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Tell Me About Arbitration Agreements


It’s there. You may not even notice it but it’s certainly there. Arbitration agreements. If you have a cell phone or a credit card, chances are that your contract contains an arbitration clause. Let’s face it. Most people don’t give the fine print in these contracts a second thought. This can turn out to be a big mistake. Big businesses are constantly in search of ways to limit a consumer’s right to recovery in the event of a dispute. Arbitration agreements are one of the main devices used to accomplish this. Despite the widespread use of arbitration agreements, you should be leery.

Arbitration is basically a pre-dispute contract between parties in which the parties agree to submit the issues to a third party called an arbitrator. While this may not seem like a big deal at first glance, arbitration clauses severely limit your rights. Say for instance, one of your family members has to be placed in a nursing home. While there, the family member receives less than stellar care which ultimately leads to their death. If there is an arbitration agreement in place, your family can’t sue the nursing home in court for wrongful death. Instead, you will be required to participate in arbitration. Below are some of the disadvantages of arbitration and reasons why you should be leery.

Perhaps one of the biggest drawbacks of arbitration is that your dispute will be decided by an arbitrator—not a jury. A valid arbitration agreement takes away your right to a civil trial with a jury of your peers. A jury who may be more sympathetic to your issues.

Secondly, unlike jury verdicts, arbitration decisions are virtually un-appealable. State and federal policy strongly favor the enforcement of arbitration agreements. The odds of winning an appeal of an arbitration decision are extremely low. This is in contrast to jury verdicts which are appealed all the time.

Additionally, arbitration agreements can be cost-prohibitive. Most agreements require that the losing party pay the costs of arbitration and attorney’s fees. Even worse, some agreements require that each party bear half of the cost of arbitration up front. Arbitration can easily run into thousands or hundreds of thousands of dollars. While these costs may not be much to a big business, the expenses can be significant to a consumer. So significant, in fact, that he/she can’t afford to bring the dispute before the arbitrator.

Lastly, arbitration agreements almost always limit your right of recovery. Most arbitration agreements take away your right to certain damages, specifically punitive damages. This is one of the main reasons why business push for arbitration agreements. If a consumer is barred for certain types of recovery, he/she will receive less money than if all avenues of recovery were open to them.

But don’t fret. There are still steps that you can take to protect your rights if you sign an arbitration agreement. While most arbitration agreements are offered on a take-it or leave-it basis, the consumer is not powerless. Always, always read the document you are signing. If it all possible, try to bargain for the terms of the arbitration agreement. Ask that a choice of arbitrator provision be provided. This gives the consumer slightly more leverage in that he/she can pick someone that is more likely to be sympathetic to their cause. Also, you can require the person wanting the arbitration foot the bill. If the nursing home or the cell phone company wants you to agree to arbitration, make them pay for it.

The bottom line is: think before you sign.

Ashley L. Hendricks, Esq.


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