4 ms·

What's the legal basis for allowing arbitration clauses?

hnfong 5y ago
The legal basis is probably this: https://en.wikipedia.org/wiki/Freedom_of_contract https://en.wikipedia.org/wiki/Freedom_of_contract But then this is premised on the fact that the legal system is capitalistic (laissez-faire economics and free-market libertarianism, etc etc).
- fidesomnes 5y ago
  This is so clueless you should stop while you are ahead.
- yjftsjthsd-h 5y ago
  > But then this is premised on the fact that the legal system is capitalistic (laissez-faire economics and free-market libertarianism, etc etc). Er. Free market, maybe, but what does it have to do with capital?
- ClumsyPilot 5y ago
  The legal systen is 'free market'? Thats why offering money to anyone except your attorney is a crime? Being a jury is a public duty, poor people get a state sponsored defence atturney, judges are employed by the state, prosecutors are employed by the state. The day legal system goes 'free market' you will have mafia rulling the streets.
  - throwaway3699 5y ago
    A defence attorney, sure, but you've got no chance of recompense if you have a legitimately sue (e.g. Amazon) to secure your rights.
    - ClumsyPilot 5y ago
      You mean if you have to go on the offensive and sue a company that has wronged you? Thats kind of true, but thats the point of many regulatory agencies and complaints procedures - in UK we have many Ombundsments which are meant to pursue the offenders on behalf of consumers. Also class actions lawsuits are meant to help with that. Thats why these arbitration clauses seem like they subvert the legal sysstem and they should not be allowed.
ncallaway 5y ago
In the United States, it is generally the Federal Arbitration Act of 1925 https://en.wikipedia.org/wiki/Federal_Arbitration_Act https://en.wikipedia.org/wiki/Federal_Arbitration_Act
- xoa 5y ago
  It was also relatively recently (2018) reinforced by the Supreme Court in the case Epic Systems Corp. v. Lewis. However, there are (as companies have now been finding out) still standards in the courts for arbitration. It's not just a wink wink way to escape all liability entirely, and is in fact supposed to be fair and reasonable. In particular, terms like Amazon's are in legal jargon "contracts of adhesion", take-it-or-leave-it offerings where one side has vastly more bargaining power than the other. Contracts of adhesion aren't inherently illegal, but they are subject to special scrutiny to make sure terms aren't unconscionable. Amongst other things this means the powerful party putting in an arbitration clause needs to pay for it, and they can't just unilaterally change that after the fact even if they have a clause saying they can because courts would not permit it and the whole thing would go down in flames anyway. I definitely agree with people indulging in a bit of dark amusement over big corps that so blatantly tried to rig things in their favor and for once got hoist by their own petard.
  - wahern 5y ago
    > Amongst other things this means the powerful party putting in an arbitration clause needs to pay for it, and they can't just unilaterally change that after the fact even if they have a clause saying they can because courts would not permit it and the whole thing would go down in flames anyway. Do you have any Federal caselaw citations for that? Serious question. Arbitration clauses didn't become nearly universal until after AT&T Mobility v. Concepcion, 563 U.S. 333 (2011). That decision said that state common law doctrines like unconscionability were pre-empted by the Federal Arbitration Act. After that decision the shift to mandatory arbitration began in earnest across all industries. Federal law famously has no common law. (Not strictly true in practice, but true enough in this case.) I don't know of any Federal law, statutory or pseudo-common law, which could substitute for doctrines like unconscionability, especially as applied to arbitration clauses. They may exist (thus the sincere question), but I can't bring to mind any limiting principles beyond simple rules of interpretation (e.g. resolve ambiguity against the drafter). Certainly in a cursory search it seems that it's not unheard of for such clauses, even in consumer contracts, to require a plaintiff to pay all expenses if they lose--i.e. English rule for attorney's fees. The only limit seemed to be that an arbitration clause couldn't be used to restrict the benefit of other explicit Federal statutory rights, but those seem to be in short supply and lacking the breadth of the FAA. I suspect one of the only reasons arbitration clauses haven't become even worse for consumers is out of fear of Federal Trade Commission (FTC) attention. But that seems more like a temporary reprieve. All it takes is one company to call the FTC's bluff to embolden everybody else. AFAIU consumer-oriented companies refrained from using mandatory arbitration clauses largely out of fear of FTC reprisal for using clauses that were likely to fail under state law of the most populous states. But once Federal courts made it clear that the last of the state law barriers was pre-empted, fear of the FTC dissipated even though the FTC had no more or less powers than before Concepcion.
1cvmask 5y ago
No idea why you are downvoted for asking a legitimate question.
gnicholas 5y ago
As others have mentioned, there's the FAA. There's also an important Supreme Court case upholding the validity of arbitration agreements, AT&T v. Concepcion: https://en.wikipedia.org/wiki/AT%26T_Mobility_LLC_v._Concepcion https://en.wikipedia.org/wiki/AT%26T_Mobility_LLC_v._Concepc... But generally, the reason that arbitration agreements are allowed is because of 'freedom to contract'. That is, people are free to agree to do almost anything in contracts. The reason this might not be allowed would be because the contracts are often 'contracts of adhesion' (drafted by one party and not able to be negotiated). But the Concepcion case knocked that down as a possible rationale, if memory serves. That case was about AT&T contracts with customers, which are obviously not negotiable.

