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Trends in the Law Part IV: ADR Part II: Does ADR deny a fundamental right?

Trends in the Law Series Part IV: Alternative Dispute Resolution Part II: Last week’s blog discussed the history, types and uses of Alternative Dispute Resolution, or ADR. This week’s blog discusses whether mandatory pre-dispute arbitration clauses in common contracts amount to a denial of a person’s day in court.


Alternative Dispute Resolution, or ADR, allows people to pursue legal claims in forums other than those associated with traditional litigation. When both parties give informed consent to participating in ADR, it can be very effective. However, too often participation in ADR is required by contractual clauses to which consent is not considered to be truly free. Consider one of the most controversial settings of mandatory pre-dispute arbitration clauses: admission contracts for long-term residential care facilities. Most facilities include these clauses in their admission contracts, and most courts have been unwilling and/or unable to hold the clauses unenforceable. Opposition to these clauses has grown, with many people pointing to the fact that the time when seeking admission to a nursing home or assisted living facility is not an appropriate time at which to be held accountable for the part of a contract specifying the forum for the future settlement of claims. Put simply, people are either in an emergency situation or too caught up in health and financial issues to focus on a choice of legal forum clause. Therefore, the validity of consent has been called into question.


Under the Obama administration, the Centers for Medicare and Medicaid Services (CMS) published a rule which went into effect on November 28, 2016, that prohibits nursing homes and long-term care facilities from requiring pre-dispute binding arbitration to settle claims over residents’ care. However, the Trump administration has proposed a rule change that would reverse this prohibition.

In response to the proposed rule, the American Bar Association wrote a letter to the CMS advocating for it to retain the prohibition against pre-dispute binding arbitration. Additionally, 31 U.S. Senators wrote the CMS saying that forced arbitration clauses “stack the deck against residents and their families.” The Senators argued that by forcing legal claims into a “privatized dispute resolution system that is often biased toward the nursing home,” pre-dispute binding arbitration clauses prevent residents and their families from seeking justice in a court of law.


The fear that binding arbitration will favor the long-term care facility is based on the fact that typically, pre-dispute binding arbitration clauses are imposed by the stronger party and favor the stronger party. These clauses have become ubiquitous in every kind of consumer contract including those for credit cards, cell phones, insurance, cable, banking, and many other goods and services. Clauses forcing a consumer or employee into arbitration rather than allowing him or her access to court are also common in employment contracts. Companies and employers can steer cases to friendly arbitrators who know that their cases—and therefore their livelihood—depend on amicable relationships with businesses, not with an individual that they will never see again. Of the 18,075 arbitrations handled by the National Arbitration Forum, consumers only won 30 of them, or .2%.

Many arbitration clauses also prohibit bringing class actions, which is tantamount to a denial of a person’s fundamental right to his or her day in court since certification as a class is realistically the only successful way to challenge large corporations and employers. What chance does an individual employee alleging discrimination have against Citibank or AT&T? But if that employee is certified as a class with 1,000 other employees alleging discrimination, and the case goes to trial in federal court, any discriminatory policies or behavior on the part of the company involved could be brought to light. By forcing individuals into private arbitration, systemic, corporate-wide practices cannot be addressed and remediated.

In addition to the issue of a pro-business bias in arbitration, there is the problem of a lack of due process attached to the proceedings. Although the informality of ADR allows it to be cost-effective and time-efficient, some find the process can be so devoid of normal court procedures and evidentiary rules that it resembles a kangaroo court rather than a real one. Arbitrators wield immense power, including what evidence can and cannot be presented, and questions about admissibility of evidence cannot be appealed in binding arbitration. If someone is forced to arbitrate their claim of wrongful termination but not allowed to present key evidence at the hearing and loses, they have no recourse.


While it is true that arbitration clauses can be opted out of for a limited time period, or that the entire contract which contains one is optional, because these clauses are contained in so many types of commercial and employment contracts today, it is impossible to completely avoid them. Doing without the basic goods and services that use these clauses in their contracts would be extremely difficult. Furthermore, employment contracts present a particularly severe choice: a job or your day in court.

ADR is not inherently a bad thing. But when it is forced upon parties, as pre-dispute binding arbitration in so many contracts is, it is not what it was meant to be: a fair and neutral alternative to the judicial system.


If you or someone you know has a legal claim with respect to a product, service or employment situation that involves a contract with an arbitration clause like that described in Part I or II of this ADR series, contact Dave Thomas at The Thomas Law Firm for a free evaluation of your legal rights.

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