More companies include “arbitration clauses” in their customer user contracts and agreements as a way to quickly and calmly settle conflicts. Arbitration clauses permit a business to bypass the formal court system, which many companies feel is more costly and time-consuming.
Business Use of Arbitration Clauses
- What Kinds of Businesses Use Arbitration Clauses?
- Will An Arbitration Clause Deter Me from Entering a Class Action Lawsuit?
- Are Arbitration Clauses Harmful to Clients?
- Can I Petition a Decision?
- Are There Any Circumstances Where a Court Declined to Implement an Arbitration Clause?
- Class Action Waiver
- Do I Need an Attorney for My Arbitration Conflict?
What Kinds of Businesses Use Arbitration Clauses?
Numerous types of businesses use arbitration clauses. Yet, it is prevalent in the following industries:
- Credit card
- Mobile phone services
Arbitration clauses are usually seen deep within a customer user contract or agreement. The section will be labeled “binding arbitration,” “arbitration clause,” or “alternative dispute resolution.” If you don’t have a replica of your user agreement or contract, reach the company and order a copy.
Will An Arbitration Clause Deter Me from Entering a Class Action Lawsuit?
An arbitration clause will normally ban an individual from entering a class-action lawsuit against a company. This means that if a consumer asserts a loss of a few hundred bucks, they can only sue for that lost cash and not enter a class-action lawsuit with likewise impacted customers. With somewhat little cash at stake, it is usually hard for a customer to find an attorney ready to take the case.
In recent years, some parties have put together class action arbitrations. Arbitrators treat class action the same as other arbitrations. Yet, many companies have opposed this tactic by enacting arbitration clauses that limit arbitration to individual cases. In 2011, the Supreme Court supported arbitration clauses to ban class actions in arbitration.
Are Arbitration Clauses Harmful to Clients?
Arbitration clauses are typically deemed harmful for consumers because they restrict them from filing a lawsuit in court. Rather, the customer must assert their conflicts before an arbitrator. Arbitrations are more relaxed proceedings and have separate regulations than courts of law.
For instance, many arbitrations disregard rules of evidence normally used in a courtroom. Another illustration is that some arbitration agreements make religious law the rules that govern the case rather than secular law. Most of these notable changes have been upheld by courts. In addition, consumers frequently will not seek aid from an attorney who could thoroughly advise them of their rights.
Companies tend to be much more skilled and experienced in arbitration arguments than an individual customer, particularly if the consumer has not consulted a lawyer. Nonetheless, many individuals find arbitration a much less threatening experience than going to court because fewer formalities exist.
Can I Petition a Decision?
In particular circumstances, an arbitrator’s award can be petitioned and taken to court. This is most typical if the parties’ contract is non-binding. Some arbitration agreements allow for a limited appeals procedure, but even if the appeals prevail, the parties will only obtain a new arbitration hearing rather than going to court.
Nevertheless, the arbitration is binding in most cases and may not be petitioned or taken to court.
Are There Any Circumstances Where a Court Declined to Implement an Arbitration Clause?
There are some circumstances where a court could declare an arbitration clause invalid. Judges may decline to enforce an arbitration clause if the arbitration looks wholly one-sided and unjust.
If the arbitration features most of these characteristics, then the arbitration clause could be stricken from the agreement:
- The arbitrator is not impartial – If the arbitrator clause authorizes the company to pick arbitrators who would be nonobjective, like the company’s leadership or executive workers, then the arbitrator’s neutrality will be in doubt.
- The customer is forced to pay high costs – If the consumer is forced to pay most of the costs, then the customer might not even be able to use arbitration.
- The clause does not need a written award or opinion – courts must implement an arbitration award or decision to be actually binding. It is challenging to implement a decision that is not written down.
- The clause does not allow for minimal discovery – When parties go to court, they often spend months, if not years, collecting proof and resolving what happened in the claim. If customers cannot gather proof, they have little prospect of winning arbitration.
- The clause does not supply relief that would be available in court – Winning a case doesn’t mean much if you can’t gather a judgment at the end of the hearing.
Class Action Waiver
A class action is a procedural conveyance used by a group of individuals to sue another party. A class action lets the plaintiffs aggregate their small-dollar lawsuits so that, collectively, the claims represent a more significant potential recovery. When aggregated, the lawsuit becomes a much more fruitful effort for a plaintiff’s lawyer to take (and represent the plaintiffs) on a contingency basis.
A buyer who was illegally overcharged $50 on his cell phone will usually not be able to find a lawyer to represent him because the lawyer’s reasonable contingency fee (one-third of the $50 recovery, or $16.50) does not denote a sufficient motivation to take the case. It does not make financial sense to pay an attorney thousands of dollars to recover $50. Nor does it make sense for the plaintiff to pursue the claim on its own.
Although a class action conveys a benefit for plaintiffs, it creates significant risks for a company. Instead of facing an individual consumer with a $50 claim, a company might be looking at 50,000 customers with $2.5 million in claims and an expensive suit to defend. Companies can bypass this risk by instructing their customers to enter into arbitration agreements that waive the ability of those customers to seek a class action.
So, in the illustration overhead, if that customer with a $50 claim had been restrained by an arbitration agreement that waived class actions, he would not be able to collaborate with other similarly-situated customers. Instead, he would be confined to seeking his $50 claim separately and in arbitration (which is less expensive for the company). Instead of encountering a multi-million-dollar class-action suit in the civil court system, a company can now handle a small-dollar claim in arbitration that may not be chased as energetically and will probably be amenable to compromise.
Unjust for customers? Not actually. A customer’s substantive privileges are not impacted: he can still seek his $50 claim. He can’t do it on a class-wide basis. An arbitration agreement is a proper agreement that the client agreed to join. Suppose he doesn’t enjoy the possibility of waiving the right to seek a class action. In that case, he doesn’t have to purchase the company’s product or service and, therefore, enter into the arbitration contract in the first place. An arbitration agreement might even allow a consumer to opt out of it in some cases. Customers are just as responsible as companies to be aware of what they agree to and limit their risks.
Do I Need an Attorney for My Arbitration Conflict?
It is very likely that a business will be represented by a contract attorney at the arbitration. While an attorney doesn’t need to be present at the arbitration, it may be helpful for you also to 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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