The legal basis is probably this: https://en.wikipedia.org/wiki/Freedom_of_contract https://en.wikipedia.org/wiki/Freedom_of_contract But then this is premised on the fact that the legal system is capitalistic (laissez-faire economics and free-market libertarianism, etc etc).

fidesomnes 5y ago
This is so clueless you should stop while you are ahead.
yjftsjthsd-h 5y ago
> But then this is premised on the fact that the legal system is capitalistic (laissez-faire economics and free-market libertarianism, etc etc). Er. Free market, maybe, but what does it have to do with capital?
ClumsyPilot 5y ago
The legal systen is 'free market'? Thats why offering money to anyone except your attorney is a crime? Being a jury is a public duty, poor people get a state sponsored defence atturney, judges are employed by the state, prosecutors are employed by the state. The day legal system goes 'free market' you will have mafia rulling the streets.
- throwaway3699 5y ago
  A defence attorney, sure, but you've got no chance of recompense if you have a legitimately sue (e.g. Amazon) to secure your rights.
  - ClumsyPilot 5y ago
    You mean if you have to go on the offensive and sue a company that has wronged you? Thats kind of true, but thats the point of many regulatory agencies and complaints procedures - in UK we have many Ombundsments which are meant to pursue the offenders on behalf of consumers. Also class actions lawsuits are meant to help with that. Thats why these arbitration clauses seem like they subvert the legal sysstem and they should not be allowed.

ncallaway 5y ago

In the United States, it is generally the Federal Arbitration Act of 1925 https://en.wikipedia.org/wiki/Federal_Arbitration_Act https://en.wikipedia.org/wiki/Federal_Arbitration_Act

xoa 5y ago
It was also relatively recently (2018) reinforced by the Supreme Court in the case Epic Systems Corp. v. Lewis. However, there are (as companies have now been finding out) still standards in the courts for arbitration. It's not just a wink wink way to escape all liability entirely, and is in fact supposed to be fair and reasonable. In particular, terms like Amazon's are in legal jargon "contracts of adhesion", take-it-or-leave-it offerings where one side has vastly more bargaining power than the other. Contracts of adhesion aren't inherently illegal, but they are subject to special scrutiny to make sure terms aren't unconscionable. Amongst other things this means the powerful party putting in an arbitration clause needs to pay for it, and they can't just unilaterally change that after the fact even if they have a clause saying they can because courts would not permit it and the whole thing would go down in flames anyway. I definitely agree with people indulging in a bit of dark amusement over big corps that so blatantly tried to rig things in their favor and for once got hoist by their own petard.
- wahern 5y ago
  > Amongst other things this means the powerful party putting in an arbitration clause needs to pay for it, and they can't just unilaterally change that after the fact even if they have a clause saying they can because courts would not permit it and the whole thing would go down in flames anyway. Do you have any Federal caselaw citations for that? Serious question. Arbitration clauses didn't become nearly universal until after AT&T Mobility v. Concepcion, 563 U.S. 333 (2011). That decision said that state common law doctrines like unconscionability were pre-empted by the Federal Arbitration Act. After that decision the shift to mandatory arbitration began in earnest across all industries. Federal law famously has no common law. (Not strictly true in practice, but true enough in this case.) I don't know of any Federal law, statutory or pseudo-common law, which could substitute for doctrines like unconscionability, especially as applied to arbitration clauses. They may exist (thus the sincere question), but I can't bring to mind any limiting principles beyond simple rules of interpretation (e.g. resolve ambiguity against the drafter). Certainly in a cursory search it seems that it's not unheard of for such clauses, even in consumer contracts, to require a plaintiff to pay all expenses if they lose--i.e. English rule for attorney's fees. The only limit seemed to be that an arbitration clause couldn't be used to restrict the benefit of other explicit Federal statutory rights, but those seem to be in short supply and lacking the breadth of the FAA. I suspect one of the only reasons arbitration clauses haven't become even worse for consumers is out of fear of Federal Trade Commission (FTC) attention. But that seems more like a temporary reprieve. All it takes is one company to call the FTC's bluff to embolden everybody else. AFAIU consumer-oriented companies refrained from using mandatory arbitration clauses largely out of fear of FTC reprisal for using clauses that were likely to fail under state law of the most populous states. But once Federal courts made it clear that the last of the state law barriers was pre-empted, fear of the FTC dissipated even though the FTC had no more or less powers than before Concepcion.

1cvmask 5y ago

No idea why you are downvoted for asking a legitimate question.

gnicholas 5y ago

As others have mentioned, there's the FAA. There's also an important Supreme Court case upholding the validity of arbitration agreements, AT&T v. Concepcion: https://en.wikipedia.org/wiki/AT%26T_Mobility_LLC_v._Concepcion https://en.wikipedia.org/wiki/AT%26T_Mobility_LLC_v._Concepc... But generally, the reason that arbitration agreements are allowed is because of 'freedom to contract'. That is, people are free to agree to do almost anything in contracts. The reason this might not be allowed would be because the contracts are often 'contracts of adhesion' (drafted by one party and not able to be negotiated). But the Concepcion case knocked that down as a possible rationale, if memory serves. That case was about AT&T contracts with customers, which are obviously not negotiable.