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Greg Cusimano
Greg Cusimano
Attorney • (256) 543-0400

Dangers of Signing An Arbitration Agreement

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Consumers beware! Many consumer and employment contracts now include an “Arbitration Clause”. You can find the clause lurking in employment contracts, lease agreements, health care admissions documents, insurance enrollment forms and other consumer contracts. There are many dangers in signing an arbitration agreement.

You Lose Your Constitutional Right to a Jury Trial:

Signing a contract that contains an arbitration clause waives your constitutional right to a jury trial and in effect keeps you from having your dispute resolved by a court of law. Rather, you are required to submit your dispute or claim to a neutral third party, whom is neither an elected or appointed judge.

An Arbitrator’s Decision is Final:

After each party presents their case the arbitrator renders a decision that is final and binding on both parties. This decision cannot be appealed and unlike mediation. There are several other dangers in signing an arbitration agreement. Many arbitration clauses and systems do not allow you to recover your attorneys’ fees. This makes it practically impossible for consumers or employees to obtain legal representation. Additionally, the avenues for appealing an arbitrator’s decision are practically closed and regardless of whether the decision is erroneous, it cannot be easily overturned.

Arbitrators May be Biased Against Consumers/Employees:

Sometimes the arbitrator specified in the arbitration agreement may be biased because they depend upon the corporation for repeat business. Therefore, they have a personal motive and business interest in rendering decisions that favor the corporation. As a result, they are more inclined to rule against consumers and employees on the disputes that come before them.

Arbitration can Result in Significant Time Delays and be very expensive:

While arbitration is meant to serve as a more efficient method for resolving disputes, it can actually lead to significant time delays. Sometimes there are multiple arbitrators on a panel, which means that each arbitrator must juggle their schedule in order to hear your dispute. While your dispute may ultimately be heard, you might end up waiting awhile for your hearing to align with the schedules of multiple individuals. Most often the filing fees for Arbitration are 2 or 3 times more expensive that filing a case in court.

The Law may Not Make a Difference:

An arbitrator is not necessarily required to follow the laws that apply to your dispute. This can result in a seemingly unfair decision. Even though arbitrators are not able to completely disregard the law in rendering their decisions, it’s possible that they may render an unfair decision that does not go completely against the law.

Awards are Difficult to Enforce:

Since arbitration awards do not have the power of a court judgment they are not directly enforceable. Rather, if you seek to enforce an arbitration award you must resort to judicial remedies, such as bringing an action to “confirm” the award. While you may be able to utilize judicial remedies to obtain an award, these claims can be fiercely fought and often result in the consumer acquiring a significant amount of legal fees, fees which far exceed the economic incentive to bring their dispute in the first place.

Arbitration Clauses are Sneaky:

Consumers must be on the lookout for arbitration clauses. Arbitration clauses are inconspicuous because they are usually set forth in the fine print of a contract or are contained in an ancillary agreement. Consumers and employees are often unaware that they have agreed to mandatory, binding arbitration by simply purchasing a product or taking a job.

If you can, refuse to sign a contract containing an arbitration clause, cross through the language of the clause or attempt to negotiate its terms. Where it is impossible to negotiate, with large companies for example, you should shop around before you sign.

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    I echo your advice never to be afraid to: (1) change the contract; and, (2) shop around for another deal if your bargaining partner won’t budge. As an attorney (and an arbitrator who does not believe consumers should be forced into arbitration) even I was surprised when my attorney husband x’ed out the arbitration clause in the form real estate contract for the purchase of our home. The elimination of that clause (and the mediation clause that accompanied it – which I would have retained) was no problem for the seller. When my insurance carrier (and my health care providers) changed recently, my new OB-GYN made me sign an arbitration provision, about which I complained when she entered the examining room (“I’m not terribly pleased that my doctor asked me to give up my Constitutional right to a jury trial,” I said). She told me that HER insurance carrier required her to require me to do so. We mourned our lack of freedom to contract together and “bonded” thereby, the strongest insurance against malpractice litigation in any event — a positive relationship between service providers and their customers.