Mandatory Arbitration: Giving Up Your Right to Court

What Is Mandatory Arbitration?

A mandatory arbitration clause requires the parties to resolve disputes through private arbitration instead of filing a lawsuit in court. Both parties waive their right to a jury trial and agree to have their dispute decided by one or more arbitrators, whose decision is typically final and binding.

Mandatory arbitration clauses are ubiquitous in consumer contracts, employment agreements, financial services agreements, and commercial contracts.

How Arbitration Differs from Court

• No jury — An arbitrator (or panel) decides the case, not a jury
• Limited discovery — Less pretrial information exchange than in litigation
• Limited appeal rights — Arbitration awards are very difficult to overturn (Federal Arbitration Act, 9 U.S.C. Section 10 lists narrow grounds)
• Private proceedings — No public record, unlike court cases
• Flexible rules — Parties can choose the arbitration rules and procedures
• Potentially faster — Arbitration often resolves faster than court litigation

What You Give Up

• The right to a jury trial
• Broad discovery rights available in litigation
• Meaningful appellate review of the decision
• Public proceedings and records
• Potentially, the right to bring or join a class action (if a class action waiver is included)

Key Terms to Review

• Arbitration organization — AAA, JAMS, and NAM are common; each has different rules and fee schedules
• Who pays — Arbitration can be expensive; consumer and employment agreements may require the company to cover most costs
• Number of arbitrators — One arbitrator is cheaper; three may provide better fact-finding for complex disputes
• Location — Where the arbitration takes place can affect convenience and cost
• Governing rules — Which set of arbitration rules applies

Enforceability Considerations

The Federal Arbitration Act creates a strong federal policy favoring arbitration. However, courts may refuse to enforce arbitration clauses that are:

• Unconscionable — Extremely one-sided terms combined with unequal bargaining power
• Buried in fine print — Though this alone rarely invalidates the clause
• Prohibitively expensive — Imposing costs that effectively prevent a party from pursuing their claims

When to Consult a Lawyer

Before agreeing to mandatory arbitration, consider consulting an attorney about the practical implications, especially regarding costs, limited appeal rights, and class action waivers.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.