Arbitration’s usually faster and cheaper

Attacks on arbitration as a process are becoming very common, but I do not really understand why.

Recently, the California legislature tried to criminalize arbitration agreements, and even Gov. Jerry Brown, in vetoing this bill, noted that this was a clear conflict with federal law. So where is this anger coming from? And why do you care?

Let’s take the second question first. You care because it is almost certain that you are bound by a bunch of arbitration clauses. When you buy a car, when you open a bank account, when you buy some software, you are probably agreeing to arbitration as a way of resolving any dispute with the other party. Arbitration is not just something that happens to the other guy.

Arbitration is like a private trial. It occurs only if the parties agree. Instead of taking place in a state or federal court, there is an appointed individual (not a jury) who hears evidence and then decides the case. That decision is very hard to appeal and is generally final.

Those who like arbitration say it is faster and cheaper than regular court. Further, since arbitrators can be chosen based on expertise, they assert that the quality of the decisions tends to be better. On its face, this seems like a good deal for everyone.

The critics, such as the California lawmakers, just think it is unfair. They accuse the arbitrators of being in the pockets of the big corporations and say the process is set up to favor repeat participants over individuals. They have a separate beef that arbitration prevents class actions, but that really is a sideshow. In essence, they view arbitration as a nefarious scheme to deprive people of their rights.

So who is right? In my view, mostly the advocates of arbitration. I have seen both trials and arbitrations. Both can be unfair and difficult, but arbitration still seems faster and just as fair. Further, for smaller disputes — the kind most individuals will run into — they are cheap enough and fast enough, so that it is realistic for a consumer to participate. One of the things arbitration opponents forget is that big companies can wait five years to get a result; most individuals don’t have the money or the time for that.

Arbitration, as a process, like so many things, has become politicized. It is an easy target for those who are pushing an anti-business agenda to attack. From a legal perspective, I think we should support it because, on balance, it is a pretty good thing and lets the courts focus on matters, such as criminal cases and those involving public rights, that are essential to society.

One last point. I know they are insanely boring and often written in a way that will make your hair hurt, but you should read contracts before you sign. At least now, when you get to the arbitration clause, you will know what is going on.

Arbitration, as a process, like so many things, has become politicized.