Question: Can a business make consumers arbitrate disputes the consumer may have with the business?
Answer: Only if the consumer agrees to it. But, this agreement may be done at any time.
Although there is a federal law that supports the right to agree to arbitrate disputes – the Federal Arbitration Act – at its heart, arbitration is a matter of contract. In order to have their disputes decided in arbitration, the parties to the dispute must agree to arbitrate it. This agreement often happens at the time the contractual relationship is formed, whether that is through a software licensing agreement, loan agreement, purchase agreement, service agreement, or some other agreement between the business and its customer. If there is no pre-dispute arbitration agreement, the parties can agree that the dispute should be decided in arbitration after the dispute arises. One way or another, for disputes to be decided in arbitration, the parties must agree to settle their dispute in the arbitration forum.
A word on what happens in arbitration: an agreement to arbitrate is merely an agreement that an arbitrator – not a judge or jury – will decide a dispute between the parties to the agreement. It affects only the forum and procedures that will apply to the dispute; it does not change the substantive law that will be applied by the arbitrator. All things being equal, the outcome of a dispute decided in arbitration should be the same as it would have been in court. It just may take less time, money, and stress to obtain it.
Full disclosure: One of the hats I wear in my law practice is as an arbitrator. I can tell you from experience that you cannot make anyone arbitrate a dispute without their agreement to do so. I once dismissed a case initiated in arbitration because there was no agreement to arbitrate the particular dispute at issue. The parties in that case had agreed to arbitrate other types of disputes, but there was no agreement to arbitrate disputes of the type that was before me (and one of the parties did not wish to arbitrate that type of dispute), so I had no choice but to dismiss the case from arbitration and send the parties to court.
Despite their agreement to arbitrate their disputes with various companies, many consumers have challenged the ability of businesses to enforce those arbitration agreements. Of course, freedom of contract is a foundational component
of the American legal system. For this freedom to have any meaning, contracts must be enforceable by their terms. Thus, an arbitration agreement must be enforced like any other agreement or the whole thing unravels. The Supreme Court agrees and has put to rest the vast majority of major objections to arbitration, leaving parties free to agree to arbitrate their disputes, as long as the contract is drafted in a manner that enhances its enforceability – being fair and clear are two harbingers of a good arbitration agreement.
The detailed attributes of a good arbitration agreement will be explored in later posts. Suffice it to say, if you think you might want to arbitrate disputes arising through your relationship with your customers, you’ll want to talk with an attorney who is knowledgeable about arbitration and arbitration agreements. She or he can advise you regarding the pros and cons of arbitration as applied to your particular business. And, if you decide to go for it, the attorney can prepare the agreement with an eye toward enforceability.
Covering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my web site – www.westbendlaw.com.