There is a disturbing trend that has taken place over the last 10-20 years: the use of forced arbitration to settle disputes between businesses and consumers, commonly referred to as Arbitration Clauses or Arbitration Agreements. In effect, arbitration clauses can prevent consumers from pursuing legal claims in court and force them to use private arbitration providers, such as the American Arbitration Association (AAA) or JAMS (formerly known as Judicial Arbitration and Mediation Services). Organizations such as these provide an Alternative Dispute Resolution forum that theoretically enables consumers to resolve their disputes with businesses in a more efficient and less costly manner than a lawsuit in court. Unfortunately, many of the safeguards provided by the Court system disappear in arbitration.
For example, within the Court system, litigants have the right to appeal decisions to a higher court level, all the way to a state or the U.S. Supreme Court. In arbitration, the arbitrator’s decision is usually final, unless there is egregious misconduct by the arbitrator. Although arbitrators are supposed to follow the law just as judges do, arbitrators may not leave a written record of how they came to their decisions or arrived at the amount of their award. Court records are open to the public, which serves an important public policy of transparency for the legal process. Private arbitration forums are, well, private. Arbitration clauses typically prohibit class actions against offending businesses, which removes one tool for consumers to obtain justice.
Perhaps most important is the actual or perceived risk of bias by the arbitrator. An arbitrator’s fee is usually paid by the business, which may repeatedly use the arbitration forum. Consumers may have one or two disputes decided by arbitration over the course of their lives. Arbitrators who consistently rule in favor of consumers run the risk of being rejected by the businesses that pay the arbitrators’ fees. Hopefully, the vast majority of arbitrators maintain their neutrality and fairness. Nevertheless, the mere fact that the business pays their fees can create the perception of bias.