In our justice system there are multiple paths for resolving disputes. Most often, people associate our system with a court of law – where one party files a lawsuit against another party and then two sides then duke it out in court.
While that method of dispute resolution is certainly often used, it is not the only way to resolve an issue between two parties. For example, some disputes may be submitted to an administrative agency for investigation and possible enforcement action. Others might be resolved through informal settlement negotiations.
One common form of dispute resolution that is perhaps less well-known to people outside the legal industry is arbitration. Arbitration is a formal dispute resolution process (although less formal than court) that is often used to settle disputes involving business entities. Arbitration is not a new form of dispute resolution. Indeed, it is a means by which people and businesses have settled their disputes since the 18th Century.
In 1925, Congress passed what is known as the Federal Arbitration Act (FAA). The FAA was a congressional response to judicial hostility toward agreements, usually between businesses, requiring the parties to the agreement to submit any issue arising out of the contract to arbitration. Such agreements, argued the judiciary, stripped courts of their power to preside over such issues. As agreements to arbitrate became more prevalent, however, parties’ to contracts containing arbitration clauses became more upset with courts that would strike arbitration clauses from mutually agreed-upon contracts and forcefully submit issues arising out of these contracts to formal litigation. The FAA was passed to specifically enforce the agreements that parties had made to arbitrate, rather than litigate, disagreements and to stop the court from thwarting those agreements. David Horton, Federal Arbitration Act Preemption, Purposivism, and State Public Policy, Georgetown Law Journal, Vol. 101, 1226-27 (2015).
In recent years, arbitration clauses in contracts have flourished. If you have a cell phone provider, have ever ordered anything from Amazon, or have opened a credit card, it is likely you have agreed to submit any issues arising out of the transaction to arbitration. These agreements also usually provide that any decision made in arbitration will be “binding,” meaning final. Thus, these agreements require you to arbitrate your disputes with the cell phone provider, internet servicer, or bank and, under these provisions, you may not sue in a court of law.
Arbitration has its benefits. For example, it is usually a faster process than filing a lawsuit and it can sometimes be less expensive.
But there are also potential downfalls. Arbitrators have no obligation to follow the law and arbitrators’ decisions can be impossible to review. See Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (“the sole question [on review] is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong … convincing a court of an arbitrator’s error—even his grave error—is not enough … a court may not correct [the arbitrator’s] mistakes”).
Further, arbitration proceedings are hosted by private companies and arbitrators are employees or contractors of these private companies, meaning that the arbitrators are not bound by the same ethical standards as a judge and do not need to impose the law used in courts to decide the cases before them.
Courts are largely unable to review arbitrators’ decisions. That's happened in cases where a consumer has purchased a defective product and in other cases where banks took too many fees out of a consumer’s bank account. And, arbitration agreements can extend to even more serious disputes—such as unlawful discrimination and wrongful death. Jessica Silver-Greenberg and Robert Gebeloff, Beware the Fine Print: Part I, II, and III, New York Times.
A recent series in the New York Times addresses the rise of arbitration clauses in contracts and includes anecdotes as examples of just how powerful arbitration clauses can be. One example told the story of a young man criminally charged with a drug crime that agreed to participate in a private rehabilitation program rather than go to jail. The court ordered the young man to the rehabilitation center as part of his plea agreement. In order to receive treatment in the rehabilitation center, however, the young man had to agree to submit all of his issues with the center to arbitration. However, the arbitration forum that the rehabilitation center chose was Peacemaker Ministries, a private company that hosts arbitrations according to the laws, not of the United States, but of the “Holy Scripture”—i.e. according to Biblical law.
The young man in the story killed himself. His family and friends suspected his suicide had something to do with the rehabilitation center’s treatment, so they sued the rehabilitation center. The court ordered the case be heard in an arbitration proceeding conducted by Peacemaker Ministries, as specified in the contract. The arbitrator, applying Biblical law, decided that the rehabilitation center had done nothing wrong.
In some cases, employees are bound to arbitrate disputes with employers, eliminating opportunities for discrimination or sexual harassment cases to be heard in a court of law.
While the examples in the New York Times series are extreme, they may serve as cautionary tales to consumers when clicking on those “Agree to the Terms and Conditions” buttons.
However, in some instances arbitration can serve as a more favorable forum than traditional litigation. If you find yourself in a dispute with another party with whom you have a contract with an arbitration clause, you will want to make sure you hire an attorney that has experience with arbitration proceedings.
To learn more about arbitration, and to read the New York Times series, follow these links:
Leahy and Franken Call for Change after NYT Series on Arbitration
NOLO, Arbitration Basics
American Bar Association, Section of Dispute Resolution: Arbitration Committee
American Arbitration Association
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Joshua Newville is a Minnesota employment lawyer, civil rights attorney, and mediator. Josh litigates and advises on such matters as wrongful termination, whistleblowers, discrimination, police misconduct, and more. He offers paid legal consultations and free online case reviews regarding employment law and civil rights.