4 ms·

Mandatory arbitration reduces the cost of resolving disputes (i.e. lawyer's fees). There are many arbitrators available who are comparable to the courts in out

by nickff 11y ago

Mandatory arbitration reduces the cost of resolving disputes (i.e. lawyer's fees). There are many arbitrators available who are comparable to the courts in outcome, but much speedier, more predictable, and cheaper. In cases where the parties are interested in good low cost dispute resolution, they may be willing to choose one of these arbitrators to reduce uncertainty and transaction costs. In other cases, one party may pay the other extra to 'buy' biased arbitration, or a specific arbitrator (or set of rules) may be selected as a way of shifting risk from one party to another, much like buying insurance; I do not see why this should be disallowed. There is also a signalling aspect to this, which we usually do not account for. By allowing the other party to select the arbitrator, you may be showing that you trust them; refusing their pick may be a sign of deeper issues.

Afton 11y ago
Ah, perhaps I should have been more specific. Having mandatory arbitration be a part of an employment contract seems like it is something that should be disallowed as part of employee protections. Or perhaps disallowing the choice of arbitrator by the employer would be sufficient. I don't care (I don't think) if two companies agree to mandatory arbitration as part of their business dealings, in part because it seems more like a meeting of equals. But for vastly unequal negotiations (renters would also be a likely culprit) it seems like a 'works in theory, but not in practice'. I know that in Canada, mandatory arbitration for consumers was disallowed recently in BC. Note that I'm not a lawyer or in the know, this is just a google search result: http://www.duhaimelaw.com/2011/03/18/supreme-court-of-canada-rules-that-private-arbitration-does-not-apply-to-consumer-protection-contracts/ http://www.duhaimelaw.com/2011/03/18/supreme-court-of-canada...
- nickff 11y ago
  By disallowing mandatory arbitration, you are essentially putting a substantial risk premium on the deal (and undiversified entities will probably have to buy insurance for it). This extra cost is likely to be reflected in reduced demand (i.e. less hiring) or reduced price (or salary); I am not sure this is a desirable policy. In any case, isn't this whole problem caused by an ineffective, slow, costly, and unpredictable legal system? Would it not be better to fix the courts, so that people actually wanted to use them?
  - Dr_tldr 11y ago
    http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1586&context=articles http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?ar... "Estimates of employee win rates and damage award amounts based on the AAA-CC filings data indicate that arbitration outcomes are generally less favorable to employees than those from employment litigation." "These results suggest that, while a substantial minority of employees use self-representation, in the large majority of instances employees are retaining counsel to represent them in employment arbitration. The cases in which employees do have representation by counsel are on average those in which they have a greater chance of success and recover larger damage awards. Thus employment arbitration appears to be a dispute resolution system predominantly based on employee representation by counsel, as is the case with litigation." So the takeaways here are the arbitration is worse for employees than litigation, and that employees usually need a lawyer for the arbitration process. The study notes that more research is needed, but it's far from clear than arbitration is a good idea for larger complaints, much less as the only option available. I would love to see some citation that shows businesses without mandatory arbitration clauses have to buy insurance or otherwise have to offer lower wages. This sounds very similar to other unsubstantiated but oft-repeated arguments about unionization, torts, consumer protection laws, etc. I don't disagree with you about the legal system, but how exactly will the court system become reformed through disuse?
    - nickff 11y ago
      There are also papers which support the notion that arbitration is more favorable to the complainant.[1] We can all cherry-pick documents that support our prior beliefs, but if neither side can convince the other, as is the case here, I think it is more fair to say that the evidence is unclear. Nobody has to buy insurance against employee claims, but many of the largest insurers offer it, which suggests that this is a common issue.[2] [1] http://repository.law.umich.edu/cgi/viewcontent.cgi?article=1466&context=articles http://repository.law.umich.edu/cgi/viewcontent.cgi?article=... [2] https://www.nationwide.com/employment-practices-liability-insurance.jsp https://www.nationwide.com/employment-practices-liability-in...
