Mandatory Arbitration Clauses

Contracts often include arbitration clauses. Arbitration is a method of alternative dispute resolution that is less formal than a trial. It usually provides a resolution much more quickly than traditional litigation.

Arbitration clauses require submission of a dispute to arbitration in place of filing a lawsuit. The arbitrator's decision is final and binding on the parties. Some legal commentators claim that mandatory arbitration clauses undermine consumer rights. This article discusses the potential impact of mandatory arbitration clauses on consumers.

Waiver of Right to Jury Trial

By signing a contract which includes a mandatory arbitration clause, the consumer gives up his or her right to access the court system and request a jury trial.

Costly Fees

Some mandatory arbitration clauses require the disputing party (generally the consumer) to pay a filing fee which can be substantial to begin the arbitration process. Although filing fees may range into the hundreds of dollars, a waiver of the fee may be provided for based on ability to pay the fee. The consumer may also be required by the contract clause to pay the arbitrator's fee, which amount to several hundred dollars per hour.

Limited Discovery

Only limited discovery is permitted in arbitration proceedings. Discovery is the pre-hearing process that parties use to learn more about the facts of the case and the other party's evidence.

Class Actions Are Not Permitted

Most arbitration clauses provide that the consumer may not participate in a class action lawsuit regarding the claim being arbitrated. A class action is a lawsuit brought by one or more individuals who sue for themselves and on behalf of other individuals (class members) who have a similar claim. Class actions are an effective tool in dealing with a problem that is common to many individuals. The individual claims are usually small; most individuals do not pursue their claims because doing so is too expensive. However, by combining the individuals' small claims into one lawsuit, the cost of litigation related to any particular claim is reduced.

Only the Consumer Is Required to Arbitrate Claims

Some arbitration clauses require the consumer to arbitrate his or her claim against the company but allow the company to file suit in court for its claims.

Limited Judicial Review

The law allows limited judicial review of an arbitration award. The arbitrator's decision can be set aside only for fraud or manifest disregard of the law. Since it is very difficult to show fraud or manifest disregard of the law, most arbitration awards are not overturned.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

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