Arbitration services in the U.S. are far more than a dispute resolution mechanism; they’re a quiet force, transforming the balance of power between corporations, consumers, and employees. While once seen as a voluntary, flexible way to avoid the courts, arbitration has evolved into a powerful tool of corporate strategy, reducing the accountability of large institutions and shaping the contours of legal rights. Understanding this dynamic requires a deep dive into the historical, legal, and economic forces behind the rise of arbitration, as well as its implications for justice, fairness, and power in modern America.
A Historical Shift: From Commercial Flexibility to Corporate Shield
Arbitration was not always a ubiquitous feature of corporate contracts. Its roots go back to the early 20th century when the Federal Arbitration Act (FAA) of 1925 was passed to provide businesses with a more flexible and efficient way to resolve disputes. At that time, arbitration was seen as an innovative tool for businesses to avoid the cumbersome and slow-moving court system. Arbitration allowed commercial actors—particularly in industries requiring specialized knowledge like construction, insurance, and maritime transport—to resolve disputes efficiently, often with expert arbitrators familiar with industry standards.
However, this efficiency came at a cost. Over the decades, arbitration became less about flexibility and more about controlling outcomes. Particularly in the 1980s and 1990s, as deregulation trends swept across the U.S., corporations began embedding mandatory arbitration clauses into consumer and employment contracts. The effect? Consumers and employees, often without realizing it, were signing away their rights to sue in court and agreeing instead to resolve disputes through arbitration.
Today, arbitration clauses can be found in everything from credit card agreements and cell phone contracts to employment handbooks. It’s a transformation that many legal scholars argue was deliberate—corporations using arbitration not only to streamline dispute resolution but to insulate themselves from the unpredictable nature of the public legal system. This shift, rooted in deregulation and privatization trends, has redefined how justice is accessed in America.
Citation and Reference:
- Ware, S. J. (2010). “The Case for Enforcing Adhesive Arbitration Agreements—with Particular Consideration of Class Actions and Arbitration Fees.” University of Kansas Law Review. Vol. 56.
The Power Imbalance: How Arbitration Favors Repeat Players
One of the most concerning aspects of modern arbitration is the repeat player advantage—a phenomenon where corporations, which frequently engage in arbitration, gain a systematic edge over one-time participants like consumers or employees. Corporations not only have more experience navigating the arbitration process, but they also often maintain relationships with arbitration providers, creating subtle biases in their favor.
This is not mere speculation. Studies, such as a 2015 report from the Economic Policy Institute, have demonstrated that employers win nearly 93% of arbitration cases filed by employees. Repeat players—typically large companies—also benefit from the fact that arbitrators, who depend on repeat business, have an incentive to rule in favor of the party likely to bring them more cases in the future. This creates a built-in bias in favor of large corporations, skewing the outcomes in ways that can leave individual claimants disadvantaged.
Citation and Reference:
- Colvin, A. J. (2015). “The Growing Use of Mandatory Arbitration.” Economic Policy Institute. Available at: EPI.org.
For consumers and employees, this can be disastrous. Arbitration proceedings are not subject to the same procedural safeguards as courts—there is limited discovery (the legal process of gathering evidence), restricted cross-examination, and, perhaps most importantly, no right to appeal. Once an arbitrator rules, that decision is final, regardless of whether legal or procedural errors occurred. This significantly limits the ability of individuals to seek true redress when wronged.
Confidentiality: The Silencing Effect
While arbitration is lauded for its confidentiality, this feature also creates troubling consequences. In contrast to court rulings, which are public records and contribute to the development of legal precedent, arbitration decisions are usually sealed, keeping the proceedings private. For corporations, this means that arbitration can quietly resolve disputes without the risk of bad publicity. But for the public—and particularly for systemic issues like workplace discrimination or consumer fraud—this confidentiality is a double-edged sword.
The private nature of arbitration has been particularly problematic in cases of workplace harassment or discrimination. As the #MeToo movement gained momentum, it became clear that many allegations of sexual harassment had been resolved in secret through arbitration, silencing victims and preventing public accountability for the perpetrators. Confidentiality, in these cases, protected not the vulnerable but the powerful.
Moreover, the lack of transparency in arbitration means that issues affecting large groups of people—such as widespread consumer fraud or illegal labor practices—are hidden from view. Since arbitration decisions do not set public precedent, corporations can quietly settle disputes without ever facing widespread scrutiny or having to change harmful practices.
Citation and Reference:
- Gadinis, S., & Miazad, A. (2018). “The Hidden Power of Arbitration.” The University of Chicago Law Review. Available at: ChicagoLawReview.org.
Class Action Waivers: Weakening Collective Action
One of the most troubling aspects of mandatory arbitration clauses is their frequent pairing with class action waivers. These waivers prevent individuals from banding together to file a collective lawsuit, even when the harm they’ve suffered is relatively minor on an individual basis but significant when viewed across a large group.
