Is the U.S. Out on a Limb?

Comparing the
U.S. Approach to Mandatory Consumer and
Employment Arbitration to that of the
Rest of the World
BY: JEAN R. STERNLIGHT*

INTRODUCTION

In the United States, the phenomenon labeled by its critics as

"mandatory" arbitration has been highly controversial.' Since the mid-
1980s, companies have increasingly used contracts of adhesion to
require consumers, employees, and other "little guys" to resolve any
future disputes with the company through private binding arbitration
rather than in court. As will be discussed, although critics have attacked
the practice as unfair and illegal, 2 courts for the most part have approved
companies' imposition of binding arbitration. 3
By contrast, companies rarely if ever employ this strategy outside
the United States. Members of the European Union prohibit mandatory
arbitration in the consumer context, and seem to forbid it with respect to
employment as well. 4 Elsewhere, the law is less clear, but this author
has not found evidence that the practice of mandatory private arbitration
exists outside the United States borders.5

* John D. Lawson Professor of Law, University of Missouri-Columbia; Senior Fellow,

Center for the Study of Dispute Resolution. I thank Professor Clark Freshman for inviting me to
participate in the symposium for which I wrote this article. I am particularly grateful to Hadi Al-
Shathir for his splendid research assistance. I am also very grateful to the speakers and attendees
of the University of Miami School of Law Arbitration Symposium, who provided helpful
comments, and to Professors Richard Alderman, Christopher Drahozal, and Brooke Overby, who
gave me useful comments on prior drafts. I thank the University of Missouri Law School
Foundation for the funding that made this work possible.
1. I put the term "mandatory" in quotes as a nod to those who insist that arbitration imposed
through contracts of adhesion should be categorized as voluntary. Personally, however, I cannot
understand how a person can be said to have "voluntarily" accepted arbitration when it is part of a
small print contract of adhesion. Thus, in the remainder of the article I will use the term
"mandatory" without putting it in quotation marks.
2. See infra notes 51-60 and accompanying text.
3. See infra notes 39-50 and accompanying text.
4. See infra notes 87-120 and accompanying text.
5. See infra notes 121-36 and accompanying text. It is important to distinguish the private
mandatory arbitration described in this article from two other types of arbitration that exist
elsewhere. First, private arbitration that is imposed pre-dispute, through contracts of adhesion, is
entirely different from private arbitration that may be accepted by consumers or employees on a
truly voluntary basis, post-dispute. Second, private arbitration must be distinguished from public
administrative processes that may be afforded by some countries as an alternative to public court.
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

After quickly summarizing the landscape of mandatory arbitration

both within and without the United States, this article will consider why
mandatory arbitration is treated so disparately, whether it is problematic
that approaches to mandatory arbitration are so varied among countries,
and what the differing jurisdictions can and should learn from one
another. The article concludes that the United States Congress should be
very concerned with the fact that we are treating mandatory arbitration
more permissively than other countries. I, along with many others, have
previously presented many arguments for why mandatory arbitration is
problematic. Our outlier status on this issue provides one more good
reason why Congress ought to revise the Federal Arbitration Act6 (FAA)
to prohibit mandatory arbitration in the consumer and employment
areas.

THE MANDATORY ARBITRATION DEBATE IN THE UNITED STATES

The FAA, adopted in 1925, has long required courts to enforce pre-
dispute arbitration agreements entered into by companies.7 Merchants
in a variety of fields have often found it desirable to agree, in advance,
to have their disputes resolved privately by a neutral third party rather
than in court.8 They may consider such private arbitration as superior to
litigation because they see it as cheaper, quicker, more private, more
expert, and more final, given the fact that there is very limited opportu-
nity to vacate arbitral decisions. 9
For most of the FAA's history, however, pre-dispute arbitration
agreements were not applied to transactions between businesses and
individuals such as consumers or typical employees.'" In 1953, the

Sometimes, these public governmentally regulated processes are known as "arbitration," but they
are not the subject of this article. See infra notes 118-20 and accompanying text.
6. 9 U.S.C. §§ 1-16 (2000).
7. Id. Section 2, the most important section of the Act, provides that "a written provision ...
to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract." Id. § 2.
8. See, e.g., Soia Mentschikoff, Commercial Arbitration, 61 COLUM. L. REV. 846, 850
(1961) (noting that "[t]he reasons commonly given for arbitration-speed, lower expense, more
expert decisions, greater privacy-are appealing to all businessmen... "); William Catron Jones,
Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 WASH. U. L.Q.
193, 218 (1956) (observing, in historical overview of merchants' use of arbitration in New York,
that the "[extensive use of] arbitration over so long a period of time in the mercantile community
. . . is rather a means of dispute settling quite as ancient . . . as court adjudication"); Lisa
Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond
Industry, 21 J. LEGAL STUD. 115, 148-51 (1992) (describing why diamond dealers find private
dispute resolution superior to court remedies).
9. See, e.g., Mentschikoff, supra note 8, at 850.
10. Jean R. Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court's
20021 IS THE U.S. OUT ON A LIMB?

Supreme Court held in Wilko v. Swan"' that a securities brokerage

house's margin agreements with its customers were unenforceable to the
extent that they purported to require their customers to resolve their
securities fraud claims against the company through private binding
arbitration, rather than in court.' 2 The Court emphasized that the cus-
tomers lacked the information to knowingly select arbitration in lieu of
litigation, in advance.' 3 Similarly, in 1974, the Court held in Alexander
v. Gardner-Denver Co. 14 that union employees' contractual arbitration
clauses could not be used to prevent those employees from pursuing
discrimination claims in court, even where the employee had previously
lost on the claim in arbitration.' 5 In light of these decisions, it is not
surprising that for many years few if any companies sought to limit con-
sumers or employees to an arbitration remedy.
The United States arbitration landscape changed abruptly in the
1980s. While Chief Justice Burger and others delivered speeches prais-
ing the use of alternative dispute resolution procedures,' 6 the Supreme
Court held in a series of decisions that arbitration was "favored" and
rejected public policy claims that certain categories of cases were non-
arbitrable. 7
Although the initial pro-arbitration Supreme Court decisions
involved arbitration clauses between two or more businesses, 8 it soon
became clear that the Court would also support arbitration agreements
between businesses and consumers or employees. In Shearson/Ameri-
can Express, Inc. v. McMahon 9 and then Rodriguez de Quijas v. Shear-
son/American Express, Inc.,2 the Court not only reversed Wilko's
premise, but also reversed its holding. Brokerage houses could now

Preference for Binding Arbitration, 74 WASH. U. L.Q. 637, 644-49 (1996) [hereinafter Sternlight,
Panacea].
11. 346 U.S. 427 (1953).
12. Id. at 438.
13. Id. at 435.
14. 415 U.S. 36 (1974).
15. Id. at 59-60.
16. See, e.g., Warren E. Burger, Isn't There a Better Way?, 68 A.B.A. J. 274 (1982); Warren
E. Burger, Using Arbitration to Achieve Justice, ARB. J., Dec. 1985, at 3 [hereinafter Burger,
Using Arbitration]; William H. Rehnquist, A Jurist's View ofArbitration, ARB. J., Mar. 1977, at I.
17. The Court's decision in Moses H. Cone Memn'l Hosp. v. Mercury Constr., 460 U.S. 1
(1983), was highly significant because, for the first time, the Court stated that a policy of
"favoring" arbitration should be applied in the commercial context, and not merely to collective
bargaining arbitration. Id. at 24-25.
18. See, e.g., id. at 24-25 (holding, with respect to an arbitration provision contained in a
construction contract, that defenses to arbitrability should be interpreted narrowly); Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 640 (1985) (holding that franchisee
must arbitrate antitrust claims against franchisor).
19. 482 U.S. 220, 228-34 (1987).
20. 490 U.S. 477, 479-80 (1989).
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

require their customers to resolve future securities fraud or other dis-

putes through binding arbitration rather than in court.2 ' Moreover, while
one might argue that brokerage customers are more sophisticated than
most consumers, additional Supreme Court decisions soon illustrated
that the Court recognized no "little guy" exception to the general
enforceability of pre-dispute arbitration agreements.22 In 1991, the
Court held in Gilmer v. Interstate/JohnsonLane Corp.2 3 that a broker-
age employee could be required to arbitrate rather than litigate his fed-
eral age discrimination claim,24 and in 1995, Allied-Bruce Terminix Cos.
v. Dobson25 held that an adhesive arbitration agreement was valid for a
customer who purchased termite extermination services despite state law
prohibiting pre-dispute arbitration agreements.2 6 Most recently, in Cir-
cuit City Stores, Inc. v. Adams27 and Green Tree FinancialCorp. v. Ran-
dolph,28 the Supreme Court shut additional doors to attacks on
mandatory arbitration in the employment and consumer contexts.
Together, these major decisions have inspired numerous companies
to require their customers and employees to arbitrate rather than litigate
future disputes. Today, many credit card providers, banks, insurers,
health care providers, service providers, product sellers, and employers
are using small print clauses to require individuals to trade their right to
a day in court for a right to arbitrate future claims.29 Pursuant to the
FAA, the clauses need not be signed to be enforceable;3 ° therefore many
companies simply use envelope stuffers, warranty provisions, or
employee handbooks to specify the available procedural recourse. 3'

21. McMahon, 482 U.S. at 242; Rodriguez de Quijas, 490 U.S. at 485-86.
22. I introduced the "little guy" terminology. See Sternlight, Panacea, supra note 10, at 711-
12.
23. 500 U.S. 20 (1991).
24. Id. at 23.
25. 513 U.S. 265 (1995).
26. Id. at 281-82.
27. 532 U.S. 105, 119 (2001) (holding that FAA applies to all employment contracts except
those involving workers who transport goods across state lines).
28. 531 U.S. 79, 92 (2000) (holding that consumer could not void arbitration clause for being
excessively costly based on mere speculation rather than specific evidence).
29. For discussion and criticism of this phenomenon, see Paul D. Carrington & Paul H.
Haagen, Contract and Jurisdiction, 1996 SuP. CT. REV. 331, 401 (1996) (critiquing Supreme
Court's arbitration decisions as allowing "birds of prey" to "sup on workers, consumers, shippers,
passengers, and franchisees"); and David S. Schwartz, Enforcing Small Print to Protect Big
Business: Employee and Consumer Right Claims in an Age of Compelled Arbitration, 1997 Wis.
L. REV. 33, 36 ("The Supreme Court has created a monster.").
30. 9 U.S.C. § 2 (2000) (requiring only that arbitration clause be written, and not signed).
31. See, e.g., Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997) (upholding validity of
arbitration clause although it was not made available to customer until it arrived as part of the
warranty brochure provided (with many other papers) in the boxes containing new computer
ordered by phone); Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 835 (8th Cir. 1997)
(enforcing arbitration clause contained in employee handbook); Marsh v. First USA Bank, N.A.,
2002] IS THE U.S. OUT ON A LIMB?

