Arbitration Fairness Act: The 2013 Version

Massachusetts ArbitrationAnthropologists tell us that laws and dispute resolution procedures work only if people believe in their underpinnings.  Otherwise, forcing people into them actually undermines the system.  They give the example of trial by ordeal, a system based on the belief that God would decide the outcome based on whose hand healed faster after grasping burning coals.  As the beliefs that supported self-injury faded, it evolved to trial by battles of champions in the name of the Almighty – protect the disputants and pray that your guy wins – which over time became verbal sparring between lawyers. Today, most people in the West would see divinely sanctioned mutual maiming as barbaric and disconnected from any sense of fairness.

Some people believe that forcing consumers into arbitration undermines belief in the fundamental fairness of the entire judicial system. These people perceive the system as favoring large users, like businesses, over individuals. In response, the Arbitration Fairness Act was recently re-introduced in both the House and Senate (H.R. 1844 and S. 878), where it had previously been introduced without success in 2007, 2009 and 2011. It is based on the following (Sec. 2):

  1. The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the United States Code) was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power.
  2. A series of decisions by the Supreme Court of the United States have interpreted the Act so that it now extends to consumer disputes and employment disputes, contrary to the intent of Congress.
  3. Most consumers and employees have little or no meaningful choice whether to submit their claims to arbitration. Often, consumers and employees are not even aware that they have given up their rights.
  4. Mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review of arbitrators’ decisions.
  5. Arbitration can be an acceptable alternative when consent to the arbitration is truly voluntary, and occurs after the dispute arises.

The bill goes on to reject so-called “pre-dispute arbitration clauses” (which are included before a dispute arises) in contracts between businesses and consumers as well as between employers and employees.  While in many cases an arbitrator determines whether a case is arbitrable, in consumer or employee matters a court would have to make that determination.

One of the main arguments against the Act is that it would increase the number of cases filed and overburden the courts.  In other words, consumers should not have the benefit of the laws we have evolved because it is too expensive.  However, businesses should be able to use contract law to compel this result.  It is, indeed, an uncomfortable juxtaposition.

On the other hand, many quote a belief expressed eloquently in a Better Business Bureau white paper (Protecting Consumers in Cross-Border Transactions, 2000):

“Our experience in North America is that consumers do not utilize their rights to judicial redress for most problems they encounter in the marketplace.  There are many reasons for this: the high cost of litigation; the inaccessibility of attorneys; the frequent small dollar value to high emotional and convenience value disputes; varying education levels; fear; and the weakness of their strictly ‘legal’ positions and remedies compared to the perceived harms or inconveniences suffered.”

Arbitration can come out with results that seem unfair, but then again so can the court system. Despite the potential for unfairness, consumer arbitration often works well, particularly if the arbitrator is required to explain to the losing party why his decision is not arbitrary.  Rather than precluding systems that actually work in the name of making them fairer, perhaps the conversation about the Arbitration Fairness Act should start with a dialog about the best means to accomplish fairness in resolution.