Arbitration and Arbitration Clauses

Arbitration is a system of private justice in which parties agree to not go to court to resolve their dispute.  Instead, the parties agree to have a neutral third party – – the arbitrator – – decide who should prevail.

Arbitration is only by agreement.  A party cannot be forced to arbitration.  So before the parties go to arbitration, they must have an arbitration agreement.

Often, parties to agree to arbitrate in a contract.  The contract will include a provision, or clause, in which the parties agree that in the event of a dispute, the parties will resolve the dispute by arbitration.

If the parties agree to resolve a dispute by arbitration to the exclusion of going to court, we say that the arbitration clause is mandatory.

How the Law Treats Arbitration Clauses

Federal law and most states in the United States are very pro-arbitration.  That is, if a party signs an arbitration clause a court is likely to force the party to arbitrate.

In some cases, a court might not enforce an arbitration clause if the arbitration clause was not obvious or did not adequately inform the signatory to the agreement that he was waiving his right to go to court and to arbitrate instead.  In some cases, a court will not enforce an arbitration clause if it is unfair.

But as a general rule, US law favors arbitration.

Controversy Over Mandatory Arbitration Clauses

A number of people have expressed concern over mandatory arbitration clauses.

  • A person that agrees to arbitrate will not be able to publicly call attention to her case because arbitration is private.  Furthermore, the public will be unable to learn about a company that engaged in improper activity.
  • Arbitration takes away a person’s power to bring a class action.
  • In an arbitration, there is no jury.
  • There is also concern  that where a business that provides services or products to consumers regularly uses  an arbitration company, the company will be biased in favor of the company and against consumers.  Consumers  will be less likely to prevail in an arbitration against the company and would probably have had a better outcome in court.

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