Two days ago the Wall Street Journal published an editorial opposing the Arbitration Fairness Act (AFA). The article, written by former FTC commissioner Christine Varney, alleges that the AFA would eliminate arbitration as an option for employees and customers in disputes with corporations.
It is, to put it mildly, a bizarre argument. Most of the article spends its time talking up the virtues of arbitration as a superior alternative to litigation for all parties. And undoubtedly, sometimes it is. But the AFA would do nothing to stymie arbitration as an option for dispute resolution. All it prohibits is mandatory, pre-dispute arbitration: that is, contracts which require any future disputes – regardless of what they may be – to be submitted to arbitration, regardless of whether it is the best option for both parties. Right now, those sorts of clauses are placed deep in the fine print of standard employment or consumer contracts: situations in which individuals have virtually no ability to bargain or refuse them (did you even think to check if your car purchase contained a mandatory arbitration clause? If it had one, would you have refused to buy the car?). Under no reasonable interpretation can that be considered an "agreement" by the company and the employee or consumer. The AFA would bar these pre-dispute clauses, but once a dispute has started, both parties can still agree to submit it arbitration if they view it as the best possible forum.
Ms. Varney's only argument as to why the AFA threatens arbitration is the “inconvenient reality” that “it is very difficult to get two sides of a dispute to agree to much of anything once a dispute has started.” But this is contradicted by nearly every paragraph in her own article. If arbitration truly offers the many benefits for individuals in terms of efficiency and reduced cost that she claims it does, it should not be difficult to secure an arbitration agreement even after a dispute has been filed.
The true inconvenient reality, however, is that in many cases arbitration is neither cheapest nor fairest route to resolve disputes. Arbitration prevents the development of class action lawsuits, which are important tools when companies engage in small illegal practices affecting large numbers of people. They also can deter individuals with small claims who have to pay all expenses up front, with no guarantee that they'll receive any settlement at all. Yet mandatory pre-dispute arbitration clauses, agreed to by consumers and employees with little say in the matter, force any case to go arbitration no matter what the individual circumstances are.
The whole reason arbitration was created as an alternative to the court system was Congress' recognition that different types of proceedings work best for different types of cases. But it is impossible to predict which cases belong in arbitration and which belong in the courts in advance.
The Arbitration Fairness Act restores the original purpose of arbitration: to arbitrate when it makes sense to arbitrate, and go to court when it makes sense to go to court. If Ms. Varney is convinced that arbitration is the superior route most of the time, she should have confidence that consumers and employees will select it most of the time. But giving employees and consumers a true choice will help insure that the right forum is available for each and every case.