Arbitration Is Good Enough For You, But Not Businesses

Earlier this week, Jonathon Glater of the New York Times had an article that discussed how businesses use arbitration agreements.  Apparently, at a time when businesses are becoming more and more aggressive about using arbitration clauses in their contracts with consumers, they still aren’t using them in business to business contracts.

The article is based on a study performed by law professors Theodore Eisenberg (Cornell University School of Law), Geoffrey Miller (NYU School of Law), and Emily Sherwin (Cornell University School of Law).  The study was updated this summer (we had a previous post about the study’s original release last year).

The study found that business included mandatory arbitration clauses in 75 percent of consumer agreements but in just 24 percent of contracts over all. The inclusion rate was up significantly from prior studies.  From the article:

Companies say that arbitration is “a fair and cost-saving process,” he [Professor Eisenberg] continued. “If they believe that is true across the board, why don’t they insist on it when they contract with each other?”

Our thoughts are available in our prior post.  The one thing that stood out in the new study was businesses use of arbitration clauses to try and kill class actions.  The article notes:

Every consumer contract with an arbitration clause also waived possible group, or class, arbitration.

“I believe they’re really using arbitration as a way of avoiding class action litigation,” said Theodore Eisenberg, a law professor at Cornell. Because it is not worth it to a single upset consumer to sue a big company, he said, “the only thing those companies fear is your having a plaintiffs’ lawyer aggregate you and people like you into a class action.”

As we have continuously stated, we think arbitration is appropriate in many cases, but it’s difficult to know what cases are appropriate for arbitration at the time the contracts are entered into.  That is particularly true in consumer cases, where consumers are asked to agree to arbitration rules that they do not understand.

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