Law Quarterly

What is Arbitration and Why Should I Care?

By Mathew Anekstein


Most can agree that Netflix has become somewhat of a college staple, but unlike ramen or coffee, its enjoyment is accompanied by an esoteric legal issue. For those that have an account, think back to when it was first created. When prompted with the terms and conditions, did you take the time to fully read over their contents? The majority would sneer at that concept, but in that dreary block of text lays the arbitration clause (“Netflix Terms of Use”): a provision denying users the right to trial by jury or participate in class action lawsuits against the company. While seemingly a very nefarious manipulation of words, these clauses, as interpreted by the courts, are for the most part beneficial to society.

Arbitration was established in the United States under the Federal Arbitration Act (FAA) of 1925. Arbitration is a method of legal resolution wherein a mediator, typically a person knowledgeable in the subject matter relevant to the issue, listens to both arguments and decides the compensation a party may receive (“Qualification Criteria for Admittance to the AAA® National Roster of Arbitrators”). Disputes settled through arbitration have decisions that are legally binding and results that are typically undisclosed to the public (“Arbitration”). Many often prefer arbitration because it is “expeditious, avoids litigation delays, relieves court congestion, and is more economically efficient for all parties than a jury trial”. Under the FAA, decisions made through arbitration carry the same legal weight as those made through litigation. Arbitration typically costs far less than litigation because of the speed at which it can be conducted and the relative simplicity of its proceedings. In fact, according to the Federal Mediation and Conciliation Services, the average arbitrated case takes 475 days from start to finish while a similar litigated case may take anywhere from 18 months to three years to be decided. Arbitration doesn’t require many of the formalities of court, thus allowing discovery, decisions regarding what witnesses to call, and which documents are to be produced to often be handled through simple phone calls. Because arbitrators are often experts in their fields, little to no time is spent educating them about the subject matter underlying the dispute. Attorneys typically spend less time on each arbitrated case, thus reducing costs for each party involved.

Despite these benefits, arbitration does have an unpleasant side to it: an agreement to arbitrate is often accompanied by a covenant that neither party can participate in a class action lawsuit against the other. In today’s arbitration clauses hidden in the terms and conditions required for the creation of accounts, many are left unaware of what they are giving up. There exists a plethora of essays related to this issue and I encourage those interested to research the topic and the debate surrounding these clauses. However, the courts have typically encouraged the use of arbitration for its positive net impact in saving time and money, and have also held that arbitration clauses hidden in things such as terms and conditions are legal. In short, as a consumer, it is important that you partake in your due diligence and at least examine the accompanying documents if you are to agree to them. Clicking that check box is not as innocent as you may believe it to be.

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