Mandatory Arbitration Research

Legislation best hope for stopping trends, professors say
Monday, January 4, 2016

Many workers and consumers have lost access to the courts to protect their legal rights in recent decades, thanks to the U.S. Supreme Court, according to research by ILR Professor Alexander Colvin.

A fundamental shift in the civil justice system enables corporations to force customers and employees into arbitration to settle alleged violations of state and federal laws, he writes in “The arbitration epidemic” report.

Published by the Economic Policy Institute in December, it summarizes research Colvin has done since 1997 on the shift.

ILR’s Martin F. Scheinman Professor of Conflict Resolution, Colvin wrote the report with Katherine V.W. Stone of the UCLA School of Law and former member of the ILR and Cornell Law School faculties.

Arbitration provides a faster, simpler and private alternative to having cases decided in the courts. Parties in a dispute present their sides in a hearing and an award is determined by an arbitrator, an impartial third party.

The arbitrator's decision is final and binding with limited grounds for review. When parties agree to arbitration of their dispute, they can no longer go to court.

Arbitration has a long history of successful use where it is jointly negotiated by unions and management in collective bargaining or by businesses seeking to resolve commercial disputes, Colvin said.

What has changed is that businesses can now require individual workers or consumers to agree to mandatory arbitration procedures as a condition of purchasing a good or service or getting a job.

These mandatory arbitration agreements cover the full range of legal rights including protections against consumer fraud, unsafe products, employment discrimination and other corporate wrongdoings.

Consumers often accept them in the small print of agreements governing employment, bank accounts, credit cards, cellphone contracts and other common transactions or when they click to accept new terms in an online agreement.

The protections of employment and consumer rights are weakened when corporations are allowed to write the rules and procedures governing how these rights will be enforced against them, Colvin and Stone write.

As part of these mandatory arbitration agreements, the court has also enforced clauses that ban class actions and require claims to be brought individually in arbitration.

As a result, many consumers and employees can no longer challenge a corporation by joining together as part of a class action in court or in arbitration.

“The Arbitration Fairness Act currently before Congress is the best hope for stopping these trends and restoring justice to ordinary citizens,” according to the authors.

Findings outlined in their paper include:

  • Many employees are now presented with terms of employment that contain an agreement that obligates them to arbitrate all disputes with their employers and which includes a clause prohibiting them from pursuing claims in a class action lawsuit.
  • Employees subject to mandatory arbitration can no longer sue in court for violations of rights to minimum wages and overtime pay, rest breaks, protections against discrimination, privacy protection, family leave and other state and federal employment rights, but rather must bring these claims in arbitration.
  • On average, employees and consumers win less often and receive lower damages in arbitration than in court.
  • Employers tend to win cases more often when they appear before the same arbitrator in multiple cases, indicating that they have a repeat-player advantage over employees from regular involvement in mandatory arbitration.