January 2003

Enforcing Consumers' and Employees' Legal Rights: 12 Myths about Arbitration

by Keith Maurer

The American Bar Association reports that 100 million Americans are effectively barred from seeking justice by the high cost of lawyers and the lawsuit system.1 In fact, the ABA Journal reported that most lawyers won't take a case worth less than $20,000.2 The complaints of most consumers don't begin to approach that level. Arbitration gives plaintiffs, who otherwise might have been precluded from receiving any remedy, an opportunity to pursue relief and have their claim heard by an impartial decision-maker.

Justice is enhanced in properly conducted arbitration proceedings, which provide realistic forums for dispute resolution. Arbitration is quicker, less expensive, and more informal than litigation. Conducted under rules that require arbitrators to follow the law, such as the National Arbitration Forum Code of Procedure, arbitration provides for all substantive remedies.

In 1925, Congress enacted the Federal Arbitration Act to reverse longstanding judicial hostility by American courts to arbitration agreements, placing such agreements on the same footing as other contracts. The act sets forth a national policy favoring arbitration. The core expression of this policy is Section 2, which provides that a written agreement to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."3 Federal courts, including the U.S. Supreme Court, have consistently upheld this national policy. The federal policy favoring arbitration has had the effect of encouraging its broad use. Predispute arbitration clauses are now included in thousands of contracts.

The arbitration systems of arbitration providers involve procedures far less complex than those of the lawsuit system. In its wide-ranging support of arbitration, the U.S. Supreme Court touted exactly these advantages in Allied-Bruce Terminex Co., Inc. v. Dobson:

The advantages of arbitration are many: it is usually cheaper and faster than litigation; it can have simpler procedural and evidentiary rules; it normally minimizes hostility and is less disruptive of ongoing and future business dealings among the parties; [and] it is often more flexible in regard to scheduling of times and places of hearings and discovery devices.4 

Consumer advocates agree. Consumer Reports magazine observes: "Arbitration can help consumers settle their disputes faster and cheaper than by litigation. It commonly takes anywhere from two to five years to get a civil case before a judge; an arbitration case can often be resolved within a matter of weeks."5 Is it any wonder that, understanding the alternatives, parties are contracting for arbitration at an ever-growing rate?

Despite the growing use and acceptance of arbitration, some misconceptions exist:

Myth 1: Arbitration is too expensive.

Truth: Arbitrating a dispute is far less expensive than litigating a dispute to resolution. Filing and hearings fees, and elective attorney fees, are much less than the total cost of litigation expenses and mandatory attorney fees.6 Further, businesses and employers voluntarily pay, or may be required to pay, for all or part of arbitration costs for their consumer customers and employees.7 

Myth 2: Litigation is the traditional, time-honored way to resolve problems.

Truth: Arbitration dates back to the Old Testament, predating American lawsuits by several thousand years.8 Arbitration and judicial systems akin to arbitration are used much more frequently than lawsuits in many countries. Mediation, as well as arbitration, is either suggested or mandated by many judges before a case will be heard in court.9 

Myth 3: Americans have an absolute right to have their civil disputes resolved by a jury.

Truth: If they choose to go to court, citizens may demand their constitutional right to a jury trial, but also have a right to contract for a different way to seek relief.10 For those who cannot afford to go before a jury, arbitration may be the only opportunity for vindication.

Myth 4: Arbitration denies parties their substantive rights and remedies.

Truth: Parties are entitled to the same substantive rights and remedies as they receive in a court of law. A party may assert common law, statutory, contractual, and other types of claims in arbitration.11 An arbitrator has the same power as a judge to award monetary damages, injunctive relief, and other legal and equitable remedies. Arbitration does not restrict available rights or remedies.

Myth 5: Arbitration denies parties due process and other legal rights.

Truth: Arbitration organizations and arbitrators follow the same due-process standards that apply to judicial proceedings.12 Parties have an opportunity to present a case before an arbitrator as they do before a judge, and courts have the opportunity to review arbitration proceedings before and after the arbitration process to make sure due-process standards were followed. The U.S. Supreme Court has held that parties are entitled to all substantive rights in arbitration.

Myth 6: Arbitration does not allow parties to seek discovery from each other.

Truth: Arbitration rules and procedures either specifically authorize discovery requests or allow arbitrators to order discovery at their discretion.13 The same useful discovery methods available in litigation, including document production and depositions, may be available in arbitration proceedings. Discovery may be properly limited to affordable disclosures of relevant and reliable information.

Myth 7: Arbitrators do not have to follow the law.

Truth: Arbitration rules require arbitrators to follow the law, holding them to the same standards as a judge.14 Arbitration clauses may also contain this requirement. Courts can review awards to make certain that the arbitrator correctly applied the law.

Myth 8: Arbitration is only for large claims.

Truth: Arbitration procedures exist for claims of all sizes and types, from less than $1,000 to over $1,000,000. Arbitration filing fees begin at $25.15

Myth 9: Arbitration denies parties the relief available only in class actions.