For example, consider a case where a telecommunications company charges customers an illegal fee of $20. While $20 might not be worth the time or cost for any one person to pursue a lawsuit, a class action lawsuit could allow thousands—or even millions—of affected customers to band together, making it economically viable to hold the company accountable. But when class action waivers are included in mandatory arbitration clauses, individuals are forced to pursue arbitration alone, weakening their negotiating power and making it financially impractical to pursue small claims.
This dynamic severely limits accountability for corporations and undermines one of the key mechanisms for consumer protection. Without the threat of class action lawsuits, companies can engage in widespread but low-level misconduct without fear of being held responsible.
Citation and Reference:
- Sternlight, J. R. (2005). “Panacea or Corporate Tool?: Debunking the Supreme Court’s Preference for Binding Arbitration.” Stanford Law Review. Available at: StanfordLawReview.org.
Regulatory Capture and the Courts: The Legalization of Private Justice
The rise of arbitration in the U.S. has not happened in a vacuum; it has been actively promoted and protected by key judicial rulings, most notably by the U.S. Supreme Court. Landmark cases such as AT&T Mobility LLC v. Concepcion (2011) and Epic Systems Corp. v. Lewis (2018) have further entrenched the enforceability of arbitration clauses, even when these clauses limit individuals’ ability to pursue collective action. These rulings are reflective of a broader trend in American jurisprudence that favors private ordering and deregulation over public accountability.
Legal scholars point to this as a form of regulatory capture—where industries exert influence over regulators (or, in this case, the courts) to protect their interests. Arbitration, in this context, is not just a legal tool but a way for powerful industries to carve out private systems of justice that operate outside the reach of public scrutiny. By forcing individuals into arbitration, corporations can avoid the unpredictability of jury trials and the financial risk of class actions, allowing them to resolve disputes on their terms.
Citation and Reference:
- Horton, D. (2012). “Arbitration as Delegation.” New York University Law Review. Available at: NYULawReview.org.
The Path Forward: Reform and Resistance
As awareness grows about the impact of mandatory arbitration, there has been increasing pressure for reform. The Forced Arbitration Injustice Repeal (FAIR) Act, which seeks to eliminate mandatory arbitration in employment, consumer, and civil rights cases, is one of the most significant legislative attempts to address the issue. If passed, the act would restore individuals’ rights to pursue disputes in court and limit the ability of corporations to mandate arbitration through fine print in contracts.
However, these efforts face significant resistance from business interests, which argue that arbitration provides an efficient and cost-effective means of resolving disputes. Critics of reform suggest that forcing disputes back into the courts would lead to increased litigation costs and longer timelines for resolving cases. But advocates for reform argue that these costs are outweighed by the need for transparency, fairness, and public accountability.
Citation and Reference:
- Stipanowich, T. J. (2019). “The Arbitration Fairness Index: Using Data to Inform the Justice Gap in Arbitration.” Pepperdine Dispute Resolution Law Journal. Available at: PepperdineLawJournal.org.
FAQs
1. What is mandatory arbitration?
Mandatory arbitration is a clause in a contract that requires parties to resolve disputes through arbitration rather than through a public court system. These clauses often appear in employment contracts, consumer agreements, and service contracts.
2. Why do companies prefer arbitration over litigation?
Companies prefer arbitration because it is faster, more cost-effective, and often confidential. Additionally, arbitration limits the possibility of large jury verdicts and class action lawsuits, which can be costly for businesses.
3. What is the repeat player advantage in arbitration?
The repeat player advantage occurs when a company regularly uses arbitration services, creating relationships with arbitration providers and benefiting from greater familiarity with the process. This can create a bias in favor of
the company, as arbitrators may favor the side that provides repeat business.
4. Can I avoid arbitration if I don’t want to participate?
In most cases, if you’ve signed a contract with a mandatory arbitration clause, you are legally bound to resolve disputes through arbitration. However, certain legislative reforms, such as the FAIR Act, aim to eliminate forced arbitration in certain types of cases.
5. How does arbitration affect my ability to participate in class actions?
Many arbitration clauses include class action waivers, which prevent you from joining a class action lawsuit. This means you must pursue your claim individually, which can be cost-prohibitive for small claims.
6. Is arbitration less expensive than going to court?
While arbitration can be less expensive than litigation, this is not always the case. Depending on the complexity of the dispute and the costs of the arbitration provider, arbitration fees can add up quickly, particularly for individuals.
7. What is the future of arbitration in the U.S.?
The future of arbitration is uncertain, with ongoing legal battles and legislative efforts aimed at curbing its widespread use in consumer and employment contracts. The outcome of these efforts will shape whether arbitration continues to dominate or whether individuals will regain greater access to public courts.
Conclusion
Arbitration services in the U.S. represent a dual-edged sword. While offering speed and flexibility, they have become a cornerstone of corporate strategy, often placing consumers and employees at a disadvantage. The growing power imbalance, the repeat player bias, and the erosion of public accountability through arbitration reveal a justice system increasingly shaped by private interests. As calls for reform gain traction, the future of arbitration will likely continue to be a battleground for fundamental issues of fairness, transparency, and corporate power.
