As I established in an earlier article, arbitration can sometimes be a less costly alternative to pursuing a case through the court supervised litigation process.  However, every consumer should know the pitfalls of arbitration, in order to protect their rights.

It is very important for a consumer to be aware of some of the true negatives of arbitration, in order to make an informed decision on whether or not to agree to a transaction (if you even have the power and bargaining power to do so) or whether or not to ‘choose’ it as a form of dispute resolution. In reality, the one who wrote the contract chose the arbitration and its terms.

Binding Arbitration leaves limited Recourse – If both sides have either agreed or been forced by ‘contract’ into a ‘binding’ arbitration, that final decision is final and binding – even if the award is unfair or illogical. There is no appeal from a bad decision.  By ‘accepting’ arbitration in lieu of having full rights to present a case to a Court neither side can then obtain a Judge’s determination or a Jury ‘of their peers’. This means the party will never have their ‘day in court.’ Remember, we have a Constitution with a seventh amendment, one of the first ten Bill of Rights, that states that “the right of a trial by jury shall be preserved for suits at common law (non-criminal matters, civil cases.

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Unfair Advantage – Use of arbitration clauses in more and more contracts, corporations can circumvent the courts and quash challenges to elder abuse, discrimination, rape, predatory lending and even wrongful death. Today, it is virtually impossible to rent a car, get a job, borrow money for college or enroll an elderly parent in a nursing home without signing away the right to go to court. The clauses, buried in the fine print of tens of millions of contracts, bar Americans from banding together in a class-action lawsuit, the only realistic way that an individual with limited resources can fight a wealthy corporation. Contracts with arbitration clauses leave limited recourse and usually take the power away from the employee or consumer.  This unfair balance of power is further intensified as the larger entity has larger pockets. The New York Times ran a series of articles in late 2015 and April 2016 on the Arbitration problem in our system. I urge all to read the series for extensive information on the topic.

Element of Surprise – All too often retailers, car dealers in particular, wait until they have a deal before revealing their contract has an arbitration clause.  At that point the consumer just wants their deal and they sign without realizing what ‘binding arbitration’ really means. Consumers generally do not read the details in contracts nor can they truly understand them. They are written by lawyers to protect the entity, not the consumer. Imagine such contracts popping up in your health care provider’s office. Malpractice is a Courtroom matter now. How will people react when they learn that the malpractice will be arbitrated without a Court and Jury by expedient business types. Is that Fair?

Questions on Objectivity - Many of the national arbitration groups actively market their services to companies, casting questions on the alleged objectivity of the arbitrators. The arbitrators are usually from the industries that are the object of disputes. This can be a conflict of interest and a stacked deck that the consumer has no ability to really oppose.  

Lack of transparency - As mentioned in my last article, arbitration hearings are generally held in private rather than in an open courtroom, and decisions are not held up for public scrutiny.  Arbitration cases are rarely reviewed by the courts, so even if you feel the process was biased there is no recourse.

Escalating costs – While arbitration began as a least cost way of resolving disputes, costs are increasing. It can take from $6,000 to $11,000 to file an arbitration case, where a court case can be filed for $250 in N.J. (costs can be thousands of dollars depending upon the case).  If you add in the arbitrator’s fees and administrative costs arbitration is less of a bargain. This way the damaged individual must pay for the process. If a Court case is pursued on a contingency fee the lawyer usually bears the risk of loss, not the client.

What Consumers Can Do

Consumers need to be informed, but there really is little they can do as individuals. Where possible, where a consumer relationship is actually negotiable between balanced parties, be prepared to walk away. But presently in most situations little can be done. Imagine clicking “I do not agree” on your computer terms for hardware or software. Did you read the terms? Did you understand them? Can you walk away? Let’s be honest here, the only real thing you can do is pressure your legislator to vote on any bill that seriously restricts the use of arbitration clauses in all but the most compelling circumstances. Americans say they want to keep their rights as individuals and consumers, then protect the right to “your day in Court” with a jury of your peers”. This only happens with political pressure.