Other companies obtain a signature on a credit card or employment

application,32 a form filled out in a doctor's office,33 or a loan agree-
ment. 34 Sometimes the clauses are provided on-line, and "accepted" by
the customer who clicks "enter. 3 5
The terms of the arbitration clauses vary quite a bit from one
another. All of the clauses mandate that binding decisions will be made
by a private person or panel, thereby eliminating the claimant's right to
present claims to a judge or jury and also preventing litigants from set-
ting public precedents. 36 Additionally all of the clauses essentially pro-
vide for more limited discovery, less formal rules of evidence, and
virtually no opportunity to reverse or vacate an erroneous decision.3 7
Also, some companies have used the arbitral clause to place further lim-
its on claimants, by, for example, shortening the statute of limitations,
eliminating remedies that would have been available in court, imposing
high costs, prohibiting the use of class actions, or imposing a non-neu-
tral arbitrator.38
Following the lead of the Supreme Court, most lower courts have
found mandatory arbitration clauses to be enforceable. 39 Although con-

103 F. Supp. 2d 909, 919 (N.D. Tex. 2000) (holding that credit card holders were bound by
arbitration agreement contained in billing insert after credit card issuer demonstrated bill was
properly addressed and mailed and where the credit card holders' only evidence of non-receipt
was their affidavits).
32. See, e.g., Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 109-10 (2001).
33. See, e.g., Broemmer v. Abortion Servs. of Phoenix, Ltd., 840 P.2d 1013, 1014-15 (Ariz.
1992) (voiding clause required by abortionist).
34. See, e.g., McCarthy v. Providential Corp., No. C 94-0627 FMS, 1994 WL 387852, at *1
(N.D. Cal. July 18, 1994) (upholding clause imposed on senior citizens in mortgage loan
documents).
35. For example, the auction site, eBay, requires all users to agree to arbitrate disputes in San
Jose, California. Ebay User Agreement, at http://www.pages.ebay.com/help/community/png-
user2.html. Cf Specht v. Netscape Communications Corp., No. 01-7870, 2002 WL 31166784, at
*7-* 15 (2d Cir. 2002) (finding no agreement to arbitrate was formed when consumer downloaded
software from website because although website contained arbitration clause, consumer could
download software without clicking an acceptance).
36. See Pierson v. Dean, Witter, Reynolds, Inc., 742 F.2d 334, 339 (7th Cir. 1984) ("[Tjhough
perhaps not contemplated by the [plaintiffs] when they signed the contract, loss of the right to a
jury trial is a necessary and fairly obvious consequence of an agreement to arbitrate.").
37. See, e.g., JOHN S. MURRAY ET AL., PROCESSES OF DISPUTE RESOLUTION: THE ROLE OF
LAWYERS 503-04 (2d ed. 1996).
38. See generally Sterlight, Panacea, supra note 10, at 680-86.
39. See Jean R. Stemlight, Rethinking the Constitutionality of the Supreme Court's
Preferencefor Binding Arbitration: A Fresh Assessment of Jury Trial, Separationof Powers, and
Due Process Concerns, 72 TUL. L. REV. 1, 22-39 (1997) [hereinafter Sterlight, Rethinking]
(discussing many courts' rejection of common law defenses); Schwartz, supra note 29, at 36
(noting "the Supreme Court has broadly endorsed the enforcement of adhesive pre-dispute
arbitration agreements"); Carrington & Haagen, supra note 29, at 332 (discussing Supreme Court
decisions enforcing arbitration clauses).
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

stitutional attacks would seem promising,4 0 those who have tried such
attacks have typically failed. 4 1 Moreover, while recognizing that Con-
gress has the power to prohibit the use of arbitration to resolve specific
statutory claims,4 2 courts have rarely held that claims under particular
federal statutes are non-arbitrable. 43 Similarly, although the Supreme
Court has repeatedly explained that arbitration clauses can be voided on
traditional contract grounds,4 4 lower courts have held unenforceable
only the most egregious and obviously unfair arbitration clauses due to
unconscionability or similar reasons.45 It is quite clear that the mere fact

40. See Jean R. Sternlight, Mandatory Binding Arbitration and the Demise of the Seventh
Amendment Right to a Jury Trial, 16 OHIO ST J. ON Disp. ReSOL. 669 (2001) (arguing that courts
ought to be applying jury trial waiver standard, requiring voluntary, knowing, and intelligent
waiver to arbitration clauses); Sternlight, Rethinking, supra note 39, at 99 (arguing that mandatory
arbitration clauses may violate right to a jury trial, to due process, or to appear in front of an
Article III judge); Richard C. Reuben, Constitutional Gravity: A Unitary Theory of Alternative
Dispute Resolution and Public Civil Justice, 47 UCLA L. REv. 949, 1009-11 (2000) (arguing that
state action exists and requires arbitration clauses to comport with due process requirements).
41. See, e.g., Duffield v. Robertson Stephens & Co., 144 F.3d 1182, 1202 (9th Cir. 1998)
(concluding that government involvement in securities regulation is not sufficient to give rise to
state action, and that dispute resolution is also not an inherently public function that would thereby
qualify as state action); Geldermann v. Commodity Futures Trading Comm'n, 836 F.2d 310 (7th
Cir. 1987) (concluding that commodities brokerage waived its Seventh Amendment right to a jury
trial by becoming a licensed brokerage covered by regulations mandating arbitration); Marsh v.
First USA Bank, NA, 103 F. Supp. 2d 909, 921 (N.D. Tex. 2000) (concluding jury trial argument
could not be used to invalidate arbitration clause because consumers waived jury trial right by
agreeing to arbitration).
42. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (noting that
Congress could preclude arbitration of claims under a particular statute).
43. See, e.g., id. at 23 (holding claims under federal Age Discrimination in Employment Act
are arbitrable); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 634
(1985) (holding antitrust claims are arbitrable); Shearson/Am. Express, Inc. v. McMahon, 482
U.S. 220-24 (1987) (holding RICO claims are arbitrable); Seus v. John Nuveen & Co., 146 F.3d
175, 182 (3d Cir. 1998) (holding Title VII claims are arbitrable).
44. See, e.g., Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686 (1996) (quoting the
Federal Arbitration Act, 9 U.S.C. § 2); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265, 281
(1985).
45. Some recent examples of clauses that have been voided include Circuit City Stores, Inc. v.
Adams, 279 F.3d 889, 896 (9th Cir. 2002) (holding unconscionable an arbitration clause that was
not mutual, that limited relief available to employees, that imposed a shortened statute of
limitations, and that required employees to split the cost of the arbitrators' fees with the
company); Penn v. Ryan's Family Steak Houses, Inc., 269 F.3d 753, 759 (7th Cir. 2001) (finding
arbitration clause unenforceable on ground that company's promise to provide arbitration was
"illusory" in that "[n]othing in the contract provides any details about the nature of the forum that
EDS will provide or sets standards with which EDS must comply"); Hooters of Am., Inc. v.
Phillips, 173 F.3d 933 (4th Cir. 1999) (holding, in sexual harassment case, that particular dispute
resolution process was too biased to be called arbitration or enforced by court). On the other
hand, numerous courts have upheld arbitration clauses despite consumers' or employees' claims
of unfairness. See, e.g., Goodwin v. Ford Motor Credit Co., 970 F. Supp. 1007, 1013-14 (M.D.
Ala. 1997) (refusing to void, on ground of unconscionability, an arbitration clause imposed on
consumer who purchased car under installment sales contract, although clause lacked mutuality,
where plaintiffs "have not demonstrated to the court ... that resolving their claims against FMCC
20021 IS THE U.S. OUT ON A LIMB?

that an arbitration clause was either unsigned, contained in small print,

or buried in the middle of a long agreement, is not sufficient to void the
provision.46 Even when clauses contain particularly unfair provisions,
courts sometimes sever that piece of the clause rather than void the arbi-
tration provision in its entirety." Finally, although quite a few state
jurisdictions have legislation proscribing the use of mandatory arbitra-
49
tion in certain areas, 48 or mandating particular procedural protections,
the Supreme Court's decisions preempt virtually all such statutes as
applied to transactions involving interstate commerce.5 °
Commentators in the legal academy and the popular press have
been far less hospitable to the mandatory arbitration phenomenon. The
vast majority of legal academics who have written on the issue have
been critical, attacking mandatory arbitration on both policy and legal
grounds. 5' Similarly, many major newspapers and news magazines have
written at least one significant piece exposing how companies are elimi-
nating an individual's right to sue. 2

through arbitration significantly deprives them of remedies for the wrongs they feel they have
undergone"); DeGaetano v. Smith Barney, Inc., No. 95 Civ. 1613 (DLC), 1996 WL 44226, at *6
(S.D.N.Y. Feb. 5, 1996) (requiring arbitration of Title VII claim by plaintiff securities analyst,
even though arbitration agreement required plaintiff to waive rights to attorney fees, injunctive
relief, and punitive damages).
46. See, e.g., Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997) (refusing to void
clause contained in small print in warranty booklet provided in box with computer).
47. See, e.g., Gannon v. Circuit City Stores, Inc., 262 F.3d 677, 683 (8th Cir. 2001) (severing
punitive damages clause denying plaintiff remedial rights mandated by statute).
48. See, e.g., Ky. REV. STAT. ANN. § 336.700(2) (Banks-Baldwin 2001) (employment
claims); R.I. GEN. LAWS § 10-3-2 (1997) (employment & insurance claims).
49. See, e.g., Sternlight, Panacea, supra note 10, at 705-06 (discussing notice requirements
imposed by several states); VT. STAT. ANN. tit. 12, § 5652(b) (2000) (requiring written
acknowledgement of arbitration to be signed by each of the parties and displayed prominently
when located in same document as agreement to arbitrate); TENN. CODE ANN. § 29-5-302(a)
(2001) (stating that a written arbitration agreement is "valid, enforceable and irrevocable ...
provided, that for contracts relating to farm property, structures or goods, or to property and
structures utilized as a residence of a party, the clause providing for arbitration shall be
additionally signed or initialed by the parties").
50. See infra notes 70-76 and accompanying text.
51. In addition to my own works see, for example, Geraldine Szott Moohr, Arbitration and
the Goals of Employment DiscriminationLaw, 56 WASH. & LEE L. REV. 395, 396 (1999) (stating
that "arbitration is not an effective forum in which to satisfy the public policy goals of
employment discrimination statutes, even when employees are accorded a fair hearing");
Katherine Van Wezel Stone, Mandatory Arbitration of Individual Employment Rights: The Yellow
Dog Contractof the 1990s, 73 DENy. U. L. REV. 1017, 1019 (1996) (noting that "[i]n recent years
a new trend has emerged that threatens to turn back the clock on workers' rights . . . [the
requirement that] workers . . . assert their statutory rights in the forum of private arbitration");
Carrington & Haagen, supra note 29, at 401 (describing Supreme Court's interpretation of
arbitration law as allowing "birds of prey" to "sup on workers, consumers, shippers, passengers,
and franchisees"); Schwartz, supra note 29, at 36 (discussing arbitration decisions and stating that
"[tihe Supreme Court has created a monster").
52. See, e.g., Reynolds Holding, Millions Are Losing Their Legal Rights: Supreme Court
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

