Forced arbitration clauses have become increasingly common in commercial contracts over the past few decades. These clauses affect all aspects of commerce and how corporations can be held accountable for transgressions and unlawful behaviors.

Are they good for consumers or just for the corporations?

Forced arbitration clauses require consumers to settle disputes with companies through private arbitration rather than the court system. That means disputes are decided by private arbitrators instead of judges and juries. While businesses tout the benefits of arbitration, consumer advocates argue that these clauses unfairly strip away consumer rights — specifically, the right to sue in court.

The simple fact that so many large companies such as telecommunication companies, large employers, transportation services, hospitality providers, banks, credit card companies, and other financial institutions insist on mandatory arbitration, thus avoiding courts, judges and juries, speaks to the advantages they perceive in doing so.

Forced arbitration tends to favor businesses in a few noteworthy ways. First, it is generally less expensive. The process is streamlined, with limited discovery and expedited hearings. Second, many arbitration clauses prohibit class actions and punitive damages, protecting companies from large-scale lawsuits and big awards in the face of even egregious conduct. Third, unlike public court proceedings, arbitration is conducted privately, shielding businesses from negative publicity. Fourth, arbitrators may be less prone to sympathy and/or hold views more aligned with that of a business owner or corporation, and thus may be more likely to issue a more favorable decision than a jury. Finally, arbitration decisions are typically binding with very limited grounds for appeal, providing businesses more certainty and less risk of protracted litigation.

Forced arbitration, particularly on such a large scale, also has the corollary effect of stifling progress through precedent. In other words, many of the most important rights and protections we have come to enjoy as citizens have come from individuals bringing lawsuits resulting in important court rulings and verdicts. Since arbitrated decisions are confidential and do not set transparent legal precedent, these decisions inherently limit the development of consumer protection laws.

If you have the option of opting out of a forced arbitration clause, you ought to consider that option. This could preserve important rights in the event of future litigation. What is more, if a dispute arises, parties can always agree to use arbitration as a means of resolving a dispute.

Some contracts give you the right to opt out of forced arbitration within a certain period of time, typically 30 to 60 days, by notifying the company that you wish to opt-out. Check your contract for the deadline and for specific instructions for opting out.

While businesses argue that arbitration provides a faster, more efficient way to resolve disputes, that doesn’t tell the whole story. Judges and juries are essential to maintaining legal order, proper enforcement of the law and unfettered accountability for transgressions. As forced arbitration clauses continue to proliferate, the debate over their fairness and impact on consumer rights is likely to intensify, and for good reason.

Attorney John M. Parese is a partner at the New Haven-based firm of Buckley Wynne & Parese. He can be reached at 203-776-2278 or [email protected].

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