Fact Sheet on Arbitration

Arbitration – Benefiting Consumers and Employees Since 1925

What Is Arbitration?

Arbitration is a procedure for resolving legal disputes outside the courts by utilizing an impartial third party whose decision the parties have agreed to accept.  The origins go back to ancient Egypt.  Most modern agreements to arbitrate are entered into before a dispute arises; the parties agree in advance that if a dispute between them does arise, they will go to arbitration instead of filing a lawsuit.  In the United States, pre-dispute arbitration has provided a fair, efficient, and effective alternative to our overcrowded and costly court system for more than 80 years.  

• Customers enter into arbitration agreements when purchasing various consumer products, including credit cards, cell phones, insurance, home sales, mortgages, car sales and loans, brokerage services, cable and satellite TV, computers, software, and Internet service. 
• Consumers and employees resolve tens of thousands of claims through arbitration each year.

The Advantages of Arbitration

More Favorable Outcomes for Consumers and Employees than Litigation - Individuals fare at least as well, if not better, in arbitration than they would have in court.  For example, one study found that employees were almost 20% more likely to win cases in arbitration than those litigated in court (National Workrights Institute, “Employment Arbitration: What Does the Data Show,” 2004).  And in California, a study found that consumers won 65.5% of arbitrations brought against businesses, as opposed to about 61% of lawsuits across the country (Mark Fellows, “The Same Result As In Court, More Efficiently:  Comparing Arbitration and Court Litigation Outcomes,” 2006).  Statistics provided by the American Arbitration Association show that arbitrations yielded an 81% positive outcome for consumers, either through an outright win or voluntary settlement (testimony at U.S. Senate Judiciary Committee hearing, December 12, 2007).

Consumers Satisfied with Results - In one study of arbitration participants, over 70% were satisfied with the fairness of the process and the outcome – including a sizeable number of those who had lost their arbitrations (Harris Interactive Survey, “Arbitration:  Simpler, Cheaper and Faster Than Litigation,” 2005).  

Speedier than the Courts - Studies indicate that arbitration is much quicker than bringing a lawsuit in the crowded, overburdened court system.  Consumer arbitrations administered by the American Arbitration Association proceed to an award in an average of four to six months.  Civil cases filed in federal district courts face, on average, a delay of nearly two years before reaching trial (Michael Delikat and Morris M. Kleiner, “An Empirical Study of Dispute Resolution Mechanisms:  Where Do Plaintiffs Better Vindicate Their Rights?” 2003). 

Favorable Financial Awards - Individual monetary recoveries do not suffer in arbitration.  To the contrary, arbitration awards by plaintiffs typically are the same as or even larger than court awards (Michael Delikat and Morris M. Kleiner, “An Empirical Study of Dispute Resolution Mechanisms:  Where Do Plaintiffs Better Vindicate Their Rights?” 2003).

Less Costly Than Litigation - Consumers can file and pursue arbitration at minimal cost.  The amount can be as little as $46.63 in arbitration fees.  Under the American Arbitration Association’s procedures, consumers cannot be required to pay more than $125 in total costs, and employees no more than $150, while businesses shoulder the remainder.  And a growing number of consumers will pay nothing to arbitrate, because businesses are increasingly agreeing to pay all the costs of arbitration.