From a policy perspective, critics have attacked the practice of

mandatory arbitration on a variety of grounds. First, they have urged
that consumers and employees are not agreeing to arbitration volunta-
rily, in any meaningful sense of the word. They emphasize the small
print and buried nature of the clauses, and further urge that even the use
of larger print would provide little help on a pre-dispute basis.5 3 Sec-
ond, critics urge that while binding arbitration may save money for the
companies that impose it, the procedural device may be inferior from the
perspective of the consumer or employee.54 Even the "fairest" clauses
will deny the individual access to a public judge or jury trial, as well as
to discovery that is often essential in order to prevail in such disputes.55
Moreover, the companies that draft the clauses will inevitably be
tempted to use the clauses to deter individuals from filing claims, to
prevent them from securing legal representation, and to decrease their
chance of securing significant relief if they do bring claims.56 Compa-
nies are increasingly using arbitration clauses to prohibit explicitly the
use of class actions either in litigation or in arbitration, making it impos-
sible for consumers with small claims to secure any relief.57 The neu-

Forces Disputes from Court to Arbitration-A System with No Laws, S.F. CHRON., Oct. 7, 2001, at
1; Caroline E. Mayer, Hidden in Fine Print: "You Can't Sue Us"; Arbitration Clauses Block
Consumers from Taking Companies to Court, WASH. POST, May 22, 1999, at A l; Barry Meier, In
Fine Print, Customers Lose Ability to Sue, N.Y. TIMES, Mar. 10, 1997, at Al; Stephanie Armour,
Arbitration's Rise Raises Fairness Issue: What Happens When Workers Give Up Right to Sue? In
Some Cases, Bankruptcy, USA TODAY, June 12, 2001, at lB.
53. See Stemlight, Panacea, supra note 10, at 676; Schwartz, supra note 29, at 56-57 (noting
that "[due to their immateriality to the core of the transaction, pre-dispute arbitration clauses]
receive little attention from the adherent," and also explaining that even if the adherent reads and
understands the arbitration clause, "[it is] extremely unlikely [that she will] be able to assess the
value of a judicial forum for future disputes"); see also Ting v. AT & T, 182 F. Supp. 2d 902, 929-
30 (N.D. Cal. 2002) (discussing the irrelevance as to "whether the Legal Remedies Provisions
were 'hidden in a prolix printed form"' because of AT&T's research finding "that only 30% of its
customers would actually read the entire CSA and 10% would not read at all").
54. In Ting, the court observed that there was no reason to assume that savings achieved by
the company would be passed down to the consumer. Ting, 182 F. Supp. 2d at 931 n.16. For
further discussion of the economics of mandatory arbitration see Jean R. Sternlight & Elizabeth J.
Jensen, Using Arbitration to Eliminate Consumer Class Actions: Efficient Business Practice or
Unconscionable Abuse?, 65 Law & Contemp. Probs. (forthcoming spring 2003).
55. See Stemlight, Panacea, supra note 10, at 683-84. Nor are arbitral decisions typically
published.
56. See, e.g., id. at 680-86.
57. See, e.g., Ting, 182 F. Supp. 2d at 902 (holding arbitration clause unconscionable in part
because it denied consumers the opportunity to proceed by class action, where plaintiffs
demonstrated that they could not effectively proceed on an individual basis). For a general
discussion of the class action issue in arbitration, see Jean R. Stemlight, As Mandatory Binding
Arbitration Meets the Class Action, Will the Class Action Survive?, 42 WM. & MARY L. REV. I
(2000) [hereinafter Sternlight, As Mandatory Binding Arbitration Meets the Class Action]. For a
discussion of the argument that prohibiting the class action is unconscionable see Jean R.
Stemlight & Elizabeth J. Jensen, supra note 54.
2002] IS THE U.S. OUT ON A LIMB?

trality of the arbitrators is suspect because many companies retain a

single company to provide arbitrators who will resolve all disputes
involving that company.5 8 Even the most scrupulous arbitrators and
arbitral organizations may find themselves unconsciously influenced to
make findings that favor their valued client.59
Critics also emphasize that even were one to assume that binding
arbitration served private interests, it raises critical public policy con-
cerns.6 0 The public has an interest not only in resolving individual dis-
putes, but also in ensuring that publicly promulgated laws are enforced
and publicized. When litigation is brought in court, the public has the
opportunity to learn about alleged illegal acts. Even before cases go to
trial, reporters or participants may publicize the nature of the claims and
defenses. In this way the public may learn about defective tires, work-
place discrimination, fraudulent credit practices, excessive check bounc-
ing charges, or ineffective termite extermination services. Knowledge
of these problems allows members of the public to protect themselves,
bring their own lawsuits, or pressure for legislative reform. In contrast,
the public may never learn about these significant issues if such disputes
are sent to private binding arbitration.
On the other hand, defenders of mandatory arbitration in the con-
sumer and employment context assert that arbitration may very well
favor individual claimants, the public, and the companies that impose
the dispute resolution practice.' Such defenders assert that economic
principles suggest that the benefits companies accrue will be passed
along to customers or employees in the form of lower prices or higher
salaries. 62 That is, if companies do not have to waste money defending

58. See, e.g., Cliff Palefsky, Only a Start: ADR Provider Ethics Principles Don't Go Far
Enough, Disp. RESOL. MAG., Spring 2001, at 18-20; Reynolds Holding, Can Public Count on Fair
Arbitration? Financial Ties to Corporations Are Conflict of Interest, Critics Say, S.F. CHRON.,
Oct. 8, 2001, at A15.
59. Lisa Bingham's work has demonstrated the importance of the "repeat arbitrator" effect.
See, e.g., Lisa B. Bingham, On Repeat Players, Adhesive Contracts, and the Use of Statistics in
Judicial Review of Employment Arbitration Awards, 29 McGEORGE L. REV. 223, 238 (1998).
60. See, e.g., Moohr, supra note 51, at 456 (arguing that "arbitration is less effective in
furthering the public [policy] goal of ending discrimination"); Schwartz, supra note 29, at 37
("The enforcement of adhesive arbitration clauses allows firms to lessen the regulatory impact of
statutory claims-in short, to deregulate themselves."). At the symposium at which this paper
was presented, the Honorable Gerald T. Wetherington presented these concerns quite eloquently,
urging that our public system of justice serves significant public interests.
61. See Christopher R. Drahozal, "Unfair" Arbitration Clauses, 2001 U. ILL. L. REV. 695
(2001); Stephen J. Ware, The Effects of Gilmer: Empirical and Other Approaches to the Study of
Employment Arbitration, 16 OHIo ST. J. ON Disp. RESOL. 735 (2001) [hereinafter Ware, The
Effects of Gilmer]; Samuel Estreicher, Saturns for Rickshaws: The Stakes in the Debate Over
Predispute Employment Arbitration Agreements, 16 OHIo ST. J. ON Disp. RESOL. 559 (2001).
62. Drahozal, supra note 61, at 741; Stephen J. Ware, Paying the Price of Process: Judicial
Regulation of Consumer Arbitration Agreements, 2001 J. Disp. RESOL. 89, 89 (2001) [hereinafter
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

themselves in court, they will be able to reduce their prices, and indeed
63
market pressures will often ensure that they do SO. Supporters of
mandatory consumer and employment arbitration also suggest that the
practice will prove beneficial to the public at large by reducing the need
for, and thus cost of, judges and courtrooms. 6 While critics challenge
the assumptions of perfect information and perfect competition that
undergird these arguments, 65 it is clear some remain convinced that
mandatory arbitration is generally beneficial.
Despite the harsh criticism of mandatory consumer and employ-
ment arbitration, legislation prohibiting the practice has progressed little
in Congress. While legislation has been introduced for several consecu-
tive years that would have rendered unenforceable pre-dispute arbitra-
tion agreements in the employment and consumer credit areas, 66 none of
these bills has yet made it out of committee.67 Indeed, the closest that
federal legislation has been to prohibiting mandatory arbitration was a
bill designed to protect automobile franchisees from arbitration imposed
by automobile franchisors. 68 Noticeably absent from the bill was any
provision prohibiting these franchisees from imposing mandatory arbi-

ware, Paying the Price]. Another economic argument supporting binding arbitration advanced by
Professor Keith N. Hylton is that a knowing and voluntary agreement to binding arbitration is
beneficial to the individual when deterrence benefits are less than litigation costs. See generally
Keith N. Hylton, Agreements to Waive or to Arbitrate Legal Clains: An Economic Analysis, 8
Sup. CT. ECON. REv. 209 (2000).
63. See Drahozal, supra note 61, at 741; Ware, Paying the Price, supra note 62, at 89.
64. See e.g., Burger, Using Arbitration, supra note 16, at 5.
65. See. e.g., Sternlight, Panacea, supra note 10, at 688-93; Sternlight & Jensen, supra note
54 (pointing out that absent perfect competition, companies will be able to keep any profits they
secure by imposing binding arbitration).
66. See, e.g., Consumer Credit Fair Dispute Resolution Act, S. 192, 107th Cong. (2001), WL
2001 CONG US S 192 (providing that "a written provision in any consumer credit contract
evidencing a transaction involving commerce to settle by arbitration a controversy thereafter
arising out of the contract . . . shall not be valid or enforceable"); Preservation of Civil Rights
Protections Act, H.R. 2282, 107th Cong. (2001), WL 2001 CONG US HR 2282 (providing in
section 3(a) that "any agreement between an employer and an employee that requires arbitration
of a claim arising under the Constitution or laws of the United States shall not be enforceable").
67. The Consumer Credit Fair Dispute Resolution Act was referred to the Senate Judiciary
Committee and has not yet been referred out of that committee. Thomas: Legislative Information
on the Internet, at http://thomas.loc.gov. The Presentation of Civil Rights Protection Act was
referred to four House committees and has not yet been referred out of any of them. Id. Another
piece of legislation, proposed by Senator Sessions, would have legalized mandatory binding
arbitration so long as it met certain minimal criteria. Consumer and Employee Arbitration Bill of
Rights, 146 CONG. REc. SI0, 619, 10,626-27 (2000), 2000 WL 1532688.
68. The Motor Vehicle Franchise Contract Arbitration Fairness Act of 2001, would amend the
FAA to outlaw mandatory arbitration in franchise agreements between automobile dealers and
manufacturers, unless the parties agreed to the binding arbitration post-dispute. S. 1140, 107th
Cong. (2001), WL 2001 CONG US S 1140. See H.R. 1296 Cong. 107th (2001), WL 2001 CONG
US HR 1296, for the house companion bill. In the 106th Congress, the House passed a related bill
by voice vote. See H.R. 534, 106th Cong. (1999); Thomas: Legislature Information on the
Internet, at http://thomas.loc.gov.
20021 IS THE U.S. OUT ON A LIMB?

