Negotiating in the Shadow of Adhesive Arbitration

Abstract

Dispute resolution scholars have long understood that negotiators bargain in the shadow of the law. Although, historically, most dispute negotiations took place in the shadow of litigation, the increasing use of pre-dispute arbitration agreements (PDAAs) in adhesive consumer, franchise, employment, and investor contracts means that more and more disputants in those settings are negotiating in the shadow of mandatory arbitration, not litigation. Those PDAAs typically are non-negotiable, take-it-or-leave-it clauses in a broader contract of adhesion governing the relationship between a weaker individual and an institution with far greater legal resources and (traditional) bargaining power. The PDAAs might also include a class action waiver, pursuant to which individuals waive their right to pursue any claims collectively with others similarly situated. As a result, parties with claims involving, for example, allegations of defective consumer products, deceptive advertising, fraudulent transactions, or wage and hour violations can attempt to settle or else must pursue arbitration of those claims pursuant to PDAAs. Filing those claims in court is not an option.

Bargaining in the shadow of mandatory arbitration alters the landscape for negotiators. How should negotiators adjust? Does the party that "forced" the arbitration on the unknowing (and possibly unwilling) party have more bargaining power? How does this impact the calculation of the BATNA? Is the relative lack of process in arbitration relevant to the negotiators? This article explores how some of the fundamental tenets of negotiation (e.g. interests, power, aspirations, BATNA, zones of agreement) impact the negotiation differently when the parties negotiate disputes arising out of contracts of adhesion that contain a PDAA.

This chapter attempts to answer these questions.