Colorado Democrats look to reform out-of-court arbitration with new bill

State Sen. Mike Foote wants the Colorado legislature to pass arbitration reform in the 2020 session. And to make his point about why it’s necessary, the Lafayette Democrat recently shared a story about how forced arbitration clauses, a little talked about but pervasive bit of contract law, impacted his wheels.

At a news conference Wednesday introducing a new bill sponsors say would improve transparency and fairness in the arbitration process, Foote talked about how he found a forced arbitration clause in the contract when he went to buy a car a few years ago. If something went wrong with the car and Foote wanted to take action against the dealer, that matter would be settled by an arbitrator, not in a courtroom, per that clause. Later, when he bought new tires for the vehicle, those came with a forced arbitration clause attached, too. Even the “find my car” phone app Foote used has a forced arbitration clause in the user agreement, he said.

“The forced arbitration clauses that we are dealing with, partially, in this bill are everywhere, on virtually everything,” Foote said. “I can guarantee you that everyone in this room, as a matter of fact, has used product or service today that has a forced arbitration clause attached to it.”

The Consumer and Employee Dispute Resolution and Fairness Act, Senate Bill 20-93, seeks to address what Foote calls an “imbalance of power” in the forced arbitration process. It would establish transparency and ethical guidelines for third-party arbitrators, particularly around conflicts of interest. It would make it illegal to enforce certain contract terms, including those that might mandate that arbitration be handled out of state or allow employers or companies to unilaterally select the third-party person or group that would resolve a dispute.

Proponents cast the cause as an urgent one. In a news release highlighting the bill, Democrats and their allies with the Colorado Consumer Protection Coalition pointed to a study published last year in the University of California-Davis Law Review that found 81 of America’s 100 largest companies employ arbitration agreements. They include Amazon, Apple, Walmart and Coca-Cola.

Arbitrators find in favor of the companies 90% of the time, Foote said Wednesday.

With the popularity of arbitration clauses, the legislation has the potential to impact industries including eldercare, higher education, construction and a host of others.

The Metro Denver Chamber of Commerce has not taken a position on the bill, a spokeswoman said. The Colorado Bar Association’s legislative review committee is expected to examine the legislation in the coming weeks, said Andrew White, the CBA’s director of legislative relations. The bar association does have a section dedicated to alternative dispute resolution, including arbitration.

Colorado adopted the Uniform Arbitration Act in 2004. That law includes a disclosure provision.