tration on their customers. Although the Senate Judiciary Committee

approved this proposed legislation and fifty-nine sponsors endorsed it,
the Senate nevertheless has yet to consider the bill.6 9
Nor have any states passed general laws that effectively protect
consumers or employees from mandatory arbitration. 0 The Supreme
Court has interpreted the preemptive scope of the FAA quite broadly,
reading it to preempt any state law that is "targeted" to arbitration and
has the operative effect of voiding an arbitration provision."1 For exam-
ple, in Doctor'sAssociates, Inc. v. Casarotto,72 the Supreme Court held
that the FAA preempted a Montana statute regulating the font size and
placement of an arbitration clause in a franchise agreement.73 Thus,
with respect to transactions involving interstate commerce, states may
neither explicitly prohibit the use of mandatory arbitration nor even reg-
ulate the way in which companies may secure consumers' "consent" to
arbitration.7 ' The only area that permits anti-arbitral state regulation is
insurance, where the federal McCarran Ferguson Act75 gives states the
authority to legislate without fear of federal preemption. 6

69. See Bill Summary & Status for the 107th Congress, at http://thomas.loc.gov. The issue of
mandatory arbitration was also raised in connection with the consideration of the Bipartisan
Patient Protection Act, commonly known as the patients' bill of rights. H.R. 2563, 107th Cong.
§ 157 (2001). The bill contains a section which ensures that "[tihe rights under this Act
[including the right to maintain a civil action] may not be waived, deferred, or lost pursuant to any
agreement not authorized under this Act." Id. The Act permits knowing, voluntary, post-dispute
agreements to arbitrate, but would not permit mandatory arbitration as to claims brought under the
Act. Id.
70. While a few states do have protective legislation, it is largely preempted. For example,
Alabama's statute prohibiting enforcement of all pre-dispute arbitration agreements was held
preempted by the Supreme Court in Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281
(1995).
71. Doctors Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
72. 517 U.S. 681 (1996).
73. Id. at 688. See also Allied-Bruce Terminix, 513 U.S. at 281 (preempting Alabama statute
invalidating pre-dispute arbitration agreements); Perry v. Thomas, 482 U.S. 483, 492 (1987)
(preempting provision of California labor law stating that wage collection actions may be
maintained regardless of private agreement to arbitrate); Southland Corp. v. Keating, 465 U.S. 1,
16 (1984) (preempting state law that precluded the enforcement of an agreement to arbitrate
claims under the California Franchise Investment Act).
74. Many issues still remain as to how states might regulate mandatory arbitration without
subjecting their legislation to preemption. For example, perhaps if the legislation covers all
waivers of constitutional rights, and not just arbitration, it will not be preempted. Quite likely a
state could, without fear of preemption, prohibit all contracts of adhesion in the consumer context.
However this broad legislation would raise its own concerns in that few states would choose to
ban all contracts of adhesion. Some, such as Professor Stephen Ware, argue for an even broader
version of preemption that would allow state legislation to stand only if it covered all contracts in
the state. See STEPHEN J. WARE, ALTERNATIVE DISPUTE RESOLUTION §§ 2.9-2.14 (2001).
75. 15 U.S.C. §§ 1011-1015 (1999).
76. See, e.g., Standard Sec. Life Ins. Co. of N.Y. v. West, 267 F.3d 821, 823 (8th Cir. 2001)
(holding arbitration clause in insurance contract unenforceable because Missouri Arbitration Act
(MAA) prohibited the practice and, since the MAA was enacted to regulate the business of
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

While no general anti-mandatory arbitration legislation has been

adopted, arbitration organizations have engaged in some self-regulation.
In 1995, the American Arbitration Association and other organizations
joined together and issued the Employment Due Process Protocol.7 7 A
few years later, a similar group convened and drafted the Consumer Due
Process Protocol.7 8 These documents take no position on whether
mandatory arbitration should be permitted in the consumer or employ-
ment context, 79 but they do provide for certain minimal standards of
fairness in any mandated arbitration. The Employment Protocol, for
example, requires that arbitrators have the power to award any remedy
that would be available in court under the law. 80 Neither protocol, how-
ever, contains an enforcement mechanism. If a consumer or employee is
mandated to bring his claim to a form of arbitration that does not meet
the Due Process Protocol standards, he can raise an objection with the
administering organization or individual arbitrators, but it is not clear
what response he will receive. 8 1 Moreover, not all arbitrators and arbi-

insurance and the FAA was not, the MAA inversely preempted the FAA by virtue of the
McCarran-Ferguson Act).
77. Task Force on Alternative Dispute Resolution in Employment, A Due Process Protocol
for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship
(May 9, 1995), at http://www.adr.org [hereinafter Employment Due Process Protocol]. The Task
Force included the American Bar Association, the National Academy of Arbitrators, the American
Arbitration Association, the Federal Mediation and Conciliation Service, the Society of
Professionals in Dispute Resolution, and the American Civil Liberties Union. Stephen L.
Hayford, A New Paradigm for Commercial Arbitration: Rethinking the Relationship Between
Reasoned Awards and the Judicial Standards for Vacatur, 66 GEO. WASH. L. REV. 443, 446 n.9
(1998). For a general discussion of this and similar protocols, see Thomas J. Stipanowich,
Contract and Conflict Management, 2001 Wis. L. REV. 831, 906-07, and Michael F. Hoellering,
InternationalArbitration Agreements: A Look Behind the Scenes, Disp. RESOL. J. Nov. 1998, 64,
68-69.
78. National Consumer Disputes Advisory Committee, Consumer Due Process Protocol (Apr.
17, 1998), available at http://www.adr.org.
79. The drafters of the Employment and Consumer Protocols did not ignore the issue, but
rather admitted that they could not reach agreement on this highly divisive point. A Health Care
Due Process Protocol, prepared by a committee including the American Arbitration Association,
however, does prohibit mandatory pre-dispute arbitration. Health Care Due Process Protocol: A
Due Process Protocol for Mediation and Arbitration of Health Care Disputes prepared by the
AAA/ABA/AMA Commission of Health Care Dispute Resolution (July 27, 1998), available at
http://www.adr.org/upload/LIVESITE/focusArea/Healthcare/healthcare.pdf.
80. Employment Due Process Protocol, art. C(5), available at http://www.adr.org. The
Consumer Due Process Protocol, consisting of fifteen principles functioning as "clear benchmarks
for conflict resolution processes involving consumers," similarly states that arbitrators should
have the power to award any relief that would be available in a court under the law, and also
requires that parties retain the right to seek relief in small claims court, receive clear and adequate
notice of arbitration provisions and their implications, and secure independent administration of
the ADR procedure if the ADR is mandatory. See Stipanowich, supra note 77, at 907-08; see also
Thomas J. Stipanowich, Resolving Consumer Disputes: Due Process Protocol Protects Consumer
Rights, Dtsp. RESOL. J., Aug. 1998, at 8, 11-13.
81. Even when the organization's rules require compliance with a particular Due Process
2002] IS THE U.S. OUT ON A LIMB?

tral organizations have signed on to the Due Process Protocols, so there

is some risk that arbitrators will engage in a race to the bottom in order
to secure large numbers of arbitration contracts.
In sum, mandatory binding arbitration is alive and well in the con-
sumer and employment contexts in the United States. Although critics
have raised serious concerns, and although courts have discarded some
of the most egregious clauses, the majority of courts require consumers
to arbitrate under most clauses.

MANDATORY ARBITRATION OUTSIDE THE UNITED STATES

The treatment of mandatory consumer and employment arbitration

is quite different in countries outside the United States. I initially began
to learn about these differences as I delivered presentations on the
United States approach to attorneys from other countries.8" When I
explained the United States' general endorsement of mandatory arbitra-
tion, such attorneys typically expressed shock and amazement, making
statements to the effect that "we have nothing like that in my country"
and "that could never happen in my country. 83
That sort of anecdotal research inspired me to undertake a more
systematic investigation into whether mandatory arbitration outside of
the United States exists in the consumer or employment context. As a
result of this research, I cannot conclusively say that the United States is
the only country in which mandatory arbitration exists or could exist.
As my fatigued research assistants and reference librarians will attest, it

Protocol, a complainant has no clear remedy if the organization nonetheless agrees to administer a
clause that fails to comply with a Protocol. Although the arbitration clause at issue in Circuit City
Stores, Inc. v. Adams violated the Employment Due Process Protocol because it restricted
available relief and shortened the statute of limitations, the AAA filed an amicus brief with the
Supreme Court supporting the employer's position that the clause was covered by the FAA and
thus enforceable. Brief Amicus Curiae of the American Arbitration Association in Support of
Reversal, Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) (No. 99-1379). On remand, the
Ninth Circuit ultimately found that the clause was unconscionable and refused to enforce it on that
ground. Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893 (9th Cir. 2002) (finding arbitration
agreement in employment contract unconscionable, partly due to limitation of remedies of back
pay to one year, front pay to two years, and punitive damages to greater of amount of back pay
and front pay awarded or $5,000).
82. I am fortunate to teach in an LL.M. program at the University of Missouri that attracts
students from all over the world. I have also met foreign attorneys at various symposia sponsored
by the American Bar Association, the Association of American Law Schools, and other
organizations.
83. For a similar discussion of reactions from other countries' attorneys, see Richard M.
Alderman, Pre-Dispute Mandatory Arbitration in Consumer Contracts: A Call for Reforn, 38
Hous. L. REV. 1237, 1242 n.18 (2001) (explaining that following a presentation on mandatory
consumer arbitration at an international law conference in New Zealand, "nearly every
representative present reported that such mandatory arbitration provisions were prohibited in
consumer transactions in his or her country").
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

is quite difficult to research the law of other countries, particularly when

those countries are not English-speaking. It is also very difficult to
research the treatment of a phenomenon that seems not to exist in most
other countries. If mandatory consumer arbitration does not occur in a
particular country, does that mean that it could not occur, or merely that
companies have not yet thought to impose the practice? Because the
European Union includes fifteen countries,84 and because the European
Union position on these issues is relatively clear, I will focus much of
my attention on European Union law.8 5 I will then discuss more briefly
how some non-European Union countries, outside the United States,
might handle mandatory consumer and employment arbitration.
In considering how mandatory arbitration is treated outside the
United States, it is important to place the differences that will be
encountered in a more general context. Specifically, whereas many
other countries rely heavily on government agencies to protect the rights
of consumers and employees, the United States tends to rely on individ-
86
ual legal enforcement actions.

