Imagine your washing machine breaks.
You ask the seller to replace it. They balk, claiming they don’t need to replace the defective machine, but you’re confident they are wrong. Despite spending hours with customer service representatives on the phone, they refuse to send you a new unit.
What should you do now? Give up? Hire a lawyer to sue -- and wind up spending more money on legal fees than a new machine would cost?
Fortunately, you have a third option: arbitration. You bring your complaint to a neutral third party, who will hear your side of the story, the other side, and then issue a binding decision. It’s a quicker, cheaper way of settling relatively small disputes without the hassle, time, and expense of involving the courts.
But it might not be an option for ordinary Americans much longer. The House of Representatives recently voted to approve legislation that effectively bans arbitration agreements in many types of private contracts. President Biden has said he will sign it into law if it clears the Senate. That’d be a disaster for American workers and consumers.
Those seeking to deny Americans this effective alternative have dubbed their legislation the “Forced Arbitration Injustice Repeal” (FAIR) Act. They say it will help ordinary workers and consumers.
But the real beneficiaries would be plaintiffs’ lawyers who make their living by going to court. Banning arbitration would provide a huge boost to their income streams.
The trial bar and their allies claim arbitration is a miscarriage of justice that favors the interests of businesses over those of consumers and employees. Yet the evidence suggests that both workers and consumers get better results in arbitration than in court.
Take a recent analysis conducted by ndp analytics of employment disputes between 2014 and 2021. In cases where arbitrators decided on the merits, employees prevailed nearly 38% of the time. By comparison, they won just 11% of the time when their cases were heard in a courtroom.
What’s more, the average award for employees in arbitration during that period was around $444,000 -- compared to an average award of about $408,000 in court.
A similar pattern exists for disputes involving consumers. Between 2014 and 2021, consumers prevailed in almost 42% of arbitration cases they initiated. For court cases, that figure was about 29%.
Arbitration proceedings also tend to be less complicated than litigation. Often, individuals in arbitration don’t need to pay a lawyer to state their case persuasively and accurately. And when a lawyer is necessary, the fees involved tend to be much lower.
Supporters of the FAIR Act insist that it’s not a ban on arbitration, just on agreements that commit parties to this form of alternate dispute resolution in advance of a dispute. But that’s a distinction without a difference. Once a dispute arises, the prospects for arbitration shrink to near-zero. Prohibiting pre-dispute agreements would effectively end arbitration altogether.
The idea that Americans need protection from arbitration agreements couldn’t be farther from the truth. If employees and consumers need protection, it’s from lawmakers and lawyers looking to dismantle this institution through bills like the erroneously named FAIR Act. That’s what’s unfair.
Harold Kim is the chief legal officer and executive vice president of the U.S. Chamber of Commerce and president of its Institute for Legal Reform. This piece originally ran in RealClearPolicy.