Business Use of Arbitration Clauses

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Most Common Business Law Issues:

Why Do Businesses Use Arbitration Clauses?

More businesses are including "arbitration clauses" in their consumer user agreements and contracts as a way to quickly and quietly resolve disputes. Arbitration clauses allow business to avoid the formal Court system, which many businesses feel is more expensive and time consuming.  

What Type of Businesses Use Arbitration Clauses?

Many types of business use arbitration clauses. However, it is very common in the following industries:

Arbitration clauses are usually found deep within a consumer user agreement or contract. The section will be labeled "binding arbitration", "arbitration clause", or "alternative dispute resolution". If you don't have a copy of your user agreement or contract, contact the business directly and request a copy.

Will an Arbitration Clause Prevent Me from Joining a Class Action Lawsuit?

An arbitration clause will generally prohibit an individual from joining a class action lawsuit against a business. This means that if a consumer claims a loss of a few hundred dollars, they can only sue for that lost money, and not join a class action lawsuit with similarly effected consumers. With relatively little money at stake, it is often difficult for a consumer to find an attorney willing to take the case.

In recent years, some parties have put together class action arbitrations. Arbitrators treat class action the same as other arbitrations. However, many businesses have countered this tactic by enacting arbitration clauses which restrict arbitration to individual cases. In 2011, the Supreme Court upheld the use of arbitration clauses to ban class actions in arbitration.

Are Arbitration Clauses Bad for Consumers?

Arbitration clauses are generally considered bad for consumers because they prohibit a consumer from filing a lawsuit in court. Instead, the consumer must argue their disputes before a neutral arbitrator. Arbitrations are more informal proceedings, and many times consumers will not seek help from an attorney, who could fully inform them of their rights.

Businesses tend to be much more capable and experienced in arbitration disputes than an individual consumer, especially if the consumer has not consulted a lawyer. However, many people find arbitration to be a much less frightening experience than going to court because there are fewer formalities.

Can I Appeal a Decision?

In certain situations the award of an arbitrator can be appealed and taken to Court. This is most common if the parties agreement is non-binding. Some arbitration agreements allow for a limited appeals process, but even if the appeals succeed, the parties will only receive a new arbitration hearing rather than going to court.

However, in most circumstances the arbitration is binding and may not be appealed or taken to Court.

Are There Any Cases Where a Court Refused to Enforce an Arbitration Clause?

There are some cases where an arbitration clause could be held invalid by a court. Judges may refuse to enforce an arbitration clause if the arbitration looks completely one-sided and unfair. If the arbitration features most of these factors, then the arbitration clause could be stricken from the contract:

Do I Need an Attorney for My Arbitration Dispute?

It is very likely that a business will be represented by a business attorney at the arbitration. While it is not necessary for an attorney to be present at the arbitration, it may be helpful for you to also have an attorney representing your interests. At the very least it is wise to consult a lawyer for advice about what to expect at an arbitration proceeding.

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Last Modified: 09-19-2014 01:50 PM PDT

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