EUROPEAN UNION

CONSUMER ARBITRATION 8 7

In the European Union it seems quite clear that companies cannot

mandate that their customers resolve disputes using binding arbitration
rather than litigation. In 1993, the Council of the European Union
issued a directive on "Unfair Terms in Consumer Contracts" 88 (the
"Directive"). The Directive covered a variety of subjects and provided,
inter alia, that "unfair" terms used in consumer contracts are not valid,89

84. The current members of the European Union are: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden,
and the United Kingdom, available at http://www.europa.eu.int/abc/govemments/indexen.html.
85. I use the term "law" here loosely to refer to European Union directives and other
pronouncements.
86. For a discusison of some of the key differences between the United States approach to
law, and that of the rest of the world, see ROBERT A. KAGAN, ADVERSARIAL LEGALISM: THE
AMERICAN WAY OF LAW (2001) (arguing that the American approach, characterized of
"adversarial legalism," involves highly decentralized legal activism, in contrast to many countries'
more bureaucratic approach).
87. As used in this article, the term "consumer arbitration" refers to arbitration between a
business and a consumer, not between two or more consumers.
88. Council Directive 93/13 of 5 April 1993 on Unfair Terms in Consumer Contracts, 1993
O.J. (L 95) 29, WL OJ 1993 L95/29. From an American perspective, Council Directives are akin
to Community laws. Once they have been issued, European Union member states are required to
draft or revise existing legislation to conform to the Directive within a certain period of time.
Treaty of Amsterdam, art. 249, in THE ROME, MAASTRICT, AND AMSTERDAM TREATIES:
COMPARATIVE TEXTS 171 (1999).
89. Council Directive 93/13, art. 6, 1993 O.J. (L 95) 29, WL OJ 1993 L95/29.
20021 IS THE U.S. OUT ON A LIMB?

and that contractual terms that are not individually negotiated9 ° shall be
considered to be unfair if they cause a "significant imbalance in the par-
ties' rights and obligations arising under the contract, to the detriment of
the consumer."'" In an annex, the Directive set out a list of terms that
"may" be regarded as unfair if they cause a significant imbalance in
rights to the detriment of the consumer. One of the items on this "gray
list," contained in Paragraph Q, was a contractual provision "excluding
or hindering the consumer's right to take legal action or exercise any
other legal remedy, particularly by requiring the consumer to take dis-
putes exclusively to arbitration not covered by legal provisions."9 "
Although the Directive takes a gray list approach that does not by
its terms unequivocally bar all mandatory arbitration in the consumer
area,93 subsequent European Union statements reflect that a prohibition
has effectively been adopted. In 1998, following a series of reports on
the implementation of the Directive, the European Commission issued a
"Recommendation" on the "Principles Applicable to the Bodies Respon-
sible for Out-of-Court Settlement of Consumer Disputes" 94 (the "1998
Recommendation"). While denominated a "recommendation," such
pronouncements are known as "soft law" which, while technically not
binding, have a strong practical effect on member countries.95 Citing

90. The Directive explains that adhesive contracts are not considered to be individually
negotiated: "A term shall always be regarded as not individually negotiated where it has been
drafted in advance and the consumer has therefore not been able to influence the substance of the
term, particularly in the context of a pre-formulated standard contract." Id.at art. 3(2).
91. Id.at art. 3(l).
92. Council Directive 93/13, annex (1)(q), 1993 O.J. (L 95) 29, WL OJ 1993 L95/29.
93. A legalistic reading yields several ambiguities. First, the terms described in the annex
only "may" be unfair. A company might argue, as many have in the United States, that its
particular arbitration clause does not put consumers at a disadvantage, but rather is beneficial for
both company and consumer. Second, as Professor William Parks has pointed out, the "Directive
does not make clear exactly what is meant by arbitration provisions that are 'exclusive' and 'not
covered by legal provisions.'" WILLIAM W. PARK, INTERNATIONAL FORUM SELECTION 158
(1995). That is, the company might argue that because its arbitration clause allows or requires
arbitrators to apply the law, the clause is not proscribed by the Directive. See also William W.
Park, The New English Arbitration Act, 13 No. 6 MEALEY'S 1Nr'L ARB. REP. 21 n.49 (1998)
(noting that "several constructions of these words have been suggested, none entirely
satisfactory"); NICHOLAS LOCKETT & MANUS EGAN, UNFAIR TERMS IN CONSUMER AGREEMENTS:
THE NEW RULES EXPLAINED 49 (1995) (stating that "it remains unclear whether the Directive
intends to prohibit such [arbitration] clauses in the event that the arbitration body in question is
completely unregulated or only partially so"); G.H. TREITEL, THE LAW OF CONTRACT 251 (9th ed.
1995) (suggesting that exclusion only applies to an arbitration clause that seeks to exclude
absolutely the power of courts to review arbitrators' determinations).
94. Commission Recommendation 98/257 of 30 March 1998 on the Principles Applicable to
the Bodies Responsible for Out-of-Court Settlement of Consumer Disputes, 1998 O.J. (L 115) 31,
WL OJ 1998 LI 15/13 [hereinafter 1998 Recommendation].
95. See Jo SHAW, LAW OF THE EUROPEAN UNION 247-48 (3rd ed. 2000); see also Fiona
Beveridge & Sue Nott, A Hard Look at Soft Law, inLAWMAKING IN THE EUROPEAN UNION 285-
309 (Paul Craig & Carol Harlow eds., 1998).
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

article 6 of the European Human Rights Convention, which it character-

izes as providing that "access to the courts is a fundamental right that
knows no exceptions, 96 the 1998 Recommendation provides that "out-
of-court alternative[s] may not deprive consumers of their right to bring
the matter before the courts unless they expressly agree to do so, in full
awareness of the facts and only after the dispute has materialised." 97' It
further spells out that all out-of-court settlement procedures must com-
ply with a series of principles including the "principle of liberty," which
provides: "The consumer's recourse to the out-of-court procedure may
not be the result of a commitment prior to the materialisation of the
dispute, where such commitment has the effect of depriving the con-
sumer of his right to bring an action before the courts for the settlement
of the dispute."98 In other words, the 1998 Recommendation takes pre-
cisely the same position as have many mandatory arbitration critics in
the United States: it is inherently unfair for a company to require a
consumer to resolve future disputes through binding arbitration rather
than in court. 99
The European Commission has also expressed its opposition to
mandatory binding consumer arbitration in a specific practical context.
In June 2000, the United States Federal Trade Commission convened a
public workshop to discuss the potential use of alternative dispute reso-
lution (ADR) to resolve disputes arising from on-line commercial trans-
actions. 100 At the workshop, it became clear that there was a sharp
difference of opinion regarding the permissibility of mandatory binding
arbitration.' 0 ' The European Union made it clear that it was opposed to
permitting such a practice in on-line transactions that might involve
European Union citizens. It stated: "But ADR and legal redress are two
separate issues. Access to the latter should not be made conditional 0on2
the use or even exhaustion of the possibilities offered by the former."'

96. 1998 Recommendation at 32. Article 6 of the European Human Rights Convention will
be discussed in further detail. See infra note 113 and accompanying text.
97. Id. at 33.
98. Id. at 34.
99. Apparently the European Union takes the same position as many United States arbitration
critics, which is that consumers can only clearly weigh the advantages and disadvantages of a
particular dispute resolution process once the dispute has actually arisen. See also Schwartz,
supra note 29, at 132; Carrington & Haagen, supra note 29, at 401.
100. Federal Trade Commission/Department of Commerce, Summary of Public Workshop:
Alternative Dispute Resolution for Consumer Transactions in the Borderless Online Marketplace,
available at http://www.ftc.gov/bcp/altdisresolution/summary.pdf. (June 6-7, 2000) [hereinafter
FTC Workshop].
101. "One fairness issue over which there was little agreement was whether ADR programs
should be permitted to be binding and/or mandatory." Id. at 10.
102. Comments by the European Commission, Alternative Dispute Resolution for Consumer
Transactions in the Borderless Online Marketplace, Department of Commerce/Federal Trade
2002] IS THE U.S. OUT ON A LIMB?

Explaining the rationale for its position, the European Union argued that
companies would undermine the perceived fairness of their own system
by mandating the use of binding arbitration. 0 3 Again making the same
point as many United States critics of mandatory arbitration, the Euro-
pean Commission further stated that compulsion should not be needed
as long as the process is fair. "An effective, fair and rigourous ADR
scheme that gives consumers confidence will be used without the need
for compulsion."' 1 4
As one would expect, given this strong European Union position,
specific European countries have adopted their own laws explicitly
prohibiting the use of mandatory pre-dispute arbitration in the consumer
context.' 05 Analyzing the situation in Great Britain, Professors Drahozal
and Friel explain that pursuant to statute, all pre-dispute arbitration
clauses are ineffective when the amount of a potential claim is less than
£5,000. 106 In claims for larger amounts, the validity of the pre-dispute
arbitration clause is judged on a case-by-case basis to determine whether
it is unfair under the European Union Directive. 10 7 As a practical mat-
ter, however, it appears that mandatory pre-dispute arbitration clauses
are generally prohibited in consumer transactions in Britain. 0 8 My own
preliminary research also shows that France expressly bans the use of