Truth: Class-action lawsuits have been necessary because individual parties cannot afford to use a lawsuit to seek relief. Class actions may also be available in arbitrations.16 The American class-action rule was adopted as a procedural rule because litigation made it too expensive and complicated for individuals to bring small claims. Arbitration readily permits consumers, employees and other individuals with complaints against businesses to recover their losses, including the cost of arbitration. With this relief available, courts have generally held that class actions are unnecessary.

Furthermore, public agencies may pursue class actions and obtain public relief for a class of individuals. Government lawyers can retain private lawyers and work with them on behalf of the public. Class-action rules were implemented at a time when there were few cases being brought by public lawyers on behalf of the public and individuals. Today, it is much more common for the government to sue on behalf of a class of individuals. Private arbitration and public class-action cases can provide comprehensive and effective enforcement of laws.

Myth 10: Arbitration proceedings are conducted in secret.

Truth: Arbitration rules and proceedings are readily available to the public.17 Arbitration organizations may publish awards at the request of any party,18 or as required by law. Awards are also reported when they are confirmed as civil judgments. Judges review arbitration proceedings, hearings and awards in open court.

Myth 11: Arbitration awards cannot be appealed.

Truth: The court of the state or country where the arbitration award is sought to be enforced can review the award to determine if it is legal and enforceable.19 The court can review de novo whether the arbitrator who was compelled to follow the law did so. The Federal Arbitration Act and state arbitration acts permit judges to review arbitration awards.20 

Myth 12: Lawsuit decisions are more enforceable than arbitration awards.

Truth: An arbitration award must be enforced in a judicial forum unless there is reason for the court to vacate the award.21 Federal and state arbitration acts require U.S. courts to recognize and enforce awards entered in different states. Treaties require foreign courts to enforce arbitration awards entered in different countries. In a foreign country, it is easier to enforce an arbitration award than a civil judgment.

Mistrust of arbitration procedures rests on an archaic understanding of the arbitration process, which is subject to intense oversight by courts. Arbitration delivers access to justice for millions of Americans who might otherwise find a remedy illusive.

1. Quin Tian, "Public Loses as Lawyers Block Access to Cheaper Legal Help," USA Today (Feb. 19, 1999).

2. Jill Schachner Chanen, "Pumping Up Small Claims," ABA Journal, p. 18 (Dec. 1998).

3. 9 U.S.C. § 2.

4. Allied-Bruce Terminix Co., Inc. v. Dobson, 513 U.S. 265, 280 (1995) (quoting H.R. Rep. No. 97-542, p.13 (1982)).

5. Consumer Reports, August 1999, p. 64.

6. E.g., National Arbitration Forum (NAF) Appendix C at http://www.arbitration-forum.com/.

7. Cole v. Burns Int'l Sec Servs., 105 F.3d 1465, 1483-85 (D.C. Cir. 1997).

8. "If only there were someone to arbitrate between us, to lay his hand upon us both, someone to remove God's rod from me, so that his terror would frighten me no more." Job 9:33 (NIV version).

9. E.g., Cons. Minn. Gen. R. of Prac. 114, 42; Pa Cons. Stat. Ann. §§ 1301-1314; 28 U.S.C. § 471; Wayne Brazil, "A Close Look at Three Court-Sponsored ADR Programs," 1990 U. Chi. Legal F. 303, 303.

10. Johnson v. W. Suburban Bank, 225 F.3d 266 (3d Cir. 2000); Stout v. J.D. Byrider, No. 99-3854, 2000 WL 1269402 (6th Cir., Sept. 8, 2000).

11. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991).

12. National Arbitration Forum, Arbitration Bill of Rights at http://www.arbitration-forum.com; Armendariz v. Found. Health Psychcare Srvcs. Inc., 99 Cal. Rptr. 2d 745, 745 (Cal. 2000).

13. National Arbitration Forum Rule 29 – Discovery; David F. Herr and Roger S. Haydock, Discover Practice at § 10.3 (Aspen, 3d ed. 2000); Roger S. Haydock, et al., Fundamentals of Pretrial Litigation, § 5.1.2, § 5.3.1 (Aspen, 4th ed. 2000).

14. National Arbitration Forum Rule 1 – Arbitration Agreement; Edward Brunet, "Replacing Folklore Arbitration with a Contract Model of Arbitration," 74 Tul. L. Rev. 39, 57 (1999).

15. National Arbitration Forum Appendix C at http://www.arb-forum.com/.

16. Johnson v. W. Suburban Bank, 225 F.3d 266 (3d Cir. 2000); Stout v. Byrider, No. 99-3854, 2000 WL 1269402 at *7 (6th Cir., Sept. 8, 2000); Bette J. Roth, et al., The Alternative Dispute Resolution Guide, §§15.1-15.13 (West Group 1999).

17. National Arbitration Forum at http://www.arbitration-forum.com/ ; Judicial Arbitration Mediation Services at http://www.jamsadr.com/.

18. National Arbitration Forum ICANN at http://www.arbitration.forum.com/domains/.

19. 9 U.S.C.A. § 9 (2000); Blanchard and Co. v. Heritage Capital Corp., No. 3:97-CV-0690-H, 2000 WL 1281205 at *3-4 (N.D. Tex. Sept. 11, 2000).

20. Roth, fall citl. 49, § 14.1-14.17, 19.1-19.27.

21. Grenig, fall citl. 38, §§ 20.10-20.49.