Mandatory Arbitration Agreements

This is an informative investigative report on how mandatory agreements have become more ubiquitous within the American legal system and have prevented the exercise of the Seventh Amendment right to a trial by jury of peers for civil matters.

Increasingly, employers and businesses are requiring these agreements from other parties, thereby shielding them from lawsuits and forcing disputes into arbitration, which typically occurs behind closed doors and shrouded in secrecy. Moreover, the decisions from arbitration are binding and almost impossible to overturn. Unlike in court cases, an arbitrator — or person designated to decide the outcome of a case in an arbitration — does not have to follow the law as guidance, and can decide on a case according to bias.

Arbitration as a form of dispute resolution gained traction in the 1991 Supreme Court case of Gilmer v. Interstate/Johnson Lane, 500 U.S. 20 (1991), in which the court held that a statutory right among employees, in this case the Age Discrimination in Employment Act, could be compelled to arbitration based on a contract agreed to before the dispute. In 2012, the Supreme Court gave these agreements a firmer ground by ruling in AT&T v. Concepcion, 489 U.S. 468 (2012) by ruling that such agreements could include a class-action waiver, compelling cases to be resolved individually whether through arbitration or litigation.

Those in favor of arbitration are quick to point out some of the positive factors, such as the faster time to resolution, the easing of court caseloads, and the informality of the process allowing for evidence that may not be allowed in a lawsuit. On the other hand, some academic studies have pointed to lower rates of success among plaintiffs in arbitration, suggesting that the process may favor employers and businesses, especially those who are “repeat players” in the process, thereby giving them an advantage against their opponents who are less likely to have experience with the process.

Concerns have also been raised about employers and businesses learning over time which arbitrators are more likely to give them a favorable decision, enabling them to game the system in their favor. Similarly, concerns have been raised about arbitrators, consciously or unconsciously, favoring employers and businesses in order to increase their chances of being selected for future cases, given that they make a considerable amount of money when selected to arbitrate a case.

Critics of mandatory arbitration also have expressed concerns about the possibility of corrupt employers and businesses using these agreements to shield them from accountability. Because mandatory arbitration may be more costly for plaintiffs and with rates of success for plaintiffs that are lower according to some studies, individuals who otherwise would be willing to file a lawsuit may decide to avoid proceeding legally against employers and businesses with such provisions. Of those cases that proceed in arbitration, the confidential nature of these proceedings means that unlawful or unethical conduct is not brought to light, thereby encouraging it to continue.

Given the controversies that surround mandatory arbitration agreements, despite the legal victories in support of their use, legal challenges and vociferous opposition are likely to continue due to the widespread perception that these agreements hinder rather than promote justice and transparency. Though court decisions have encouraged the expansion of these controversial agreements, the issue is far from settled.