Commission Invitation to Comment and Public Workshop, 23 (May 30, 2000), at http://www.
ftc.gov/bcp/altdisresolution/comments/postworkshopcomments/eurocommission.pdf.
103. "The use of any exhaustion principles for ADR (i.e., requiring a consumer to agree to
exhaust all ADR remedies before being allowed to start a court action) would seriously undermine
consumer confidence." Id. The European Commission further explained: "The advantages to an
efficient and well run ADR over court litigation are easy for anyone to see. By producing an
agreement that gives with one hand and takes away with another is unlikely to fill a consumer
with confidence." Id. "In addition, in many jurisdictions such compulsion would be viewed as
unfair." Id.
104. Id.; see also Stemlight, supra note 39 ; Schwartz, supra note 29, at 132; Carrington &
Haagen, supra note 29, at 401.
105. Nor do I mean to suggest that European Union countries permitted mandatory consumer
arbitration prior to the 1993 consumer directive. In Britain, for example, the Consumer
Arbitration Agreements Act of 1988 "provided that any such agreement entered into by a
consumer before a dispute arose would not be binding on the consumer." Robert Bradgate,
Experience in the United Kingdom, in The Integration of Directive 93/13 into the National Legal
Systems, at 32, available at http://europa.eu.int/comm/dgs/healthconsumer/events/event29_
ol.pdf.
106. Christopher R. Drahozal & Raymond J. Friel, Consumer Arbitration in the EU and the
US, 28 N.C. J. INT'L L. & COM. REG. (forthcoming 2002) (manuscript on file with author).
107. Id. at 10-11.
108. A British consumer protection agency, the Office of Fair Trading, "consistently has
required businesses either to delete pre-dispute binding arbitration clauses altogether or to give
consumers the option to arbitrate after a dispute arises." Id. at 11-12. (footnote omitted) (citing
decisions as to home improvement companies, computer equipment, holiday accommodations,
and car auctions reported by the Office of Fair Trading in its Unfair Contract Terms Bulletin).
Such decisions have been made "even in cases involving sellers of high-value consumer goods,
such as automobiles." Id.
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

predispute arbitration clauses in consumer transactions. 9

While one might infer from the discussion above that mandatory
consumer arbitration has received a great deal of attention in Europe,
this is untrue. Rather, because the practice apparently is presumed to be
impermissible, it is rarely discussed. For example, a lengthy report
issued by the European Commission in 1999 that discussed the imple-
mentation of the Directive did not give any particular mention to the
mandatory arbitration issue."I 0

Despite the European ban on mandatory pre-dispute arbitration in

the consumer context, consumer arbitration does take place in Europe.
How can this be? Quite simply, some consumer arbitration occurs
within the European Union because it is agreed to on a post-dispute
basis.''' This phenomenon is quite interesting in that many advocates of
mandatory arbitration in the United States have claimed that post-dis-
pute arbitration agreements are infeasible.''"

EMPLOYMENT

Although the state of the law is somewhat less clear in the employ-
ment context, it also seems that companies within the European Union
are not permitted to use pre-dispute form agreements to require that their
employees resolve their employment disputes through private arbitra-
tion. My research has certainly not shown that any European companies
require their employees to agree, in advance of a dispute, to resolve that

109. See Alderman, supra note 83, at 1242 n.18 (citing C. Civ. art. 2061 (Fr.), translatedin
THE FRENCH CIVIL CODE 379 (John H. Crabb trans., Rothman & Co. rev. ed. 1995) (prohibiting
use of pre-dispute arbitration agreements)); see also William W. Park, Arbitration in Banking and
Finance, 17 ANN. REV. BANKING L. 213, 259 n.180 (1998) (same). I have been informed that
Luxembourg also expressly bans the use of predispute arbitration clauses in consumer
transactions. E-mail from Professor Dr. James A. Graham, to Professor Jean R. Sternlight (Feb.
19, 2002) (on file with author).
110. Report from the Commission on the Implementation of Council Directive 93/13 of April
5, 1993 on Unfair Terms in Consumer Contracts, COM (2000) 248, Celex No. 500DC0248. This
report is available at http://europa.eu.int/comm/consumers/policy/developments/unfa-contterm/
uct03_en.pdf. The report grew out of a major multi-country conference, held in 1999 in order to
evaluate the impact of the 1993 Directive. See http://europa.eu.int/comm/dgs/healthconsumer/
events/event29_en.html.
I1. The British Chartered Institute of Arbitrators describes several programs or "schemes" for
handling consumer disputes at http://www.arbitrators.org. A "scheme" is "a set procedure under
the Rules of which parties in dispute agree to have their dispute resolved." Id. One advantage,
according to the Institute, of these schemes is that "[tihe parties in dispute are aware of the
maximum cost of the procedure at the outset, and the tailor-made rules leave no room for surprises
in the procedure and powers of the arbitrator." Id. A number of groups utilize these schemes,
including the British travel industry, British Telecom, and Consignia. Id.
112. See, e.g., Estreicher, supra note 61, at 567 (asserting that, "post dispute arbitration, in all
but the rarest case, will not be offered by one party or accepted by the other").
2002] IS THE U.S. OUT ON A LIMB?

dispute through private arbitration rather than in court." 3

When questioned as to whether, if mandatory employment arbitra-
tion were attempted, it would be upheld by the courts, European attor-
neys generally agree it would not be upheld, based on article VI of the
European Convention for the Protection of Human Rights and Funda-
mental Freedoms."' 4 Article VI states: "In the determination of his civil
rights and obligations ... everyone is entitled to a fair and public hear-
ing within a reasonable time by an independent and impartial tribunal
established by law.""' ' This provision has consistently been interpreted
to ensure complainants' access to an effective judicial remedy.' 6 Thus,
in a series of decisions the European Court of Justice made clear that a
member country could not prohibit a gender discrimination claim from
being taken to the courts on grounds of public safety or national secur-
ity. 117 Moreover, council directives prohibiting discrimination on the
basis of race, ethnicity, gender, religion, disability, age or sexual orienta-
tion also explicitly preserve complainants' access to judicial or adminis-
trative procedures." 8 While no cases on pre-dispute mandatory

113. See also e-mail from Flaminia Bussacchini, European Commission Directorate Generale
for Employment and Social Affairs, to Professor Jean R. Stermlight (June 19, 2001) (on file with
author) ("I have not heard of contractual provisions according to which employees agree to
arbitrate rather than litigate.").
114. The 1950 Convention for the Protection of Humans Rights and Fundamental Freedoms,
Nov. 4, 1950, art. 6., in HUMAN RIGHTS AND THE EUROPEAN CONVENTION 231 (Brice Dickson ed.,
1997).
115. Id.
116. See, e.g., A. BRIAN BERCUSSON, EUROPEAN LABOUR LAW 143 (1996) (stating that "access
to the judicial process has been held to be a general principle of law which must be taken into
consideration in Community law," and further stating: "The adequacy of sanctions is only one
aspect of the enforcement of EC law. National procedures for obtaining redress can also obstruct
the real and effective judicial protections guaranteed by EC law"); CATHERINE BARNARD, EC
EMPLOYMENT LAW 29 (2d ed. 2000) ("In more recent years, the [European Court of Justice] has
. . . ensur[ed] that the procedural and remedial laws of the Member States governing the
enforcement of causes of action derived from Community law are effective.").
117. Case 222/84, Marguerite Johnston v. Chief Constable of the Royal Ulster Constabulary,
1986 E.C.R. 1651 (1986) (discussing claim brought by female member of the Royal Ulster
Constabulary (RUC) who was not provided with fire-arm training and then released from her
contract because the RUC had no need for additional officers who did not carry guns); Case 222/
86, Union Nationale des Entraineurs et Cadres Techniques Professionnels du Football
(UNECTEF) v. George Heylens and Others, 1987 E.C.R. 4097, 4098 (1987) ("Since free access to
employment is a fundamental right which the Treaty confers individually on each worker in the
Community, the existence of a remedy of a judicial nature against any decision of a national
authority refusing the benefit of that right is essential in order to secure for the individual effective
protection of his right."). See also Case C-271/91, Marshall v. Southampton & S.W. Hampshire
Area Health Auth., 1993 E.C.R. 1-4367 (1993) (holding that damages cap on compensation
violated Article 6 of the EU Equal Treatment Directive, mandating that member states provide
adequate remedies for successful claimants in sex discrimination cases).
118. Council Directive 2000/43 of 29 June 2000 Implementing the Principle of Equal
Treatment Between Persons Irrespective of Racial or Ethnic Origin, art. 7(l), 2000 O.J. (L 180)
22, 25 WL OJ 2000 L180/22 ("Member States shall ensure that judicial and/or administrative
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

arbitration have reached the European Court of Justice, European law-

yers and academics seem confident that the practice would not be
permitted.
Here, it is important to distinguish private United States-style arbi-
tration from another European process also known as "arbitration." In
many European countries, employment claims are resolved through spe-
cialized labor courts or administrative tribunals." 9 In some countries,
such as Great Britain, one type of administrative process is labeled
"arbitration." The process bears some resemblance to its American
counterpart in that it is intended to be cheaper, quicker, private, less
formal, and less legalistic than the court processes. However, there are
critical differences as well. In Britain, the "arbitrators" are appointed by
the government, and a statute describes their powers. 2 ° British arbitral
awards are also subject to review by courts to determine if they are
"obviously wrong," of "general public importance," or "open to serious
doubt."' 2 '

COUNTRIES OUTSIDE THE UNITED STATES OR THE

EUROPEAN UNION CONSUMER

Despite my attempts, I have not yet identified any countries outside

the United States and the European Union in which companies are regu-
larly using pre-dispute arbitration agreements to require consumers to
resolve their complaints through private arbitrators. 122 My review of a

procedures ... are available to all persons who consider themselves wronged by failure to apply
the principle of equal treatment to them .... ); Council Directive 2000/78 of 27 November 2000
Establishing a General Framework for Equal Treatment in Employment and Occupation, art. 9(1),
2000 O.J. (L 303) 16, 20, WL OJ 2000 L303/16 (same). It should be noted that administrative
procedures, seemingly permitted by the Directives, are quite different from private arbitration that
would be established and run by the companies themselves, rather than a government agency.
119. For a brief summary of how labor disputes are handled by various European countries, see
Industrial Tribunals, A Report by Justice (1987) (on file with author) at app. one, pp. 57-63.
120. The British Advisory Conciliation and Arbitration Service (ACAS) recently began to
offer "arbitration" as an option to both employee and employer in unfair dismissal claims.
Specifically, the Employment Rights (Dispute Resolution) Act of 1998 authorized ACAS to adopt
the scheme of arbitration and regulations issued by ACAS to describe how it will work. ACAS
Arbitration Scheme, http://www.acas.org.uk/publications/pdf/acassche.pdf. Significantly, this
arbitration can only be accepted voluntarily, if both parties agree, on a post-dispute basis. Id. It is
also noteworthy that the British have not chosen to make even this type of governmentally-
sponsored arbitration available in employment discrimination claims. For a more detailed
discussion of the British approach to resolving employment discrimination claims, see Jean R.
Sternlight, In Search of the Best Procedurefor Enforcing Employment DiscriminationLaws: A
Comparative Analysis (manuscript, on file with author).
121. See English Arbitration Act, 1996, C. 23 § 69 (Eng.).
122. Professor Richard Alderman reports a similar experience. Alderman, supra note 83, at
1242 n.18 (reporting that representatives from a variety of other countries were shocked to hear
Professor Alderman's description of "mandatory" consumer arbitration in the United States).
Richard Naimark, Director of the Global Center for Dispute Resolution Research, also reports that
2002] IS THE U.S. OUT ON A LIMB?

