Is a mandatory arbitration clause beneficial for both parties?

On Behalf of | Apr 27, 2021 | Business Disputes |

Many Pennsylvania companies who enter into a contract with their clients include a mandatory arbitration clause. This makes their clients incapable of suing them individually or as part of a class-action lawsuit. This leads one to question if this mandatory clause is only in the best interests of the company or if it’s beneficial for you as well.

Why do companies like mandatory arbitration clauses?

Many companies prefer that contract litigation and disputes are handled through the arbitration process. This process is much cheaper than paying for legal fees associated with a traditional lawsuit. It also prevents companies from having to potentially pay out millions in class action lawsuits. In addition, arbitration tends to be done in a much faster manner than waiting for a traditional court case.

Why are these clauses detrimental to consumers?

If you read any literature online about mandatory arbitration clauses, you’ll quickly determine that they tend to favor businesses over consumers. One main disadvantage that consumers suffer under a mandatory arbitration clause is that the company is typically the one assigned to pick the arbitrator.

In most cases, they’ll pick an arbitrator who has a solid history of siding with businesses over consumers. Furthermore, these chosen arbitrators have learned that if they tend to side with a particular business, they’re more likely to receive future cases from that business. This tends to reveal a corrupt system for consumers.

Many consumers enter into contractual agreements with businesses all of the time. Most of them don’t read through the entire multi-page contractual agreement. Unfortunately, they tend to find out later on that they inadvertently agreed to a mandatory arbitration clause that is likely not in their best interest. As of right now, the U.S. Supreme Court still upholds a business’s right to institute a mandatory arbitration clause as long as the consumer agrees to it willingly. Only time will tell if this legal right will continue to be upheld.