Regulating Mandatory Arbitration

Abstract

Over the last twenty-five years, the Supreme Court has relied on party autonomy and the national policy favoring arbitration to expand the Federal Arbitration Act’s scope beyond Congress’s original intent. Choosing these loaded premises has allowed the Court to reach the outcomes it desires while denying that it is making any political or moral judgments in its decisions – a type of bureaucratic formalism. One controversial outcome of the Court’s formalism, overall, has been the increased prevalence of mandatory arbitration. Although it reduces judicial caseloads and lowers companies’ dispute-resolution costs, it also restricts or eliminates individual rights and reduces public regulation of the companies that require it. The Court has supported the spread of mandatory arbitration despite these negative effects.

Because of the Court’s support, the parties being subjected to mandatory arbitration began asking lower courts for relief through the unconscionability doctrine in the early 1990s. And because the unconscionability doctrine could not provide the wide-scale relief they wanted, they also turned to Congress, convincing its members to introduce 139 anti-arbitration bills since 1995 – the majority of which proposed eliminating mandatory arbitration. A review of these efforts, including an original survey of these bills, reveals that these parties have been disregarding mandatory arbitration’s public benefits in favor of a rights-oriented, liberal approach that rejects regulation as a possible way to improve mandatory arbitration’s overall fairness.

This Article shows that both the Supreme Court’s and the reform advocates’ approaches to mandatory arbitration are flawed. It makes more sense, at least for now, to continue mandatory arbitration’s use while improving its overall fairness through legislative or agency regulation. Regulating mandatory arbitration with the goal of improving its fairness is consistent with pragmatic principles and is superior to the Supreme Court’s formalism and the reform advocates’ liberalism in the current mandatory-arbitration context. Taking this approach will allow us to study mandatory arbitration over time before deciding whether to eliminate it – a fair way to proceed given the importance of the rights at stake and the positive effects that mandatory arbitration can (possibly) have on the public good.