      - 11y ago
alistairSH 11y ago
While reducing costs is a valid concern for both parties, particularly the employer, I wonder if there is a better approach than binding arbitration with the arbiter selected by the employer, which has serious conflict-of-interest concerns?
- nickff 11y ago
  I would suggest fixing the legal system, so that dispute resolution through the courts was timely, lower-cost, and more predictable. Trial lawyers will probably oppose any changes to their rent-gathering system, but this seems to be the first-best choice.
twelvechairs 11y ago
So why should arbitration be mandatory rather than voluntary? If you both want to take arbitration at the time of dispute it can be done. This just sounds like the employer using a time of goodwill where its difficult to argue (signing an employment contract) to get an employee to 'agree' to sign away what should be a fundamental right to a fair hearing
- nickff 11y ago
  I never said arbitration should be mandatory. I am merely making the case for why it is a useful term of a contract, much like a late fee, performance bonus, or M&M color requirement.[1] You are also assuming that the arbitration will be unfair, which may or may not be the case; I have seen evidence on both sides, and there are many arbitrators who reach decisions more favorable to plaintiffs than the courts do, but at much lower transaction costs. Transaction costs often dominate employer-employee disputes. [1] http://www.snopes.com/music/artists/vanhalen.asp http://www.snopes.com/music/artists/vanhalen.asp
akiselev 11y ago
The thing is, insurance is almost always meant to spread around risk from random events, such as a car accident, unexpected disease, act of nature, or in the most extreme case, an engineering or manufacturing mistake that causes a rocket to blow up. Except in cases of fraud, these situations arise randomly or due to systemic problems that can be quantified within the context of the insured parties. With arbitration, especially when mandated by an employer, the process is easily used to make possible behavior that the legal system would otherwise never allow, by people who fully intend to do so, just like when someone buys insurance with the intent of burning their own house down for the cash payout. Unlike the insurance company, however, the employee has no remaining legal recourse outside of a predetermined (and possibly biased) arbitration process just because it is in the contract. If an employer is explicitly trying to minimize their risk and costs by mandating arbitration how can you ever trust them to pick an unbiased arbiter? If an agent is trying to maximize their outcomes by forcing arbitration, why would they then chose any arbiter that isn't more likely to side with them? You can argue that allowing arbitration is a trust signal, but at the same time it can send a signal that the employer is planning on, or at least thinks it a possibility, that they will violate some terms of the contract, whether those terms are explicit or implicit (i.e. due to legislation or court precedent). The problem is that the information assymetry between an employer and employee is so vast such that arbitration is a tool easily used to further exploit workers.
- nickff 11y ago
  >"The thing is, insurance is almost always meant to spread around risk from random events..." Health 'insurance' covers many predictable issues, such as eye glasses and continuing care issues, but I will grant you that insurance is generally best used to hedge against risk. A number of national US insurance providers offer policies which cover employee suits, so it must be a large, insurable market.[1] >"If an employer is explicitly trying to minimize their risk and costs by mandating arbitration how can you ever trust them to pick an unbiased arbiter? If an agent is trying to maximize their outcomes by forcing arbitration, why would they then chose any arbiter that isn't more likely to side with them?" There are many kinds of risk which one might try to minimize; one of these risks might be that of a long, drawn-out civil jury trial which can take a long time to be seen, and have a completely unpredictable outcome. Having an arbitrator decide against you for a reasonable sum might be preferable to devoting time and resources to a trial and investor relations disaster over many years (even if the verdict is in your favor). In addition, having a defined process from the outset may help the damaged party get their issue resolved quickly and easily; as a long civil suit can be ruinous to an individual (even if they win). In short, real people are not risk-tolerant robots. [1] https://www.nationwide.com/employment-practices-liability-insurance.jsp https://www.nationwide.com/employment-practices-liability-in...

