What is Arbitration?

Arbitration is an alternative method of resolving legal disputes in which two parties present their individual sides of a complaint to an arbitrator or panel of arbitrators. The arbitrator decides the rules, weighs the facts and arguments of both parties, and then decides the dispute. Arbitration may be voluntary or mandatory.

What is voluntary arbitration?

In voluntary arbitration, both sides in the dispute voluntarily agree to submit their disagreement to arbitration after it arises, and they have an opportunity to investigate their best options for resolving their claim.

What is forced arbitration?

In forced arbitration, a company requires a consumer or employee to submit any dispute that may arise to binding arbitration as a condition of employment or buying a product or service. The employee or consumer is required to waive their right to sue, to participate in a class action lawsuit, or to appeal. Forced arbitration is mandatory, the arbitrator’s decision is binding, and the results are not public.

Where is forced arbitration commonly used?

Forced arbitration is being written into more and more terms of agreement and contracts, including those used for employment, insurance, home-building, car loans and leases, credit cards, retirement accounts, investment accounts, and nursing facilities, to name a few.

Are these clauses easy to find in the paperwork?

Generally not. Most Americans have never noticed this clause in the fine print of terms of agreement or contracts. Moreover, companies may call the condition “binding mandatory arbitration,” “arbitration,” “mandatory arbitration” or even call it a “dispute resolution mechanism.”

What's wrong with arbitration?

Nothing, if its “voluntary” arbitration. In fact, you always have the right to arbitrate. But you never want to give away the right to sue if arbitration does not work. Companies want you to give away that right because they have advantage in arbitration and can evade accountability.

Do companies use forced arbitration in their own disputes with other companies?

No, most refuse to use forced arbitration in their dealings with other businesses. As a matter of fact, car dealers were so afraid of forced arbitration for their disagreements with manufacturers that they spent millions lobbying Congress to pass a federal law that prohibits automobile manufacturers from requiring forced arbitration in disputes related to dealership franchise contracts. The law passed in 2002.

Is arbitration cheaper?

One of the alleged benefits of arbitration is that it costs less than litigation, but frequently this is not true for consumers and employees. Forced arbitration frequently costs more than taking a case to court and can cost thousands of dollars. Individuals often have to pay a large fee simply to initiate the arbitration process. If they are able to get an in-person hearing, individuals sometimes have to travel thousands of miles on their own dime to attend the arbitration. In the end, the loser (usually the individual) often pays the company’s legal fees.

Why do so many consumers and employment and civil rights groups oppose forced arbitration?

Forced arbitration is preferred by companies because it benefits companies, not the employee or consumer. Here are problems and dangers noted by consumer advocates:

  • Individuals are often unaware they've agreed to forced arbitration. Most Americans have accepted good or services or a job with forced arbitration as a condition; and yet, very few individuals report having noticed a forced arbitration clause in the terms of agreements or contracts they’ve accepted.
  • Forced arbitration severely limits consumer options for resolving a dispute. Before any problem arises, you lock yourself into only one option—forced arbitration—for resolving all future disputes or problems. The contract typically also names the arbitration company that must be used: the one preferred by the company.
  • Forced arbitration clauses generally bind the consumer—not the company. The way many forced arbitration clauses are written, the seller retains its rights to take any complaint to court while the consumer can only initiate arbitration.
  • Arbitration is a private system without a judge, jury, or a right to an appeal. Arbitrators aren't required to take the law and legal precedent into account in making their decisions. There is no appeal or public review of decisions to ensure the arbitrator got it right.
  • Employees cannot sue for discrimination, harassment, abuse, retaliation, or wrongful termination. In forced arbitration, the laws that protect us from discrimination based on age, sex, religion, race, disability, and unequal pay for equal work, such as the Civil Rights Act and the Equal Pay Act, become meaningless and unenforceable in court. Employees lose important protections for blowing the whistle on waste or fraud or for fighting retaliation for taking family medical leave.
  • Consumers cannot sue for negligence, defective products, or scams. Just by buying a product or service, consumers can lose their right to hold a company accountable. Even if a retirement account disappears, a home is dangerous and defective, or a loved one suffers harm in a nursing home, a forced arbitration clause means there is no right to take the company responsible to court.

Are there companies that don't require forced arbitration?

Yes, there are still some businesses that don’t require forced arbitration. These are usually the companies with the fewest consumer complaints. Unfortunately, forced arbitration is becoming so widespread that in many industries that it is not possible to shop around for a product or service that doesn’t require forced arbitration. Today it is increasingly difficult to find insurance, a credit card, cell phone, a brokerage for a retirement account, or a nursing home, for example, where forced arbitration isn’t required.

What can I do about the problem?

Try to find an alternative. If possible, try to negotiate this term of the contract. But ultimately, in order to ensure that you can buy products and services and be employed without giving up your legal rights, legislation must be passed to ban forced arbitration. You can find out more about how to support passage of this legislation at www.FairArbitrationNow.org.


Contacting an Attorney

Search our Find An Attorney directory to find a NACA attorney who can assist you in fighting arbitration in your area.


NACA does not provide legal services or advice. The information on www.consumeradvocates.org is for informational purposes only and is not legal advice or a substitute for legal counsel. The information contained on www.consumeradvocates.org may or may not reflect the most current legal developments.

NACA provides links to attorneys, organizations, and governmental entities that promote justice for consumers and are involved in curbing abusive and predatory business practices. We do not intend such links to be referrals or endorsements of the linked entities.

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