Every day, I review contracts that contain arbitration clauses. They are in nursing home contracts, assisted living facility contracts, home healthcare contracts, apartment leases, annuity contracts, documents signed at the doctor’s offices, and documents signed to purchase everyday items and services. And, I usually see them only after an elder or her legal representative has signed the contract and the consequences are irreversible.
Many clients ask me why it matters that they signed a contract containing an arbitration clause. The short answer is because arbitration clauses eliminate the right to access the court when you are damaged, reduces the damages you can get for injuries, and silences your ability to tell the world about your injury.
What are arbitration clauses?
An arbitration clause is a clause in a written contract that requires the parties to resolve any dispute arising under that contract outside a court of law, in a proceeding known as arbitration. These clauses can be as short as a small paragraph to as long as a page or two.
What is arbitration?
Arbitration is a private system in which disputes between parties are decided by a neutral third party known as an arbitrator. There is no jury. There is no judge. The arbitrator(s) listens to each party present evidence and law. The arbitrator then decides the case and issues an award. The parties agree, in advance through arbitration clauses, that they will follow the arbitrator’s award so it is rarely, if ever, reviewed by a court. The rules of arbitration are often less formal than a trial before a judge and jury. Unlike court proceedings, which are often a matter of public record, arbitration is not.
What are the drawbacks to arbitration clauses?
Arbitration clauses, when agreed up by two parties that are fully informed and who have the same negotiating power, can be good things. They can provide a speedy and sound resolution to a dispute.
However, in cases involving elders, these clauses are used in assisted-living, nursing home and home healthcare contracts which are signed usually while the elder and their family are in crisis. The elder generally has no power to negotiate the contract they are required to sign. Often elders and their families have no idea they have agreed to an arbitration clause and find out only after the elder is injured or abused by the facility.
Unlike a court proceeding, arbitration is private. There is no public record of the claim, the allegations, or its outcome. Any allegations against a facility or provider are kept out of the public eye. Any evidence presented during the arbitration is private. There is no public record of a trial or evidentiary hearing. As a result, no one can detect a pattern of harm or abuse by a facility or provider as they would if there were numerous lawsuits.
Arbitration clauses limit the kinds and amounts of damage that can be collected by a person who is harmed. These clauses often limit damages to actual damages and eliminate punitive damages that punish bad actors for egregious bad behavior.
Arbitration clauses also prevent parties from filing class-action lawsuits against a company or provider who has engaged in a pattern of bad behavior that harms many people. Because arbitration helps hide these patterns by preventing public lawsuits, often bad behavior continues without punishment or a large scale lawsuit forces change in behavior. Even if a pattern is discovered, all the potentially aggrieved parties are bound by their arbitration agreements so each one must submit their individual claims to arbitration instead of banding together into a class to file a suit.
Because arbitration is a private proceeding, arbitration requires the parties to hire a neutral third party to decide their dispute. Arbitration clauses require the parties to share the costs of the proceeding. This means an aggrieved party, even if she wins, must pay half the costs of the arbitrator’s fees, as well as her own attorneys’ fees and costs. Arbitration clauses also limit a party’s ability to recover attorneys’ fees and costs if they are the prevailing party. Because of these things, arbitration is usually more expensive for an aggrieved party than a court proceeding.
Finally, arbitration awards are often smaller than recovery through a lawsuit filed in a court of law. With a smaller award and higher costs, aggrieved parties cannot fully recover the damages they might have suffered or be entitled to under state or federal law in a court proceeding.
Because arbitration clauses can have dire consequences to elders, I recommend elders or their legal representatives read all contracts before they are signed. Even better, have an elder law attorney review them with you to explain the various clauses. If you are a legal representative, know whether you have the authority to sign arbitration clauses. Some durable powers of attorney prohibit it. Finally, if you can, negotiate to eliminate them from the contract or strike them.