Mandatory arbitration is a dispute resolution process where parties meet with a neutral arbitrator, usually a lawyer. It is increasingly used in contracts, but there are issues with binding clauses, biased arbitrators, high costs, and mandatory nature. Some countries have clearer laws to reduce abuse and encourage settlement without legal involvement. People have the right to review and reject clauses, but companies may withdraw service offers.
Mandatory arbitration is a means of resolving disputes in which the two parties involved must meet with an arbitrator, who is usually a lawyer and who should be neutral. Compulsory arbitration has attracted much attention among consumer lawyers since the early 2000s, when it began to be used with increasing regularity in all types of contracts, from contracts to establish telephone service to home purchase contracts. There are a number of issues with mandatory arbitration that can make it very problematic when not set up carefully.
On the surface, the idea behind mandatory arbitration seems sound. If a problem does arise, having compensation before having to go to court would seem logical; this allows people to try to find a settlement before having to spend a large amount of money on legal fees. However, in some cases people sign binding mandatory arbitration clauses, which means that the outcome of the arbitration is legally binding, and if it doesn’t feel fair, it may not be possible to take it to court.
Furthermore, some allegedly neutral arbitrators are in fact related in some way to the author of the contract. For example, someone buying a home in a housing development might sign the clause without thinking and learn that the arbitration firm is actually owned by the builder once problems develop with the home and the homeowner attempts arbitration. . Mandatory arbitration can also be costly for consumers, with some companies requiring people to pay fees to file complaints with the arbitration company.
The mandatory nature can also be a problem. Since arbitration is mandatory, people should first go to arbitration with any issues, no matter how serious. If the consumer refuses to deal with the arbitrator or tries to take the case to court, he will automatically be rejected. Even when someone can take the outcome of mandatory arbitration to court, courts rarely overturn decisions made in arbitral proceedings.
In some countries, the pushback on mandatory arbitration has led to clearer laws surrounding the practice, including laws specifying when, where and how it can be used. The goal is to reduce the abuse of such clauses, and to ensure that they are used appropriately, in order to encourage people to settle without involving the legal system, rather than forcing people to abide by arbitral decisions that may not be in their favor.
People should be aware that they have the right to review contracts and have them fully explained. It is possible to reject clauses within a contract, although the company that entered into the contract may withdraw the service offer accordingly.
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