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The Dangers of Mandatory Arbitration

Many people have heard of mandatory arbitration, but not many people completely grasp what it means and how it affects their lives and their rights.

Mandatory arbitration is a form of alternative dispute resolution (ADR), which is a technique for the resolution of disputes outside the courts. The two parties involved are required to meet with an arbitrator, who is usually an attorney and who is supposed to be neutral, and present the evidence for their respective cases. The arbitrator then evaluates the case and imposes a decision that is legally binding for both sides.

On the surface, mandatory arbitration seems quite similar to mediation and seems like a logical way to solve a dispute. Mandatory mediation is typically quicker and cheaper than trying a case in court. It would make sense that a company that has millions of customers would prefer this method. Otherwise, the courts would bear the burden and it would take years to get a trial date for any case. However, if one looks beyond the surface, mandatory arbitration may be more problematic than beneficial, especially to consumers.

The first problem with mandatory arbitration is that it is only “mandatory” for one party. Mandatory arbitration clauses are being used in contracts more frequently than ever before and these clauses force consumers to agree to mandatory arbitration. It would be difficult, if not impossible, to get a loan, buy a car or even buy a cell phone without signing a contract with a mandatory arbitration clause. Some employers require employees to sign these contracts and even some HMOs and doctors have begun to use them.

This puts the consumer at a disadvantage by forcing the company’s preference for arbitration on the consumer. The consumer can either sign the contract or go without whatever goods or services are needed. Some people, however, are oblivious to the existence of this clause altogether. Often these clauses are hidden in lengthy contracts or written in cryptic legalese that would be difficult for most people to understand. Many people do not learn about these elusive clauses until it too late and a dispute has arisen.

So Why Do so Many Companies Prefer Mandatory Arbitration and Force It Upon Unsuspecting Consumers?

When companies include a mandatory arbitration clause in a contract they often specify whose arbitration services will be used. This once again gives companies the upper hand. Of course, they going to choose arbitrators that they think will give them favorable decisions. By selecting the arbitrator, the companies also give the arbitrator a financial interest in the case. If the arbitrator wants to continue getting the company’s business, then it would be best if the decisions favored that company. To make matters even worse for the consumer, arbitrators are immune from any meaningful review.

Mandatory arbitrations often come with very strict confidentiality rules, which is another reason why they are preferred by companies. Arbitrations are closed to the public, so the underlying facts of a dispute and the arbitrator’ rulings will not be known. This puts the consumer at a disadvantage since neither he nor his attorney will be able to review previous decisions and build a better case.

In a sense, mandatory arbitration has given companies immunity from being held responsible or liable for their mistakes. This permits companies to take advantage of their customers and blatantly violate their rights. This creates an environment that is not only detrimental to the consumer, but also to other businesses. Honest businesses cannot compete in a market that is full of cheating.

With the blatant injustice of mandatory arbitrations, many have looked to the courts for help. However, both supreme and local courts have surprisingly upheld these arbitrations. This trend has caused a number of large civil cases involving consumer and civil rights to “disappear”. Consumers with legitimate claims can no longer get the justice they deserve because mandatory arbitration pulls their cases out of the courts and places them in an unfavorable situation.


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