Mandatory Arbitration and Fairness

Abstract:     
Until recently, it was understood that mandatory arbitration was a "do-it-yourself tort reform": corporate defendants could reduce their liability in consumer and employment disputes through an adhesion contract clause requiring pre-dispute arbitration. But now that there is a significant possibility that Congress will amend the Federal Arbitration Act to make pre-dispute arbitration clauses unenforceable, critics have been stymied by the re-emergence of an argument that mandatory arbitration is a "fairer" than litigation. Mandatory arbitration supporters argue that (1) critics have failed to make an empirical case against mandatory arbitration, because existing studies seem to show that plaintiffs do at least as well in arbitration as in court; and (2) mandatory arbitration is a more egalitarian forum than litigation because it is more accessible to smaller claims and claimants. This argument for mandatory arbitration "fairness" has effectively tabled the discussion of whether tort reform through mandatory arbitration is justified, and whether an adhesion contract, rather than legislation, should be the vehicle for creating a "fair" dispute resolution system.

This article argues there is no "fairness" justification for imposing a dispute resolution system through adhesion contracts. The economic incentives of the mandatory arbitration system only work by reducing the prospects of plaintiffs with high-cost/high-stakes cases. And while shifting the empirical "burden of proof" onto critics is clever rhetorical strategy, in fact it is the egalitarian argument for mandatory arbitration that is empirically unfounded as well as illogical.

Keywords: mandatory arbitration, fairness, pseudo-populist, empirical studies, access to adjudication, access to courts, process costs, liability costs, high-cost/high-stakes cases, sampling error, empirical burden of proof, tort reform, Federal Arbitration Act

JEL Classifications: K41

Accepted Paper Series