Mandatory Arbitration Clauses: Fair or Exploitative?

Introduction: The Clause Almost Everyone Signs—and Few Understand

As lawyers who routinely review contracts, advise clients, and litigate disputes, we encounter mandatory arbitration clauses almost daily. They appear in employment contracts, consumer agreements, bank forms, mobile apps, insurance policies, and even hospital admission documents.

Most people sign them without negotiation. Many do not even notice them.

Yet these clauses determine one of the most fundamental legal questions of all:

👉 If a dispute arises, do you have the right to go to court—or not?

Mandatory arbitration clauses sit at the uneasy intersection of efficiency and justice, freedom of contract and inequality of bargaining power, private dispute resolution and public accountability. This article confronts the central question lawyers rarely address honestly:

Are mandatory arbitration clauses fair, or are they exploitative?

The answer, grounded in experience, judicial authority, and academic critique, is nuanced—but deeply consequential.

What Are Mandatory Arbitration Clauses?

A mandatory arbitration clause is a contractual provision that:

Requires disputes to be resolved through arbitration, and
Waives the right to litigate in court, often including the right to participate in class actions

Unlike voluntary arbitration, these clauses are typically:

Pre-dispute
Non-negotiable
Embedded in standard-form (“adhesion”) contracts

They are common in:

Employment agreements
Consumer contracts
Financial services
Telecommunications and technology platforms

Why Mandatory Arbitration Became So Widespread

1. Judicial Endorsement

The expansion of mandatory arbitration is largely driven by court decisions, particularly under the Federal Arbitration Act (FAA) 1925 in the United States.

In AT&T Mobility LLC v. Concepcion (2011), the U.S. Supreme Court upheld mandatory arbitration clauses that barred class actions, marking a turning point in arbitration jurisprudence.

Similarly, in Epic Systems Corp. v. Lewis (2018), the Court upheld employment arbitration clauses that prohibit collective legal action.

These decisions signaled strong judicial support for arbitration—even when imposed.

2. Corporate Preference for Predictability

From a business perspective, arbitration offers:

Confidentiality
Reduced litigation exposure
Predictable procedures
Limited appeal rights

For corporations, arbitration is not just an alternative—it is a risk-management tool.

The Case for Fairness: Arguments Supporting Mandatory Arbitration

To be balanced and credible, we must acknowledge the arguments in favor of mandatory arbitration.

1. Efficiency and Speed

Arbitration is often faster than court litigation, avoiding years of procedural delay.

Courts around the world are overburdened. Arbitration can provide timely resolution—an important aspect of justice.

2. Reduced Legal Costs (In Theory)

Proponents argue arbitration reduces:

Court filing fees
Procedural complexity
Prolonged discovery

In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (1985), the Supreme Court emphasized arbitration’s role in efficient dispute resolution in commercial contexts.

3. Expertise of Arbitrators

In technical disputes, arbitrators may possess subject-matter expertise superior to that of generalist judges.

4. Party Autonomy and Freedom of Contract

Supporters argue that arbitration clauses reflect private choice—a cornerstone of contract law.

But this argument assumes real choice, which leads us to the core controversy.

The Case for Exploitation: Where Mandatory Arbitration Becomes Problematic

1. The Illusion of Consent

In practice, most mandatory arbitration clauses are imposed in adhesion contracts:

“Take it or leave it”
No meaningful negotiation
No alternative provider

Legal scholar Margaret Jane Radin describes this as “boilerplate coercion,” where consent is formal but not substantive.

📌 Why this matters:
Consent without bargaining power is not true consent.

2. Power Imbalance and Systemic Inequality

Mandatory arbitration disproportionately affects:

Employees
Consumers
Tenants
Patients

Corporations are repeat players in arbitration systems. Individuals are not.

As Professor Marc Galanter famously observed in Why the “Haves” Come Out Ahead, repeat players shape dispute systems to their advantage.

3. Confidentiality That Silences Wrongdoing

Arbitration proceedings are private. While privacy can protect legitimate interests, it can also:

Hide patterns of misconduct
Prevent public accountability
Silence victims

In contrast, litigation creates public records and legal precedent.