multi-volume treatise on international consumer protection revealed no

mention of the practice in the chapters on Argentina, Australia, Canada,
23
China, Hungary, India, Malaysia, Mexico, or New Zealand.'
However, it is also difficult to establish that such a practice would
be prohibited in most countries outside the United States. 124 Apart from
the European Union materials discussed earlier, it does not seem that the
issue has been addressed in any multi-country treaties or provisions.
While the United Nations Guidelines for Consumer Protection might be
interpreted to prohibit the use of mandatory arbitration in some situa-
tions, 125 Professor Brooke Overby has noted that these guidelines do not
specifically refer to mandatory pre-dispute arbitration and in any event
are not binding on any countries. As to individual countries, there are a
few that apparently proscribe mandatory consumer arbitration. In addi-
tion to the European countries previously discussed, Brazil seemingly
would prohibit the compulsory use of arbitration in the consumer
26
context. '

he is "not aware of any other national activity in the mandatory arbitration arena." E-mail from
Richard Naimark, to Professor Jean R. Sternlight, (Apr. 19, 2002) (on file with author).
123. INTERNATIONAL CONSUMER PROTECTION, vols. I & 2 (Dennis Campbell ed., 2001). See
also CONSUMER LAW IN THE GLOBAL ECONOMY: NATIONAL AND INTERNATIONAL DIMENSIONS
(lain Ramsay ed., 1997) [hereinafter CONSUMER LAW IN THE GLOBAL ECONOMY] (including
chapters on consumer protection in Latin America, Central and Eastern Europe, Southeast Asia,
and India, none of which mentioned mandatory private arbitration). The case of Malaysia
warrants further investigation, as another source mentioned that arbitration could be used by
consumers where required by contractual terms, and that it is invariably required with contracts of
insurance. S. Sorthi Rachagan, Consumer Protection in the Rapidly Developing Economies of
South-East Asia: A Case Study from Malaysia, in CONSUMER LAW IN THE GLOBAL ECONOMY 97,
110 (lain Ramsay ed., 1997). While one reading on China mentions the possibility of taking
consumer complaints to an "arbitration court," it sounds like this choice would be made by the
consumer, post-dispute. Rosanna Grosso & Lillian Li, People's Republic of China, in
INTERNATIONAL CONSUMER PROTECrION, supra X-2. It is also unclear whether the "arbitration
court" is publicly or instead privately constituted. Id.
124. Professor Richard Alderman reports a similar frustration, explaining that while
representatives from other countries assured him the practice would be illegal, they often could
not provide a citation. See e-mail from Professor Richard M. Alderman, to Professor Jean R.
Stemlight (Mar. 8, 2002) (on file with author).
125. See A. Brooke Overby, Contract, in the Age of Sustainable Consumption, (forthcoming
27 J. Corp. Law 7-10, 25-32 (2003) (on file with author)). The United Nations Guidelines for
Consumer Protection (as expanded in 1999), available at http://www.un.org/esalsustdev/
dec54_449.pdf (last visited May 16, 2002), state that "[c]onsumers should be protected from such
contractual abuses as one-sided standard contracts, exclusion of essential rights in contracts and
unconscionable conditions of credit by sellers." Id. at para. 21. The Guidelines also provide that:
"Governments should establish or maintain legal and/or administrative measures to enable
consumers or, as appropriate, relevant organizations to obtain redress through formal or informal
procedures that are expeditious, fair, inexpensive, and accessible. Such procedures should take
particular account of the needs of low-income consumers." Id. at para. 32.
126. Alderman, supra note 83, at 1, 242 n.18 (citing Brazilian Consumer Protection Code,
LAW No. 8078 of Sept. 11, 1990, tit. 1, ch. VI, § II, art. 51 (VII) (declaring that a contract
provision that requires the compulsory use of arbitration is null and void)).
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

One thing that does seem clear is that mandatory private arbitration
is quite rare, if not nonexistent. 127 In part, this may be attributed to the
fact that many countries handle consumer complaints administratively.
For example, consumer disputes in India are handled by quasi judicial
Consumer Disputes Redressal Agencies, 28 and in Australia various state
and federal bodies receive and investigate consumer complaints."2 9
Such government-sponsored administrative processes may be referred to
as arbitration, as occurs in Argentina. 130 Similarly, consumers in Mex-
ico can bring claims by contacting the State Attorney for Consumer
Affairs. If the dispute is not resolved through conciliation, parties can
voluntarily agree on a post-dispute basis to arbitrate the claim. But, if
the parties do not agree to arbitration, they are free to take the claim to
court.131 In Venezuela and Peru, I found that although the relevant stat-
utes would seemingly allow parties to agree in advance to arbitrate
future disputes, this does not often occur. 132 Rather, the arbitration that
does exist is generally conducted by a government entity. 133

EMPLOYMENT

Similarly, in the employment context it appears that few if any

countries allow employers to require their employees to resolve employ-

127. Professor Chris Drahozal has informed me that before Gateway stopped selling computers
overseas, it had required arbitration of all disputes with its Australian customers. E-mail from
Professor Christopher Drahozal, to Professor Jean R. Sternlight (Apr. 29, 2002) (on file with
author).
128. D.N. Saraf, Key Issues in Consumer Protection in India, in CONSUMER LAW IN THE
GLOBAL ECONOMY, supra note 123, at 125, 126.
129. Graeme Johnson, Australia, in INTERNATIONAL CONSUMER PROTECTION, supra note 123,
at Aus-X-2, X-8-10.
130. Gabriel A. Stiglitz, Consumer Rights in Argentina and the MERCOSUR, in CONSUMER
LAW IN THE GLOBAL ECONOMY, supra note 123, at 177, 185-86 (describing government-
sponsored arbitration tribunals). See also Maria R. Scafati and Martin E. Paolantonio, Argentina,
in INTERNATIONAL CONSUMER PROTECTION, supra note 123, at Arg. 1-2, X-2-3. See also Jordi
Faus Santasusana & Marta Pons de Vail Alomar, Spain, in INTERNATIONAL CONSUMER
PROTECTION, supra note 123, at IX-2 (discussing governmentally-established arbitration
mechanisms used to resolve consumer disputes).
131. Juan Francisco Torres, Landa R. Herrera, & Ramon Bravo Herrera, Mexico, in
INTERNATIONAL CONSUMER PROTECTION, supra note 121, at X-1. See also E-mail from Professor
Dr. James A. Graham, to Professor Jean R. Sternlight (Feb. 20, 2002) (on file with author); Ley
Federal de Proteccion al Consumidor (05/06/2000), Capitulo XII1, Articulo 116.
132. E-mail from Manuel Gomez, Stanford JSD candidate, to Professor Jean R. Sternlight
(Feb. 20, 2002) (on file with author) (discussing Venezuela); e-mail from Javier Caravedo, U.
Missouri LL.M., to Professor Jean R. Sternlight (Jan. 25, 2002) (on file with author) (citing
Peruvian General Arbitration Law, Ley 26572, § 11, available at http://www.intemationadr.coml
e.html (stating that adhesive arbitration agreements are enforceable so long as the terms were
known or able to be known using ordinary diligence)). Terms that were not knowable in advance
can only be enforced if they were later accepted explicitly and in writing.
133. Id.
20021 IS THE U.S. OUT ON A LIMB?

ment disputes through private arbitration. In many countries labor dis-

putes are instead resolved through specialized labor courts or
administrative tribunals. Professor James Graham reports that labor dis-
putes are not resolved through private arbitration in Mexico.13 4 Simi-
larly, labor disputes in Bolivia are expressly reserved to the courts. 35 In
Venezuela, labor arbitration is reportedly conducted only by public enti-
ties. 1 36 Elsewhere, such as Peru, where mandatory arbitration seems to
3
be allowable, it nonetheless apparently does not occur. 1

WHO SHOULD LEARN FROM WHOM?

The existence of this significant disparity between the United States

and other countries raises several interesting questions, such as: Why is
there such a disparity? Are any problems posed if these jurisdictions
continue to maintain their very different approaches? And should either
the United States or non-United States jurisdictions learn any lessons
from each other?

WHY SUCH A DISPARITY?

The disparity between the United States and other jurisdictions

regarding the permissibility of mandatory arbitration of "little guy"
claims is a recent phenomenon. Mandatory consumer and employment
arbitration did not exist in the United States until the mid-1980s. Prior
to that date, United States companies assumed, as companies elsewhere
in the world largely continue to assume, that they could not use
mandatory pre-dispute arbitration clauses in the consumer or employ-
ment contexts. So, why did companies become more daring? Why did
United States courts permit them to use arbitration in this fashion? What
fueled this important social change?
While no clear answer can ever be provided to questions such as
these, a few key elements can be identified. First, companies' imposi-
tion of mandatory pre-dispute arbitration clauses in both areas is clearly
linked to their desire to decrease their legal costs and liabilities. While
companies typically do not publicly trumpet their desire to decrease

134. E-mail from Professor Dr. James A. Graham, to Professor Jean R. Sternlight (Feb. 20,
2002) (on file with author).
135. Article 6 Section I1 states "Las cuestiones laborales quedan expresamente excluidas del
campo de aplicacion de las presente ley, por estar sometidas a las disposiciones legales que les son
propias." That is, labor questions are expressly excluded from the application of the present law,
to instead be submitted to their proper legal fora.
136. E-mail from Manuel Gomez, Stanford JSD candidate, to Professor Jean R. Stemlight
(Feb. 20, 2002) (on file with author).
137. E-mail from Javier Caravedo, University of Missouri LL.M., to Professor Jean R.
Stemlight (Jan. 25, 2002) (on file with author).
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

legal liabilities, in their more private communications some companies'

attorneys acknowledge that mandatory arbitration is obviously intended
to help them reduce their payouts not only to their attorneys, but also to
claimants. 138 For example, some defense lawyers have suggested that
arbitration clauses can be used to eliminate class actions, thereby reduc-
ing "predatory" attacks by consumers on banks. 139 Similarly, some have
suggested that mandatory arbitration may be a "cure" for employment
disputes, helping to relieve employers of the burdens of "runaway
juries" or "endless appeals."' 140 In a prior article I labeled the imposition
of mandatory arbitration "do it yourself tort reform," meaning that com-
panies were (inappropriately in my view) using arbitration clauses to
accomplish tort reform such as lower payouts, but without having to
endure the hassle of obtaining passage of legislation.' 4 ' I did not mean
the phrase as a compliment. Yet, one advocate of mandatory arbitration
proudly accepted the label.' 42
Assuming that a company's desire to reduce legal liability is one of
the factors underlying the growth of mandatory arbitration in the United
States, why has this trend not spread elsewhere? Surely companies in
other jurisdictions are also interested in reducing their legal liability.
Professors Drahozal and Friel identify one factor that may be at play,
suggesting that United States courts are more hostile to business defend-
ants than are courts in foreign jurisdictions. 14 3 They emphasize that the
availability of the jury trial, punitive damages, and the potential of class
actions provide plaintiffs with opportunities they do not have in other

