It Shouldn’t Be This Easy to Sign Away Your Right to a Trial

A century ago, arbitration was a hot item. President Calvin Coolidge signed the Federal Arbitration Act on Feb. 12, 1925. It recognized private dispute resolution as a valid alternative to trials, and the arbitrator’s decisions in such disputes as binding, albeit subject to limited judicial review.

Two months later, The New York Times ran an article headlined, “Business Arbitration Spreads Over World.” It quoted Herbert Hoover, then a widely admired secretary of commerce and a backer of the legislation, as saying, “Next to war, the greatest source of economic waste in our national life is needless litigation.” In a June visit to the White House, the president of the Association of Cotton Textile Merchants said that thanks to the new law, “We believe American business will be freed in great measure from the strife and ill will which now arise because of disputes in the conduct of business.”

As we approach the centennial of the Federal Arbitration Act, though, the vibes around arbitration are considerably more jangly. When the practice makes news now, it’s often a customer complaining about being maneuvered into it. Consider:

• A New Jersey couple who were badly injured when their Uber crashed were prevented from suing the company because, a court ruled last month, they had agreed to submit any claims to arbitration by consenting on the app to the company’s terms of service.

• After a woman died from an allergic reaction after eating at a restaurant in a Walt Disney Parks and Resorts location, the company said her widower had waived his right to sue it when he signed up to try Disney+ years earlier. (Disney reversed itself in August after a public backlash and agreed to a trial.)

• In 2018, it emerged that Stormy Daniels, the adult entertainer, had signed a sweeping agreement before Donald Trump was president that any disputes between them would be resolved by arbitration. That was in exchange for taking $130,000 to stay silent about her affair with him. She ended up going public anyway.

Can arbitration get its 1925 magic back? I think so. The solution is to return arbitration to the intended purpose when the law was enacted — mostly to resolve contract disputes between businesses — and stop trying to apply it to dealings where it doesn’t belong, including the bulk of claims by consumers and employees.

At its best, arbitration provides judgments that are fast, frugal and fair. Arbitrators are allowed to use more relaxed rules of evidence and to prevent foot-dragging by either side. Arbitrators are less likely to be swayed by a crafty appeal to emotion than a jury might be. Arbitration is good for cases that would be too expensive to pursue as individual actions and too idiosyncratic to pursue as class actions. Class actions have another problem: They frequently make a lot of money for lawyers, but very little for each person in the class they represent.

“Hands down, writ large, arbitration tends to provide faster recoveries, higher recoveries and a greater chance of recoveries for consumers and employees,” Matthew Webb, a senior vice president at the U.S. Chamber of Commerce’s Institute for Legal Reform, told me. (A recovery is the amount of money a claimant gets.)

Sometimes, though, people just want their day in court, as the country’s founders intended. And they don’t like to be told that they gave up that right when they hurriedly clicked through an online form — or gave their “implied consent” by making a purchase somewhere. Also, scholars aren’t all lined up behind the Chamber of Commerce’s argument that arbitration always produces better and faster returns. In employment cases, employees do worse in arbitration than in court, according to an article last year by Alexander J.S. Colvin of Cornell’s School of Industrial and Labor Relations and Mark Gough of Pennsylvania State.