recourse effectively disappear.

How You Might Be Bound by Arbitration Without Realizing It

Many consumers and employees don’t even know they’ve agreed to arbitration. Arbitration clauses are typically buried in the fine print of contracts or employee on-boarding paperwork, often labeled innocuously (sometimes called “dispute resolution” or “binding arbitration” provisions). It’s common for these clauses to be written in dense legal language that few people read or understand during a routine transaction. According to a Consumer Financial Protection Bureau study, three-fourths of consumers didn’t know their credit card agreement had an arbitration clause, and fewer than 7% realized that this meant they couldn’t sue in court.

Why would anyone agree to this? Often, there’s really no choice. These agreements are usually mandatory if you want the product, service, or job. It’s not truly a “choice” or “voluntary” in the everyday sense – if you refuse to sign, the company likely won’t do business with you or the employer won’t hire you.

Moreover, most people don’t anticipate a dispute at the time they sign the contract. It’s human nature not to worry about legal clauses when signing up for a service or starting a job. As one report put it, “Who thinks they will have a dispute with their employer or their bank? Who would risk a valuable job or an important transaction over an obscure procedural provision?” The arbitration clause can feel abstract and minor at the time of agreement. Only later, when a serious issue arises, do people realize that they’re locked out of court. By then, it’s too late – they already “agreed” to arbitrate.

Companies also don’t exactly advertise these clauses. The language might be tucked into paragraph 36 of a user agreement or hidden behind a link online. The clause could even be spread across multiple pages of legal fine print (some arbitration agreements are astonishingly long – one popular app’s arbitration clause was 14 pages of text!). All of this means the average person is often bound by an arbitration clause without meaningful awareness or understanding, which is why there’s a growing concern that consumers and employees are unwittingly signing away fundamental rights.

Industries Where Arbitration Clauses Are Common

Mandatory arbitration clauses started in certain sectors but have now spread to a wide range of industries. Here are some common examples of where you’re likely to encounter arbitration clauses in the wild:

• Credit Cards and Banking: Arbitration clauses are widespread in credit card agreements and bank accounts. A government study found that credit card issuers representing over half of the market (53%) use mandatory arbitration clauses, and nearly 44% of checking account deposits were subject to arbitration by banks that include such clauses. If you have a credit card or bank account, there’s a good chance your terms and conditions say you waive your right to sue the bank in court. (Notably, these clauses almost always include a ban on class actions as well.)
• Cell Phones and Telecom Services: The major wireless carriers and cable/satellite TV companies overwhelmingly use arbitration clauses in their customer contracts. One survey found that all four of the largest cell phone companies and most large cable TV/Internet providers include mandatory arbitration (with class-action bans) in their service agreements. In fact, by some estimates 88% of mobile wireless contracts have arbitration clauses. So when you signed up for that phone plan or cable service, you likely agreed to arbitrate any disputes.
• Employment Agreements: In the workplace, mandatory arbitration has become the norm for non-union employees. Over half of private-sector U.S. employees (tens of millions of workers) are now subject to forced arbitration for any employment-related claims. Major employers like Walmart, Amazon, and Uber impose arbitration agreements on their workers as a condition of employment. This means if an employee experiences discrimination, harassment, wage theft, or other legal violation at work, they generally cannot sue the company in court – they must go to arbitration. The clause often also bars any form of collective or class action by employees.
• Loans and Financial Services: Many types of consumer loans and financial contracts carry arbitration requirements. For example, private student loans from big lenders include arbitration about **86% of the time. Payday loans (high-cost short-term loans) are notorious for this – in some states like Texas and California, over 99% of payday loan agreements had mandatory arbitration clauses. Auto loans, retirement account agreements, and investment accounts frequently include them as well.
• Insurance and Other Services: Insurance policies, nursing home admission contracts, home construction or home warranty contracts, and even some medical service agreements have been known to include arbitration clauses. The practice is increasingly common anywhere a company wants to limit its litigation risk. Always check the fine print in these agreements – the clause might be there even if you’d never expect it.

