Arbitration is an alternative method of resolving disputes in which two parties present their individual sides of a complaint to an arbitrator or panel of arbitrators. The arbitrator decides the rules, weighs the facts and arguments of both parties, and then decides the dispute. Arbitration may be voluntary or mandatory.
In voluntary arbitration, both sides in the dispute voluntarily agree to submit their disagreement to arbitration after it arises, and they have an opportunity to investigate their best options for resolving their claim.
In forced arbitration, a company requires a consumer or employee to submit any dispute that may arise to binding arbitration as a condition of employment or buying a product or service. The employee or consumer is required to waive their right to sue, to participate in a class action lawsuit, or to appeal. Forced arbitration is mandatory, the arbitrator’s decision is binding, and the results are not public.
Forced arbitration is being written into more and more terms of agreement and contracts, including those used for employment, insurance, home-building, car loans and leases, credit cards, retirement accounts, investment accounts, and nursing facilities, to name a few.
Generally not. Most Americans have never noticed this clause in the fine print of terms of agreement or contracts. Moreover, companies may call the condition “binding mandatory arbitration,” “arbitration,” “mandatory arbitration” or even call it a “dispute resolution mechanism.”
Nothing, if its “voluntary” arbitration. In fact, you always have the right to arbitrate. But you never want to give away the right to sue if arbitration does not work. Companies want you to give away that right because they have advantage in arbitration and can evade accountability.
No, most refuse to use forced arbitration in their dealings with other businesses. As a matter of fact, car dealers were so afraid of forced arbitration for their disagreements with manufacturers that they spent millions lobbying Congress to pass a federal law that prohibits automobile manufacturers from requiring forced arbitration in disputes related to dealership franchise contracts. The law passed in 2002.
One of the alleged benefits of arbitration is that it costs less than litigation, but frequently this is not true for consumers and employees. Forced arbitration frequently costs more than taking a case to court and can cost thousands of dollars. Individuals often have to pay a large fee simply to initiate the arbitration process. If they are able to get an in-person hearing, individuals sometimes have to travel thousands of miles on their own dime to attend the arbitration. In the end, the loser (usually the individual) often pays the company’s legal fees.
Forced arbitration is preferred by companies because it benefits companies - not the employee or consumer. Here are problems and dangers noted by consumer advocates:
Yes, there are still some businesses that don’t require forced arbitration. These are usually the companies with the fewest consumer complaints. Unfortunately, forced arbitration is becoming so widespread that in many industries that it is not possible to shop around for a product or service that doesn’t require forced arbitration. Today it is increasingly difficult to find insurance, a credit card, cell phone, a brokerage for a retirement account, or a nursing home, for example, where forced arbitration isn’t required.
Try to find an alternative. If possible, try to negotiate this term of the contract. But ultimately, in order to ensure that you can buy products and services and be employed without giving up your legal rights, legislation must be passed to ban forced arbitration. You can find out more about how to support passage of this legislation at www.FairArbitrationNow.org.