Arbitration Clauses and Waivers over Litigation Costs

Businesses often protect themselves from the high costs of litigation by including arbitration clauses and waivers of the right to a jury trial in their terms and conditions. Do you believe that this trend benefits our country? 

Arbitration Waivers are parts of a contract that hinder an individual from taking the step of filing a lawsuit in a contract. This exemption is applied in different kinds of contracts including the employment contracts. Arbitration has been used in place of traditional litigation since the colonial era. The law legalized the arbitration process to curb the increasing number of disputes in the Industrial Revolution. Many companies advocate arbitration since it is viewed as a faster and cheaper option compared to traditional litigation. However, it has many disadvantages to the economy of the country. While most people view arbitration as an alternative in dispute resolution compared to traditional litigation, I am strongly convinced that it eliminates economic benefits that accompany court system. I support my stand with the arguments discussed below.

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Arbitration waivers dated back in the 17th and 18th centuries in Greek and Roman law. The use of commercial arbitration was enforced by the Convention of the Recognition and Enforcement of Foreign Arbitral Awards 1958. The Congress passed the Federal Arbitration Act in 1925 that provides guidance on the application of arbitration process in the USA. Nevertheless, the Supreme Court has provided a broad interpretation of this Act over the last three decades. This analysis has led to the misuse of this Act where businesses force consumer arbitration instead of being voluntary. The buyer can not negotiate the terms involved in a contract, and he only has take-it-or-leave-it options. In my opinion, the increased implementation of arbitration clauses and waivers fail to benefit the country. Primarily, mediation does not consider the consumer. The businesses practice monopoly by forcing the consumer to take-it-or-leave-it. The consumer is the essential party in the growth of a country’s economy. If the consumer fails to buy goods, the tax is likely to go down; hence the economy of the country is affected negatively. It is very unfortunate that most consumers are engaged in arbitration agreement without their awareness. Some companies take advantage of the consumer’s little or pay no attention to the agreement making pre-dispute arbitration clause nonconsensual.

I consider that arbitration clauses and waivers bring upon imbalance of power. According to Richard Bales, a mandatory arbitration agreement is “a prospective agreement between employer and employee to resolve future employment disputes by binding arbitration” (591). The company as the drafting party tends to use pre-dispute arbitration agreement to have much gain and oppress the consumer. Some of such actions include imposing high costs, selecting the arbitrator and setting up the limitation of remedies. Businesses also have an advantage since they know the best information to offer in winning the petition. Furthermore, the selected arbitrator will tend to rule in their favor. This imbalance makes some consumer shy away from making goods and services agreement with business firms implementing arbitration clauses.

The use of mediation reduces the use of judicial system, especially the court system. My argument for this statement is that both parties solve their problems using an arbitrator and no need to take the case to court unless where necessary. Therefore, court fines and bail bonds fail to apply in these cases. The court system makes a great contribution to the tax collected in a country. Reduction or withdrawal of industrial petitions from the court system can be accompanied by a drastic fall in the tax generated. The time it takes from the commencement of the arbitration to the final awarding of the winning party is not determined. In such cases, arbitration may fail to issue an immediate restraining order. Secondly, the use of arbitration has limited grounds for appeals, hence posing a risk of lack of intellectual meticulousness. Unlike in traditional litigation where decisions can be appealed, arbitrator’s decision can only be appealed in few instances. Such cases are corruption, arbitrator’s failure to follow process laws or in case, the arbitrator exceeds the terms of the agreement between the two conflicting parties. Allison Anderson in his article presents a case of two conflicting parties and the terms of arbitration limited one party from appealing, namely by restricting the use of an unconscionability defense, the Concepcion decision effectively limited parties’ capacity to defend against unfair arbitration agreements (1237).

Most of the arbitration sessions I have ever witnessed are done in private sessions. The hearing in arbitration setting is done in non-public areas such as hotel conferences or law firms as stated by the arbitrator. This privacy is mostly advocated as a way of avoiding embarrassment. This privacy creates room for unfair judgment since the public eye is eliminated. According to a study done by Lisa Bingham only 15% of employers [implemented arbitration agreements] to improve employee relations or give employees a voice (233). Sensitive issues such as corruption and discrimination are hidden for the business to conceal its dirty laundry. In addition, the unjust awards are not open to the public without creating a precedent. In a country where business firms advocate arbitration, justice for the consumers may fail to prevail, and many people may fear to invest.

The application of arbitration as an alternative to traditional litigation experience mixed reactions; some people term it as a confidential and flexible way of solving their differences. In my view, the consequences of using arbitration outshine its benefits. In a case where the consumer feels oppressed, industrialization faces moderate growth rate. Unfortunately, proposals pending approval in the Congress fail to address these shortcomings of arbitration. However, in my opinion, the proposal to ban arbitration clauses should be approved to safeguard the interests of the consumer. The Arbitration Fairness Act (AFA) should allow the plaintiff look for an alternative solution such as judicial reviewing of the award. The consumers should also be educated on the importance of considering the contract terms before reaching an agreement. It is high time the government realizes that arbitration has no benefits for the country and instead continues to widen the gap between the producer and the consumer relationship.


Works Cited

Anderson, Allison. “Labor and Commercial Arbitration: The Court’s Misguided Merger”. BC Int’l & Comp. L. Rev. 36, 2013, p. 1237.

Bales, Richard A. “Compulsory Arbitration of Employment Claims: A Practical Guide to Designing and Implementing Enforceable Agreements.” Baylor L. Rev. 47, 1995, p. 591.

Bingham, Lisa B. “On repeat players, adhesive contracts, and the use of statistics in judicial review of employment arbitration awards.” Mcgeorge L. rev. 29, 1997, p. 233.