by nickff 11y ago

Afton 11y ago

Ah, perhaps I should have been more specific. Having mandatory arbitration be a part of an employment contract seems like it is something that should be disallowed as part of employee protections. Or perhaps disallowing the choice of arbitrator by the employer would be sufficient. I don't care (I don't think) if two companies agree to mandatory arbitration as part of their business dealings, in part because it seems more like a meeting of equals. But for vastly unequal negotiations (renters would also be a likely culprit) it seems like a 'works in theory, but not in practice'. I know that in Canada, mandatory arbitration for consumers was disallowed recently in BC. Note that I'm not a lawyer or in the know, this is just a google search result: http://www.duhaimelaw.com/2011/03/18/supreme-court-of-canada-rules-that-private-arbitration-does-not-apply-to-consumer-protection-contracts/ http://www.duhaimelaw.com/2011/03/18/supreme-court-of-canada...

nickff 11y ago
By disallowing mandatory arbitration, you are essentially putting a substantial risk premium on the deal (and undiversified entities will probably have to buy insurance for it). This extra cost is likely to be reflected in reduced demand (i.e. less hiring) or reduced price (or salary); I am not sure this is a desirable policy. In any case, isn't this whole problem caused by an ineffective, slow, costly, and unpredictable legal system? Would it not be better to fix the courts, so that people actually wanted to use them?
- Dr_tldr 11y ago
  http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1586&context=articles http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?ar... "Estimates of employee win rates and damage award amounts based on the AAA-CC filings data indicate that arbitration outcomes are generally less favorable to employees than those from employment litigation." "These results suggest that, while a substantial minority of employees use self-representation, in the large majority of instances employees are retaining counsel to represent them in employment arbitration. The cases in which employees do have representation by counsel are on average those in which they have a greater chance of success and recover larger damage awards. Thus employment arbitration appears to be a dispute resolution system predominantly based on employee representation by counsel, as is the case with litigation." So the takeaways here are the arbitration is worse for employees than litigation, and that employees usually need a lawyer for the arbitration process. The study notes that more research is needed, but it's far from clear than arbitration is a good idea for larger complaints, much less as the only option available. I would love to see some citation that shows businesses without mandatory arbitration clauses have to buy insurance or otherwise have to offer lower wages. This sounds very similar to other unsubstantiated but oft-repeated arguments about unionization, torts, consumer protection laws, etc. I don't disagree with you about the legal system, but how exactly will the court system become reformed through disuse?
  - nickff 11y ago
    There are also papers which support the notion that arbitration is more favorable to the complainant.[1] We can all cherry-pick documents that support our prior beliefs, but if neither side can convince the other, as is the case here, I think it is more fair to say that the evidence is unclear. Nobody has to buy insurance against employee claims, but many of the largest insurers offer it, which suggests that this is a common issue.[2] [1] http://repository.law.umich.edu/cgi/viewcontent.cgi?article=1466&context=articles http://repository.law.umich.edu/cgi/viewcontent.cgi?article=... [2] https://www.nationwide.com/employment-practices-liability-insurance.jsp https://www.nationwide.com/employment-practices-liability-in...
    - 11y ago

alistairSH 11y ago

While reducing costs is a valid concern for both parties, particularly the employer, I wonder if there is a better approach than binding arbitration with the arbiter selected by the employer, which has serious conflict-of-interest concerns?

nickff 11y ago
I would suggest fixing the legal system, so that dispute resolution through the courts was timely, lower-cost, and more predictable. Trial lawyers will probably oppose any changes to their rent-gathering system, but this seems to be the first-best choice.

twelvechairs 11y ago

So why should arbitration be mandatory rather than voluntary? If you both want to take arbitration at the time of dispute it can be done. This just sounds like the employer using a time of goodwill where its difficult to argue (signing an employment contract) to get an employee to 'agree' to sign away what should be a fundamental right to a fair hearing

nickff 11y ago
I never said arbitration should be mandatory. I am merely making the case for why it is a useful term of a contract, much like a late fee, performance bonus, or M&M color requirement.[1] You are also assuming that the arbitration will be unfair, which may or may not be the case; I have seen evidence on both sides, and there are many arbitrators who reach decisions more favorable to plaintiffs than the courts do, but at much lower transaction costs. Transaction costs often dominate employer-employee disputes. [1] http://www.snopes.com/music/artists/vanhalen.asp http://www.snopes.com/music/artists/vanhalen.asp

akiselev 11y ago

The thing is, insurance is almost always meant to spread around risk from random events, such as a car accident, unexpected disease, act of nature, or in the most extreme case, an engineering or manufacturing mistake that causes a rocket to blow up. Except in cases of fraud, these situations arise randomly or due to systemic problems that can be quantified within the context of the insured parties. With arbitration, especially when mandated by an employer, the process is easily used to make possible behavior that the legal system would otherwise never allow, by people who fully intend to do so, just like when someone buys insurance with the intent of burning their own house down for the cash payout. Unlike the insurance company, however, the employee has no remaining legal recourse outside of a predetermined (and possibly biased) arbitration process just because it is in the contract. If an employer is explicitly trying to minimize their risk and costs by mandating arbitration how can you ever trust them to pick an unbiased arbiter? If an agent is trying to maximize their outcomes by forcing arbitration, why would they then chose any arbiter that isn't more likely to side with them? You can argue that allowing arbitration is a trust signal, but at the same time it can send a signal that the employer is planning on, or at least thinks it a possibility, that they will violate some terms of the contract, whether those terms are explicit or implicit (i.e. due to legislation or court precedent). The problem is that the information assymetry between an employer and employee is so vast such that arbitration is a tool easily used to further exploit workers.

nickff 11y ago
>"The thing is, insurance is almost always meant to spread around risk from random events..." Health 'insurance' covers many predictable issues, such as eye glasses and continuing care issues, but I will grant you that insurance is generally best used to hedge against risk. A number of national US insurance providers offer policies which cover employee suits, so it must be a large, insurable market.[1] >"If an employer is explicitly trying to minimize their risk and costs by mandating arbitration how can you ever trust them to pick an unbiased arbiter? If an agent is trying to maximize their outcomes by forcing arbitration, why would they then chose any arbiter that isn't more likely to side with them?" There are many kinds of risk which one might try to minimize; one of these risks might be that of a long, drawn-out civil jury trial which can take a long time to be seen, and have a completely unpredictable outcome. Having an arbitrator decide against you for a reasonable sum might be preferable to devoting time and resources to a trial and investor relations disaster over many years (even if the verdict is in your favor). In addition, having a defined process from the outset may help the damaged party get their issue resolved quickly and easily; as a long civil suit can be ruinous to an individual (even if they win). In short, real people are not risk-tolerant robots. [1] https://www.nationwide.com/employment-practices-liability-insurance.jsp https://www.nationwide.com/employment-practices-liability-in...