Pre-Dispute Mandatory Arbitration Agreements: What You Need to Know

If you have ever signed a contract with a business, whether it be for a loan, credit card, or even a job, you may have come across a pre-dispute mandatory arbitration agreement. But what exactly does this mean?

A pre-dispute mandatory arbitration agreement is a clause in a contract that requires both parties to resolve any disputes through arbitration instead of going to court. This means that if you have a dispute with the company you signed the agreement with, you cannot take them to court, but rather you must go through an arbitration process where an independent third party will hear both sides of the issue and make a decision.

While this may seem like a fair and efficient way to settle disputes, there are some potential downsides to pre-dispute mandatory arbitration agreements that you should be aware of.

First, arbitration can be expensive. The cost of the arbitrator, as well as any administrative fees, can add up quickly and may be more than what it would cost to go through the court system.

Second, the decision made by the arbitrator is usually final and cannot be appealed. This means that if you do not agree with the decision made, you are stuck with it.

Third, pre-dispute mandatory arbitration agreements often include a clause that restricts your ability to participate in a class action lawsuit. This means that if there are multiple people with the same issue against the company, they cannot band together to file a lawsuit. Instead, each individual would have to go through the arbitration process separately.

So why do companies include pre-dispute mandatory arbitration agreements in their contracts? One reason is that it can be quicker and cheaper than going through the court system. It also allows companies to avoid potentially damaging lawsuits, as arbitration proceedings are usually confidential.

However, the inclusion of these clauses has become controversial in recent years. Some argue that they strip consumers and employees of their right to a fair legal process and limit their ability to hold companies accountable for wrongdoing.

In fact, some states have passed laws that limit or prohibit pre-dispute mandatory arbitration agreements. And in 2018, the United States Supreme Court ruled that employers can require employees to sign these agreements, but it remains a contentious issue.

So if you come across a pre-dispute mandatory arbitration agreement in a contract, it is important to carefully consider the potential implications. You may want to consult with a lawyer before signing and make sure you fully understand your rights and options in case a dispute arises.