The “Efficiency” of Class Arbitration

By Oren Giskan, Esq.

As we know, most companies now force their customers and/or their employees to arbitration through mandatory arbitration provisions in their contracts, whether it be an employment contract or the tiny print on the back of an invoice.

Judicial Arbitration and Mediation Services, Inc. (or “JAMS”) is the largest private alternative dispute provider in the world and is often named in contracts as the tribunal where your claim must be heard rather than being permitted to file in court. According to proponents of mandatory arbitration, arbitration is far more efficient and less costly than litigating before a judge.

But is it really? The other day, I perused the JAMS rules for class action arbitrations to see how they stack up against a typical class case in court.

Step One. The first step in the JAMS process is what’s called “clause construction.” In this step, the parties fully brief the issue whether the clause in question permits class arbitrations at all. Next, the arbitrator issues an order regarding whether the clause permits class arbitration. Either party, however, can automatically appeal the arbitrator’s decision to a “real” court for review. That’s right. The arbitration stops in its tracks while a court reviews the arbitrator’s decision.

Step Two. Once the consumers or employees clear that hurdle, they then move for class certification. Again, the parties brief the issue, perhaps conduct some discovery relevant to class certification, and then brief the propriety of class certification. The arbitrator then decides whether the class should be certified. That order, too, is immediately appealable to a court for review. The arbitration then stops – again — until the court reviews the arbitrator’s order.

Step Three. If the consumers survive this review by the court, they can finally proceed to the actual merits of their class case. This process again can take years and is extremely costly as the consumers must pay the costs of the arbitration (including the fees for the arbitrator).

Courts that have enforced arbitration clauses in consumer agreements have reasoned that consumers agree to the arbitration process by using a credit card or clicking an “I agree to the terms and conditions” box when they buy a product or service online. But would anybody really voluntarily sign onto the lengthy and expensive process described above? Or do consumers effectively just give up the right to sue when they “agree” to arbitration?