Originally from Dispute Resolution Journal

The authors reveal some of the flaws in the arguments made by a vocal consumer advocacy group in a recent paper purporting to compare arbitration costs with those of litigation. They show, among other things, that arbitration costs on employees and consumers actually are going down, and they cite soon-to-be-published research showing that the costs for employees are modest. They emphasize that since most employees and consumers have low-stakes claims that are not likely to ever be heard in court, arbitration is the only real forum in which their claims can be heard.

In April 2002, Ralph Nader’s “consumer rights” group, Public Citizen, issued a report on the costs of arbitration.1 Billing itself as the “first comprehensive collection of information on arbitration costs,” it contains but a few “case studies,” without any evidence that they are representative of the forum costs incurred by the typical consumer or employee. In fact, several examples involve disputes that appear to be well outside the realm of the typical lower-income claimant, such as one involving a $605,000 custom-designed home, and others involving highly compensated employees of two well-known brokerage firms.2 Moreover, the report does not take into account the frequent reallocation of forum fees by arbitrators, which often allows employees and consumers to resolve their disputes at modest cost. The report also does not address the clear trend in provider organization rules and company-promulgated agreements to prospectively allocate the bulk of arbitration costs to the employer or non-consumer party.

More significantly, the Public Citizen report makes the faulty assumption that lower-income parties are otherwise being denied their “day in court” due to mandatory pre-dispute arbitration agreements. As discussed below, it is unlikely that many of these claims would ever be litigated in the public court system, due largely to the difficulty in securing legal counsel for high-cost litigation in such low-stakes cases.

Accordingly, arbitration is not a device that deprives employee and consumer claimants of an opportunity to vindicate their rights, and may well be the only forum in which they can obtain a hearing. The fact that some costs are involved in arbitrating such disputes outside the publicly funded court system is not surprising, and, in fact, may be necessary to deter pursuit of frivolous claims.