The “fine print” and arbitration clauses

People joke about the “fine print” in contracts, but often the fine print is no laughing matter, especially when it comes to arbitration clauses. If arbitration is heralded as being less expensive and faster than court proceedings, should you be concerned about being forced to arbitrate a dispute. Often the answer is yes.

When you agree to arbitration, you lose your right to go to court. Your only recourse in the event of a dispute is the arbitration forum selected by the other party. Worse yet, arbitration clauses usually dictate where the arbitration must conducted (too bad for you if the arbitration location is a thousand miles away), and you have no right to appeal an unfavorable decision.

Arbitration clauses are becoming ubiquitous. Take a look at the paperwork for your credit card, your brokerage account, your phone, the car you’re renting, even your job. Typically, people don’t pay any attention to the arbitration clause—the fine print—until a dispute arises.

From the corporate world’s point of view, it’s more than just a matter of convenience to have every dispute handled by the same arbitration group in the corporation’s home town. Forcing disgruntled customers to arbitrate long distances from their homes helps suppress legal battles.  And even better for corporations, those arbitration clauses can preclude class action lawsuits.

At the same time, there’s a place for arbitration clauses. When two parties of equal bargaining strength incorporate an arbitration clause in their contract, they’re both making an informed decision. An example is the construction industry, where general contractors and subcontractors often prefer having a construction expert resolve their disputes.

Reading the fine print may not be fun, and in many circumstances you may not have a choice but to accept the arbitration clause—“You want this cell phone?  Fine, then sign this contract.” Other times, however, you may be in a position to negotiate it out.  Regardless, it’s always better to understand in advance where you stand.

Care to read more?  The New York Times carried a series in November 2015 about arbitration clauses.

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