📌 Justice concern:
Secret justice is often incomplete justice.

4. Elimination of Class Actions

Many arbitration clauses prohibit class or collective actions.

In AT&T Mobility v. Concepcion, this was upheld—but critics argue it allows corporations to avoid accountability for small but widespread harms.

When individual claims are too small to pursue alone, rights exist only in theory.

5. Cost Shifting and Practical Barriers

While arbitration is often marketed as cheaper, real-world practice shows:

High arbitrator fees
Administrative costs
Travel and logistical expenses

For low-income claimants, these costs can effectively block access to justice.

Courts, by contrast, often provide fee waivers and cost controls.

Global Perspective: Mandatory Arbitration Beyond the United States

United Kingdom and Europe

European courts take a more cautious approach. Under EU consumer protection law, unfair arbitration clauses may be struck down.

The European Court of Justice has emphasized substantive fairness and transparency in consumer contracts.

Developing Jurisdictions

In many developing legal systems, mandatory arbitration clauses imported from multinational contracts can:

Undermine local judicial authority
Exclude vulnerable populations from justice

This raises serious concerns about legal colonialism and fairness.

Key Academic Critiques of Mandatory Arbitration

Owen Fiss – Against Settlement: warns that privatized dispute resolution may sacrifice justice for efficiency
Judith Resnik – criticizes the privatization of adjudication and loss of democratic accountability
Mauro Cappelletti – emphasizes access to justice as a core legal value

These scholars consistently warn that arbitration must not replace courts where rights, equality, and public interest are at stake.

When Mandatory Arbitration Is More Likely to Be Fair

Mandatory arbitration may be more defensible when:

Parties have equal bargaining power
The clause is clearly disclosed
Costs are borne by the stronger party
Collective remedies are preserved
Judicial review is available

Commercial arbitration between sophisticated entities is fundamentally different from consumer or employment arbitration.

When Mandatory Arbitration Becomes Exploitative

From professional experience and legal authority, arbitration becomes exploitative when:

It is imposed, not chosen
It eliminates meaningful remedies
It conceals systemic harm
It favors repeat corporate actors
It denies access to courts altogether

As courts have long held, justice must not only be efficient—it must be fair.

Mandatory Arbitration vs Litigation: A Justice-Focused Comparison

Issue	Mandatory Arbitration	Litigation
Consent	Often weak	Strong
Transparency	Low	High
Precedent	None	Yes
Power balance protection	Limited	Strong
Cost predictability	Mixed	Regulated
Public accountability	Minimal	High

The Future of Mandatory Arbitration

Globally, we see:

Legislative pushback
Judicial re-evaluation
Public awareness increasing

Some jurisdictions now restrict mandatory arbitration in:

Employment discrimination
Sexual harassment
Consumer protection

This signals a growing recognition that not all disputes belong in private forums.

Conclusion: Fair Tool or Exploitative Practice?

From our collective experience as legal practitioners, supported by case law and scholarship, one conclusion emerges:

👉 Mandatory arbitration clauses are not inherently unjust—but they are deeply vulnerable to exploitation.

They may serve efficiency, but efficiency is not justice.
They may reduce cost, but cost savings cannot override rights.

Courts exist for a reason: to balance power, protect rights, and uphold the rule of law.

ADR should be a choice, not a weapon.
Arbitration should complement justice—not replace it.

Frequently Asked Questions

Are mandatory arbitration clauses enforceable?
Often yes, but enforceability depends on jurisdiction, fairness, and public policy.

Can mandatory arbitration be challenged?
Yes, especially on grounds of unconscionability, lack of consent, or statutory protection.

Is mandatory arbitration bad for consumers and employees?
It can be, particularly where power imbalance and cost barriers exist.

Key Legal Authorities Referenced

AT&T Mobility LLC v. Concepcion (2011)
Epic Systems Corp. v. Lewis (2018)
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (1985)
Federal Arbitration Act (1925)
Owen Fiss – Against Settlement
Judith Resnik – Managerial Judges
Mauro Cappelletti – Access to Justice
Marc Galanter – Why the “Haves” Come Out Ahead