As you can see, arbitration clauses have permeated many facets of daily life – from the phone in your pocket, to the bank you use, to the job you work. In many of these industries, the use of arbitration clauses has become standard practice, meaning consumers or workers often can’t shop around to avoid them (if every major company in a sector uses similar clauses, the choice is effectively “take it or leave it”).

Conclusion: Be Informed About What You’re Signing Away

Arbitration itself is not an inherently bad process – for some disputes, truly voluntary arbitration can be a reasonable, efficient way to resolve a problem. But the mandatory arbitration clauses now common in consumer and employment contracts are a different story. They strip individuals of the choice to go to court and often shield companies from liability by preventing group lawsuits. The key takeaway is that when you agree to an arbitration clause – often without realizing it – you are signing away your right to have any future dispute heard by an impartial judge or jury. You are agreeing to a private system set up by the company, one that studies show tends to favor the company over the individual.

For the general public and clients alike, it’s important to be aware of these clauses. Look for terms like “arbitration” or “dispute resolution” or “binding arbitration” in the fine print of contracts. Understand that “mandatory binding arbitration” means you cannot sue in court – no matter if the company defrauds you or your boss breaks the law, you’ve promised to handle it privately. Unfortunately, even if you do spot the clause, you might not have the power to change it. But simply knowing what arbitration clauses are and what rights you’re giving up is a step toward making informed decisions.

Consumer and employee advocates continue to debate and push for changes (for instance, laws banning forced arbitration in certain cases, like sexual harassment, have gained bipartisan support recently). In the meantime, arbitration clauses remain prevalent, so being informed is your best defense. Awareness is key: the next time you see a contract – whether it’s for a new app, a credit card, or a job – you’ll know to keep an eye out for the arbitration clause and recognize its significance. While you may not always be able to avoid it, you’ll at least understand that in that small paragraph of fine print, you’re potentially giving up your day in court and the right to band together with others, which are fundamental legal rights. Stay informed and read the fine print – it’s a small step that can make a big difference in understanding your rights.

• AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).
• Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013).
• Epic Sys. Corp. v. Lewis, 584 U.S. ___ (2018).
• Federal Arbitration Act, 9 U.S.C. §§ 1–16 (2018).
• CONSUMER FIN. PROT. BUREAU, ARBITRATION STUDY: REPORT TO CONGRESS, PURSUANT TO DODD–FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT § 1028(a) (2015), https://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
• ALEXANDER J.S. COLVIN, ECON. POLICY INST., THE GROWING USE OF MANDATORY ARBITRATION: ACCESS TO THE COURTS IS NOW BARRED FOR MORE THAN 60 MILLION AMERICAN WORKERS (2018), https://www.epi.org/publication/the-growing-use-of-mandatory-arbitration/.
• MADDY VIETH & MINA ZENG, NAT’L EMP. L. PROJECT, FORCED ARBITRATION IN THE WORKPLACE: HOW EMPLOYERS USE MANDATORY ARBITRATION TO DEPRIVE WORKERS OF THEIR RIGHTS (2022), https://www.nelp.org/publication/forced-arbitration-in-the-workplace/.
• Jessica Silver-Greenberg & Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice, N.Y. TIMES, Oct. 31, 2015, at A1, https://www.nytimes.com/2015/11/01/business/dealbook/arbitration-everywhere-stacking-the-deck-of-justice.html.
• David Horton & Andrea Cann Chandrasekher, Employment Arbitration After the Epic Systems Epic Fail, 70 STAN. L. REV. ONLINE 38 (2018).

Legal Disclaimer: This blog post is for educational purposes only and does not constitute legal advice. Every case is different, and past results do not guarantee future outcomes. If you have questions about your specific situation, contact Consumer Litigation Associates for more information or assistance.