Should I Sign an Agreement to Arbitrate?

            Whether it is a lease agreement, employment contract, insurance enrollment forms, or health care admissions documents, many contracts now contain an “Arbitration Clause.”  This is language within a contract, whereby the parties agree to waive their right to resolve disputes in a court of law and rather submit any future disputes, claims or controversies to arbitration.  Before forfeiting your right to have a judge or jury decide your case, it is important to understand your rights and what you are agreeing to.

            In arbitration, a neutral third party conducts a hearing, wherein each party and their attorneys have the opportunity to present their case through written or oral evidence.  The “neutral” is not an elected or appointed judge, but rather a person who is hired by the parties to hear the evidence and decide the dispute.  After the hearing, the Arbitrator renders a decision which is final and binding on the parties.  In other words, the Arbitrator acts as a judge and “decides” the case, just as a judge or jury would.

            Sometimes, people confuse arbitration and mediation. Both are forms of alternative dispute resolution, but mediation differs from arbitration in that the parties retain the decision-making power in mediation.  A Mediator is hired to facilitate a discussion between the disputing parties and assists them in trying to resolve the dispute.  Usually, the parties will meet collectively with the neutral Mediator to discuss the facts of the case. Then the parties separate, while the Mediator goes back and forth between the parties and assists in settlement communications and negotiations.  Any resolution comes from the parties, and the parties are free to pursue litigation if their case is not resolved in mediation.

            Signing a contract that contains an arbitration clause means giving up your constitutional right to a jury trial.  Many agree that one of the best aspects of the American legal system is access to the courts.  It is often in court that a larger company is held accountable to individuals.  In a court of law, there are rules and procedures that are in place to help ensure a fair and impartial trial.  Additionally, by filing a lawsuit, parties have the right to engage in discovery, or the pre-trial exchange of information, regarding their case.  With the court’s subpoena power litigants can also obtain documents and information from non-parties for use in their case.   Unlike arbitration, there is a right to appeal an adverse judgment in the court system. Furthermore, courts can provide a range of remedies, including monetary damages, punitive damages and injunctive relief, where the court compels the offending party to do something or prohibits that party from taking action.  Finally, court records and filings are public records, while arbitration proceedings are often private and confidential.

It is important to note that both arbitration and mediation are viable options, even after a lawsuit is filed, if all parties agree to it.  In other words, by filing a lawsuit, you are not precluded from later deciding to resolve the dispute through arbitration or mediation.  After consulting with an attorney, a party to a dispute can then decide if court litigation or a form of alternative dispute resolution is better suited for their particular case.   However, if a contract containing an arbitration clause is signed and a dispute later arises, a person’s right to utilize the court system may be forever lost. 

Ideally, any contract should be the result of negotiations between two equal parties, whereby both sides agree to the terms, including any arbitration clause.  For example, the parties should reach an agreement as to what type of disputes should be submitted to arbitration and where the arbitration should be submitted.  The arbitration should be conducted by a truly neutral arbitration body, not one that is compromised of, financed by, and/or heavily influenced by members and advocates of only one of the parties to the contract.  Finally, the responsibility of costs should be set forth in the contract, as well as the rights of the parties to rescind the agreement to arbitrate and consult with legal counsel, among other items.

There are dangers when signing a contract that contains an arbitration clause, especially when the parties signing the contract have unequal bargaining power.  For example, does a patient seeking treatment at a hospital who signs admission forms containing an arbitration clause really have equal bargaining power with the hospital over the contractual terms of the forms he or she is required to sign?  In some health care situations, a patient can simply cross out the arbitration clause language contained in the admission forms or refuse to sign a particular form.  Oftentimes, though, individuals cannot negotiate with larger companies, such as credit card, mortgage, or insurance companies who have a contract containing a mandatory arbitration clause.  In those such cases, consider shopping around before signing away your rights.

Both mediation and arbitration can be efficient, cost-effective ways to resolve disputes.  However, once parties agree to submit their case to arbitration, oftentimes their right to have a court of law decide the case is lost.  Therefore, it is important to understand your rights before you sign a contract containing an arbitration clause.  Generally, people are bound by the terms of the agreements they sign and are presumed to have read and understood them.  It is thus important to be on the lookout for arbitration clauses and to do what you can to avoid them or truly negotiate their terms before you waive your important right of access to the court system.

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