Arbitration ≠ Fairness

Arbitration is a low-cost, fair way of settling disputes without involving lawyers and coruts, right? Wrong, according to an NPR report last week. An analysis of 34,000 California cases showed consumers losing 94% of the time. The National Arbitration Forum (NAF), a large arbitration firm, says the number is too high, but that corporations are likely to win most of the time because they won’t go to arbitration unless they have a good case. Consumers, apparently, are too stupid to understand when they have a bad case. Or maybe, since consumers have such deep pockets, they simply don’t care that they are wasting time and money on arbitration.

Arbitration, mediation, conflict resolution – they all sound like ways to minimize conflict and get results that are fair and better for both parties. That’s not what happens. In the real world, power and wealth too often tip the scales. A Harvard law professor reports that her part-time arbitration career with NAF ended after her 20 cases. On the first 19, she ruled for the company. On the twentieth, she awarded the consumer $20,000. She never got assigned another case.

Why does this matter? NPR says, “If you use credit cards, have a cell phone contract, bought a house from a builder or put your mother or father in a nursing home, you have very likely signed away your right to be heard in court if there’s a problem.” Arbitration clauses are in the fine print of many, perhaps most, consumer contracts. Employment contracts often have arbitration clauses, too.

As a former attorney, I have no illusions about the difficulty of using the court system — costs a lot, takes a long time, and there’s a huge advantage for the party who has more money for lawyers and court costs, etc. But arbitration is clearly no panacea, and arbitration clauses that forbid you from going to court are bad policy.

Wisconsin Senator Russ Feingold has introduced the Arbitration Fairness Act, which would prohibit pre-dispute mandatory arbitration clauses in consumer contracts. The legislation would not prevent or prohibit arbitration, but it would give consumers the right to go to court instead of submitting to a privatized justice system.

What with bank bailouts and automobile bankruptcies and all that, it’s flying below most people’s radar. Might be worth a call to your congressional rep, to let them know you think they should take it seriously.

For more info, see Fair Arbitration NOW, Houston law professor Richard M. Alderman, the National Employment Lawyers Association


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2 responses to “Arbitration ≠ Fairness

  1. This is interesting.

    Wasn’t Pawlenty’s wife with a company doing bogus arbitration of health care disputes?

    I have no experience with this sort of arbitration.

    But I do know something about the use of “conflict resolution” or “consensus building” in environmental disputes, etc. The shops doing this represent themselves as “neutral facilitators” but somehow the outcomes almost always seem to reflect the desires of those paying the bills. These latter are usually corporations or government agencies and on the other side are do-good groups pre-selected for their naivete, and/or willingness to “be reasonable,” suck-up, and do what they are told.

    There are rare examples of this work being done in real good faith, but they seem rare. Overall, it is a growth industry and a deeply harmful and unethical one. Examples are the “Consensus Building Institute” out of Cambridge, MA, and the “Minnesota Environmental Initiative.” (Anyone can use the word “environmental” regardless of what interests they represent….)



  2. Arbitration clauses are the rule in real estate purchase agreements, nursing home admission forms, leases, and it’s your basic adhesion contract, where people who have little relative power have no option but to sign and get screwed in the process. This just came up last week in a deal Xcel did back in 2000 with Cities of Taylors Falls and St. Croix Falls, where Xcel unilaterally decided to act contrary to a material term of the agreement and Taylors Falls took it to the PUC rather than arbitrate (why? who knows… they weren’t represented and should have been). PUC passed on taking a position and sent them back to negotiate and it’ll go into arbitration… aaaaaargh.


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