Jottings By An Employer's Lawyer

Tuesday, December 22, 2009

An Argument Against the Arbitration Fairness Act

Even as one segment of the employment community, defense contractors and sub-contractors with large contracts, have lost the right to have arbitration agreements as a condition of employment, a summary of a recent law review article makes what it calls the "not so popular" argument in favor of such clauses. See, Jonathan Adler's of New York Law School's comment at The Obiter Dictum, A Not So Popular Argument Supporting the Use of Mandatory Arbitration Clauses.

The longer article is Determining if Mandatory Arbitration is “Fair:” Asymmetrically-Held Information and the Role of Mandatory Arbitration in Modulating Uninsurable Contract Risks, by Paul Bennett Marrow.

Here's the money quote from the Obiter Dicta article: 
Passage of the Arbitration Fairness Act of 2009 (which seems unlikely given its current status in both House and Senate committees) will cause more problems than it will solve. For instance, without the availability of mandatory arbitration, many parties will be more vulnerable to potential litigation and its associated uncertainties. As a result, overall transaction costs will increase. These costs will be directly passed to borrowers and franchisees. Employers will also pass these costs to business customers, albeit indirectly.
Two comments, first I am not as optimistic as the writer that the Arbitration Fairness Act will not pass; secondly, I think saying that being for mandatory arbitration is not a popular position, may be the understatement of the year.


The problem with the argument that transaction costs will rise due to increased litigation is that this logic, taken down the slippery slope, leads to the conclusion that all litigation should simply be done away with. The argument writes litigation off as a "transaction cost". Of course litigation does come at a cost to society. But when laws are broken, society has to balance these costs off against the societal aspiration to justice and equality before the laws. How much are these values worth?
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