Are Arbitrations Fair?

A recent post on the Wall Street Journal Law Blog discussed a study that found that consumers come out better than expected when they go to arbitration to resolve disputes with businesses (“Consumers Rejoice: After All, Arbitration is Fair, Study Says”). 

The Law Blog tone tended to reflect a characteristic degree of skepticism about the study, as did a quoted comment from a public interest lawyer. As pointed out by the post, in some industries, the securities industry among them, arbitration is mandated. Often, the consumer doesn’t realize that arbitration is mandatory for disputes.

 

So, what’s the story with arbitration? There is no doubt that arbitration resolves disputes more quickly and less expensively as compared to going through the litigation process. That is a key consideration if the amount at issue is relatively small and would be eaten up by the expense of litigation. Also, the process is less formal and more straightforward and understandable.

 

 But, in general, arbitration decisions are almost impossible to appeal successfully, the arbitrator is not required to follow the letter of the law and the arbitrator is not required to give reasons to justify the decision. In other words, the decision is pretty much final and can appear (excuse the pun) arbitrary.

 

The biggest issue with arbitration is the perception that the arbitrators favor the business over the consumer. That is the issue discussed by the Law Blog post and addressed by the study. From the tone of the post, the writer does not find the study convincing. 

 

Preferably, there would be a set of tools for settling disputes, a set that includes arbitration as well as mediation. Simple disputes with relatively modest amounts at issue should never go to litigation. But, there has to be a reasonable level of confidence in the fairness of the processes. Apparently, the study says we’re getting there but the contrary view is still prevalent.