Mandatory arbitration clauses are a common feature of both modern commercial and consumer agreements, requiring that disputes be resolved through arbitration rather than litigation. While these clauses are often portrayed as a means of avoiding the delays and costs associated with the courts, they have generated significant debate regarding fairness, particularly when one party has a stronger bargaining position. This article explores the implications of mandatory arbitration in the commercial context and discusses recent efforts to regulate its use.

Why Businesses Include Mandatory Arbitration Clauses
Many businesses include mandatory arbitration clauses in their contracts to reduce the uncertainty and potential exposure that comes with litigation. For companies with frequent or high-value contracts, litigation can be unpredictable, both in terms of cost and outcome. By contrast, arbitration is often seen as a way to exert more control over the process. It provides a faster, more confidential, and generally less formal means of resolving disputes, depending on the nature of the likely disputes in question.
One of the primary motivations for using mandatory arbitration clauses is the avoidance of class action lawsuits. These clauses often prevent parties from joining collective legal actions, forcing each claimant to arbitrate individually. For large corporations, especially in consumer or employment settings, this can dramatically reduce the potential liabilities associated with widespread legal claims. By limiting claims to individual arbitration, businesses reduce the financial risks and importantly the public scrutiny that comes with class actions.
For businesses particularly, the ability to select arbitrators with relevant expertise can also be a major advantage. In complex commercial disputes, arbitrators who understand the nuances of the industry can provide more informed decisions than generalist judges in the court system.

The Concerns with Mandatory Arbitration
Despite these advantages, mandatory arbitration clauses raise significant concerns, particularly regarding fairness and access to justice. One of the primary criticisms is that mandatory arbitration deprives weaker parties—such as small businesses, consumers, or employees—of the option to go to court. In contracts where one party has a stronger bargaining position or access to information, such as a large corporation, the weaker party often has little choice but to agree to the arbitration clause as a condition of the contract.
There are legal critics that argue that this dynamic creates a power imbalance, as the party drafting the contract may have the resources and experience to navigate arbitration, while the weaker party may not. This is particularly concerning cases where arbitration is mandated in contracts between large corporations and small businesses or individuals, as these smaller parties often lack the financial means or legal expertise to adequately pursue their claims in arbitration.
Another concern is repeat player bias. In industries where large companies frequently engage in arbitration, arbitrators may be more likely to side with these companies to secure future appointments. Unlike judges, arbitrators are paid by the parties and do not have the same institutional safeguards to ensure impartiality. This creates the perception, and sometimes the reality, that arbitration is skewed in favor of those who use it regularly. In addition, the asymmetry of information of a corporation that arbitrates with multiple parties has the advantage of knowing the status of all cases in arbitration, while the other party is limited in its knowledge of only the case it is involved in.
Finally, the lack of transparency in arbitration raises public policy concerns. Arbitration proceedings are private, and awards are typically confidential. While this can benefit companies seeking to protect sensitive information, it also means that there is little oversight or accountability for decisions that may impact broader legal or societal issues. This contrasts with litigation, where court decisions are public, and legal precedents are established to guide future cases.

Efforts to Regulate Mandatory Arbitration
In response to growing concerns about the fairness of mandatory arbitration, there have been significant efforts at both the state and federal levels to regulate its use. Several legislative initiatives have aimed to eliminate mandatory arbitration clauses in employment, consumer, and antitrust disputes. There has been mounting pressure to limit the scope of arbitration in certain contexts.
Other laws, such as the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which passed in 2022, provide exemptions for specific types of claims, ensuring that victims of workplace harassment can pursue their claims in court. These legislative efforts highlight a growing recognition of the need for greater balance and fairness in arbitration agreements.

Conclusion
While mandatory arbitration offers advantages to businesses, particularly in terms of efficiency and predictability, it also raises important concerns about fairness and access to justice. As legislative and regulatory efforts to limit the use of mandatory arbitration gain momentum, companies must consider the ethical and legal implications of requiring arbitration in their contracts. Balancing efficiency with fairness will be essential as businesses navigate these evolving legal standards.

Next Steps for Businesses
If you have an issue related to arbitration, arbitration clauses contained in an agreement, or any questions about contract terms or other aspects of dispute resolution contact Possinger Law Group.
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About Possinger Law Group, PLLC
Founded in 2001, Possinger Law Group is a boutique law firm dedicated to elite levels of service to small and medium-sized businesses and the individuals that own them. When faced with serious problems, clients have reached out to Possinger Law Group to be a trusted advisor and advocate to be a guide through high conflict situations and complex legal challenges. In litigation matters, Possinger Law Group works with its clients to effectively resolve disputes, and when necessary, by being fiercely aggressive in litigation.

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