Mandatory arbitration clauses in consumer contracts require consumers to agree to accept the ruling of a third party rather than taking a case to court if there is an issue with a product or service. It's an alternative approach to resolving a dispute, and an unbiased third party listens to those involved and makes a binding decision about the issue. Arbitration is popular because it saves time when compared to lawsuits.

Some of arbitration's benefits include:

  • Arbitration reduces the time involved in receiving a decision instead of keeping things tied up in court proceedings indefinitely.
  • Arbitration can be less costly than a court hearing because discovery and depositions are not required for arbitration.
  • Arbitration gives each party more control over the proceedings than they would have with the formality of court proceedings.
  • It may be possible to select an arbitrator who has experience in the specific field involved.
  • Arbitration typically doesn't require the parties involved to hire a lawyer, so both sides save money.

Disadvantages of Arbitration

When agreeing to a mandatory arbitration clause, it's important to know what you may be giving up. Some disadvantages of arbitration are:

  • The absence of formal evidence and fact discovery means no testimony is taken from witnesses, which might otherwise strengthen a case for a court hearing.
  • The decision in an arbitration case is binding, so you can't appeal if you feel the decision is incorrect or unfair.
  • When companies put mandatory arbitration clauses in contracts, such as consumer or employment contracts, those contracts typically tend to favor the interests of the company over the employee or consumer.

These clauses asking consumers and employees to agree to arbitration have been growing in popularity with companies for the past few years.

Agreeing to Arbitration Without Realizing It

Mandatory arbitration clauses have become a common addition to user contracts for online companies recently. Sometimes consumers aren't even aware of agreeing to these clauses, especially with online companies, because the mandatory arbitration clauses are often hidden in fine print or have to be quickly accepted via a popup screen when initiating a website's service. Some other places these clauses turn up include agreements signed at the doctor's office, bank documents, and employment agreements that must be signed in order to work for a business.

Consumer Response to Mandatory Arbitration Clauses

While courts have supported the rights of companies to put mandatory arbitration clauses in contracts, consumers have started pushing back against some one-sided mandatory arbitration clauses. For example, Starbucks gift card buyers pushed the company to take out the forced arbitration clause printed on gift cards. General Mills also received flack from customers over a mandatory arbitration clause that squeezed the rights of customers who entered their online sweepstakes or downloaded coupons from their website. As recently as May 2018, the Supreme Court decided companies can add arbitration clauses that block employees from suing employers over employment issues.

Concerns Over Mandatory Arbitration Clauses in Consumer Contracts

A number of concerns exist over the issue of forced arbitration clauses in consumer contracts, such as:

  • Consumers have no actual choice in this type of forced agreement, and this conflicts with the purpose of the original arbitration which both parties agreed to accept.
  • Agreeing to a mandatory arbitration clause takes away a consumer's right to sue, participate in class action suits, and appealing the arbitrator's decision isn't even an option.
  • Consumers don't always know when they have accepted an arbitration clause because the clauses are not openly expressed in some situation.
  • Arbitrators aren't necessarily unbiased, though they are supposed to be, because they work for the companies that hire them.
  • Consumers get no say in where and when the arbitration session is held.
  • While the consumer's rights are taken away by the mandatory arbitration clause, the companies that use these clauses can sue the customers if the correct phrasing is used.
  • If a consumer wants a lawyer's representation, smaller potential awards mean the consumer pays by the hour rather than by putting the lawyer on retainer.
  • Damages awarded to consumers are typically lower than the court awards in lawsuits.

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