What is ‘arbitration’?

Arbitration is a type of Alternative Dispute Resolution mechanism whereby disputing parties seek to resolve a dispute using a private forum instead of a public judicial process. Disputants commonly use the nation’s largest arbitration providers. These arbitration providers include private companies like the American Arbitration Association (“AAA”) and the Judicial Arbitration and Mediation Services, Inc (“JAMS”). The result of the arbitration proceeding is legally binding. The prevailing party can seek to enforce the award in any federal or state court with appropriate jurisdiction.

It’s something that’s been around for centuries, but it has become more prevalent in recent years due to the popularity of contracts for cell phone services and credit cards.

There are three different types of arbitration: individual arbitration, class action, and mass arbitration. Individual arbitration is arbitration between two people or organizations, while class-action arbitration involves many people or organizations on one side of the dispute. Mass arbitrations involve individual claimants, each going against the same defendant individually. Unlike in a class arbitration, where one claimant represents all others and there is just one complex arbitration, there could be hundreds or even thousands of separate arbitrations against a single or few defendants about the same kind of dispute in mass arbitrations.

More than half of America’s private-sector non-union workers are subject to mandatory arbitration provisions in their employment contracts. Hundreds of millions of Americans are subject to compulsory arbitration of various other types of contracts, such as their cell phone, Internet, software subscription, and credit card contracts. The vast majority of other consumer contracts also feature mandatory arbitration clauses. Most Americans are subject to mandatory arbitration clauses without even knowing it. The effect of compulsory arbitration clauses being inserted in an ever-increasing array of employment and consumer contracts has been to close off access to the judicial process for millions of people who have been wronged.

What is ‘Mass arbitration?’

Mass arbitration is simply having an arbitrator instead of a judge or jury adjudicating many arbitration claims about the same matter. It’s not too different from traditional arbitration, but it does have some unique characteristics that you should be aware of.

The best way to understand mass arbitration is to look at the different parts of a contract. When you sign a contract, there may be a clause in it whereby you automatically give up your right to take the other party to court in small claims court or any other court if they break their end of the bargain. You choose to go through arbitration instead as a result of this clause. 

Many people subject to mandatory arbitration with a viable claim find it makes no economic sense to spend hundreds to thousands of dollars to arbitrate a case, plus opportunity costs, if the amount they could win is small in comparison. Companies including mandatory arbitration clauses in contracts expect that most counterparties will not seek redress for wrongs committed against them because it makes little economic sense to do so through arbitration. A claimant could have been wronged by being overcharged $250, but it would cost them just as much to file the case and get evidence together, and even more when considering the opportunity cost of missing work to attend the arbitration. These costs alone make arbitration for a $250 amount impractical. Further, if a lawyer is hired to arbitrate the claim, the claimant would stand to lose thousands of dollars merely to recover $250. Mass arbitration solves these problems by paying filing fees for clients, providing legal representation, and doing most of the arbitration work.

Many consumers and employees have similar claims they want to arbitrate. When those similar claims are brought simultaneously, the value of each claim increases as the defendant is faced with much higher immediate administrative costs, arbitrator fee costs, and legal expenses than if individual arbitration claims were brought. The defendant becomes much more likely to seek settlement if the claims are substantial and claimants are likely to prevail if all went to arbitration. If the defendant does not settle, then establishing that the defendant has wronged a few claimants makes it easier to show that claimants with similar harms are owed an award from the defendant in subsequent arbitrations.

In individual arbitrations, claimants are less likely to be represented by legal counsel than in a mass arbitration. Mass arbitrations offer claimants an economy of scale in multiple ways. The claimants in a single mass arbitration have common questions of law and fact since the defendant committed the same type of wrong against the claimants. Like in a mass tort, many claimants will have different degrees of harm done to them and thus be entitled to various damages awards. If the mass arbitration does make it to actual arbitration, because the defendant committed the same type of wrong to claimants, plaintiffs’ counsel can use the same type of evidence and legal arguments for each arbitration. If the defendant loses the first few arbitrations, the defendant will see that the claimants making up the mass arbitration were wronged and that they have the evidence to prove it. The defendant will conclude that it is best to settle as subsequent arbitrations will be lost and only incur unnecessary arbitrator and legal expenses.

If you know about a company charging unauthorized fees or doing something illegal that affects many consumers, contact us at Whistleblowers International. We will evaluate your information free of charge to determine if a viable mass arbitration case exists.