Workers, Consumers Unwittingly Allow Mandatory Arbitration

June 19 -- Kristy Rubio was on top of the world.

She had just been promoted and was expecting her first child.

But it all fell apart when, Rubio says, she was demoted because of her pregnancy. "They decided to demote me from escrow coordinator to receptionist because it was easier to replace a receptionist than an escrow coordinator," she says.

Her employers deny any discrimination. When Rubio decided to take them to court she was stunned to learn she did not have the right to sue.

Like millions of Americans, Rubio signed a contract when she started her new job. It required her to resolve disputes in private proceedings, without going to court — it's called mandatory arbitration.

Rubio says she felt pressured to sign the agreement and was not even given a chance to read it..

"I definitely didn't want to cause waves, and say 'No, I'm not going to sign this,'" she says. "So I did feel that, yes, I needed to sign right there or there were going to be problems."

New Policy in Insurance, Credit, Phone Contracts

Mandatory arbitration clauses are showing up in the contracts people sign with many businesses, including health insurers, credit card and phone companies. They are often buried in the fine print.

"People are going to get an arbitration clause in a contract or it will come in the mail as one of these billstuffers," explains Jackson Williams of consumer advocacy group Public Citizen in Washington, D.C. "And they … have no idea that they're signing their rights away."

But the president of the country's leading arbitration association says the practice is better for business.

"It's less costly, and brings about a result to a troubling area promptly for both parties," says Bill Slate of the American Arbitration Association in New York.

Opponents say removing the prospect of a trial by judge and jury can make it easier for companies to disregard the law.

"They see it as a get out of jail free card," says Jackson. "They know that the chances that they will be sued are much, much lower if their employees or customers are covered by arbitration clauses."