138. Cf Ware, The Effects of Gilmer, supra note 61, at 748 (arguing that arbitration benefits
employers by reducing awards to employees).
139. See, e.g., Carroll E. Neesemann, Trumping the Class Action with Arbitration, A.B.A.
Disp. RES. MAO. (forthcoming 2002) ("A principal motivation for using arbitration is a desire to
reduce the cost of dispute resolution in general, and, in some cases, to avoid the exposure and
expense of class actions."); Alan S. Kaplinsky & Mark J. Levin, Excuse Me, but Who's the
Predator? Banks Can Use Arbitration Clauses as a Defense, Bus. L. TODAY, May-June 1998, at
24 ("Consumers have been ganging up on banks. But now [binding arbitration institutions] have
found a way to defend themselves."); see also id. at 26 ("Stripped of the threat of a class action,
plaintiffs' lawyers have much less incentive to sue.").
140. William H. Floyd III & Phillip A. Kilgore, Mandatory Arbitration: A Cure-All for
Employment Disputes?, S.C. LAW, Jan./Feb., 2002, at 15. Cf Michael Z. Green, Debunking the
Myth of Employer Advantage from Using Mandatory Arbitration for Discrimination Claims, 31
RUTGERS L.J. 399, 401 (2000) (arguing that imposing mandatory binding arbitration does not
necessarily serve companies' self-interest).
141. See Sternlight, As Mandatory Binding Arbitration Meets the Class Action, supra note 57,
at II (explaining that a company can use an arbitration clause to obtain much of what it might
hope to obtain through legislative reform, but without having to "convince any legislature to pass
revised laws, nor persuade any judicial body to change court rules ...").
142. See Roger S. Haydock, The Supreme Court Creates Real Civil Justice Reform, Nov. 2001,
METRO. CORP. COUNS. 45.
143. Drahozal & Friel, supra note 106, at 22-24.
20021 IS THE U.S. OUT ON A LIMB?

fora. 1" Where some might see the United States approach as overly
generous, others such as myself would characterize the jury trial, puni-
tive damages, and class action features of the United States system far
more favorably. We see these features as a key source of justice, as
something of which to be proud. Given that few resources are put into
brueaucracies that might enforce the law, we would argue that strong
remedies and procedures are essential to ensure that companies obey the
law. However, whether one sees the United States system as overly gen-
erous or barely fair to plaintiffs, it does seem clear that the United States
courts are perceived as more hospitable to plaintiffs than are those of
many jurisdictions, obviously giving companies an added incentive to
evade liability in the United States.' 45
The disparity between the United States and other jurisdictions may
also be due to the fact that companies in the United States have more
political clout than in many other places. Even assuming companies
want to reduce their liability, they cannot assume they will be successful
in obtaining the legislative or judicial support that would be necessary to
allow them to accomplish the goal. In the United States, the setup of our
political structure gives companies a great deal of leverage with both
legislatures and courts. On the legislative side, it is well recognized that
the amazing growth in company campaign contributions has given busi-
nesses substantial influence in Washington, as well as in state legisla-
tures.1 46 By contrast, in countries elsewhere in the world, such as
Austria and Sweden, state subsidies function as the primary source of
income for political parties. 4 7 Even to the extent that companies else-

144. In his remarks at this conference Professor Stephen Ware stated that he would also add
discovery to this list.
145. The attractiveness of the United States as a forum for plaintiffs is a factor in the Supreme
Court's law of forum non conveniens. See, e.g., Piper Aircraft Co. v. Reyno, 454 U.S. 235, 252,
254 (1981) (noting that American courts are "extremely attractive to foreign plaintiffs" and
concluding that personal injury claim could be dismissed, for refiling elsewhere, so long as
plaintiffs could not show that "the remedy provided by the alternative forum is so clearly
inadequate or unsatisfactory that it is no remedy at all . . . "); see also GARY B. BORN,
INTERNATIONAL CIVIL LITIGATION IN UNITED STATES COURTS 3-5 (3d ed. 1996) (explaining why

United States courts are particularly attractive to plaintiffs).

146. See, e.g., Steven E. Schier, One Cheerfor Soft Money, in CAMPAIGN FINANCE REFORM 90
(Christopher Luna ed., 2001) (noting that one argument presented by reformers of the soft money
regime is that "large corporations give huge amounts to parties to secure or defend favorable
government treatment"); Joel A. Thompson & Gary F. Moncrief, Exploring the "Lost World" of
Campaign Finance, in CAMPAIGN FINANCE IN STATE LEGISLATIVE ELECTIONS 6-7 (Joel A.
Thompson & Gary F. Moncrief eds., 1998) (noting that "[s]oft money has become a force in state
campaigns," and referring to a 1997 study finding that tobacco companies, having specific policy
interests due to an increase in attempts at regulation, had made numerous contributions to political
committees in various states).
147. Gudran Klee, Financing Partiesand Elections in Small European Democracies:Austria
and Sweden, in CAMPAIGN AND PARTY FINANCE IN NORTH AMERICA AND WESTERN EUROPE 178
(Arthur B. Gunlicks ed., 1993) (noting that "an extensive system of state subsidies to political
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

where have significant power, that power is often balanced by strong

labor unions. 4' 8 Moreover, although judges are supposed to be neutral
and exempt from improper influence, the vast majority of state court
judges in the United States are elected. 49 Professor Stephen Ware's
excellent article outlining the apparent influence of judicial campaign
contributions on a court's attitude toward mandatory binding arbitration
makes the point quite baldly.' 50 In addition, a recent series of newspa-
per articles raised a significant question as to whether judges might be
issuing pro-arbitration decisions in order to benefit their own future
careers as arbitrators and bring themselves substantial personal
income.' 5 ' By contrast, judges in many other countries are either
52
appointed by the government or selected through a civil service exam.
In short, companies currently appear to wield a great deal more political
power in the United States than in many other jurisdictions. Companies
in other countries might recognize that they would not be permitted by
the courts or legislature to deprive consumers or employees of their
opportunity to bring claims in court.
Perhaps some cultural factors are also at work. Professors
Drahozal and Friel suggest that the United States, with its strong tradi-
tion of autonomy, may provide a particularly hospitable environment for
the growth of private arbitration.' 53 Similarly, they suggest that Euro-
pean governments tend to be more protective of consumers than is the
United States.'5 4 Professor Overby, in a broader comparison of the

parties exists in Sweden and Austria, and these subsidies have become the predominant source of
party income").
148. Derek Bok, A Comment on American Difference and Indifference, 21 CoMP. LAB. L. &
PoL'Y J. 391, 394 (2000) (noting that "[u]nlike America, Europe has produced strong labor
parties" and providing various reasons for discrepancy).
149. Stephen J. Ware, Money, Politics, and Judicial Decisions: A Case Study of Arbitration
Law in Alabama, 15 J.L. & POL. 645, 647 (1999) ("Most states' judges face election."); Roy A.
Schotland, Introduction: Personal Views, 34 Loy. L.A. L. REV. 1361, 1365 (2001) ("The people
of thirty-nine states have chosen to have their judges face the voters.").
150. Ware, supra note 149, at 684 (arguing that "[t]here is a strong correlation between a[n]
[Alabama Supreme Court] justice's source of campaign funds and how that justice votes in
arbitration cases").
151. See, e.g., Reynolds Holding, Judges' Action Cast Shadow on Court's Integrity: Lure of
High-Paying Jobs as Arbitrators May Compromise Impartiality, S.F. CHRON., Oct. 9, 2001, at
A 13.
152. See Frank B. Cross, Institutions and Enforcement of the Bill of Rights, 85 CORNELL L.
REV. 1529, 1538 (2000) (noting that "in Europe ...judges are appointed through a meritocratic
civil service process"); Pamella A. Seay, Law, Crime and Punishment in the People's Republic of
China: A Comparative Introduction to the Criminal Justice and Legal System of the People's
Republic of China, 9 IND. INT'L & Comp. L. REV. 143, 153 (1998) (noting that judges in China
need to take a civil service exam, in addition to other requirements, to enter the judiciary).
153. Drahozal & Frier, supra note 106, at 20 (emphasizing that the Americans tend to take a
laissez faire approach, whereas the Europeans tend to be more regulatory).
154. Id. at 25. Note that the Europeans often protect consumers through regulatory rather than
20021 IS THE U.S. OUT ON A LIMB?

United States and European approaches to consumer law, argues that

such institutional factors as "federalism and federalization, organiza-
tional competence and constraints, economic and cultural integration,
' 55
and existing systems do impact the shape and form of consumer law."'
While it is unclear whether these cultural and other differences are
causes or effects of other more fundamental factors, it does seem true
that consumers and employees are ultimately left more unprotected in
the United States than in many other jurisdictions. In a system that is
primarily dependent on private enforcement actions, it is quite worri-
some when companies are given the power to use arbitration to insulate
themselves from such private enforcement.

WHY IS THE DISPARITY SIGNIFICANT?

Does it matter that the United States, compared to most other coun-
tries, is more hospitable to the use of binding arbitration in the consumer
and employment areas? This article asserts that it does. First, in a world
that is well recognized to be shrinking, significant differences between
countries' procedural laws are always important. A given company may
well do business with individuals from many other jurisdictions. It is
costly and inefficient for a company to have to redraft its contracts to
comply with the disparate laws of each country where it does business.
For example, Dell Computers, a company that sells computers all over
the world, uses different on-line agreements depending on a customer's
location. Thus, Dell requires United States customers to agree to bind-
ing arbitration in lieu of litigation and does not impose this obligation on
customers from Britain or Ireland.' 56 Similarly, as companies shift their

litigation mechanisms. See, e.g., Opinion of the Committee of the Regions on the
"Communication from the Commission on the Out-of-Court Settlement of Consumer Disputes and
the Commission Recommendation on the Principles Applicable to the Bodies Responsible for
Out-of-Court Settlement of Consumer Disputes," Official Journal C 198, 14/07/1999 at para. 3.2.4
(describing approaches various European countries take in handling consumer claims). Drahozal
and Frier also attempt to explain where the British fit in, observing that while the "English
common law does not conform to the civil law ethos ... its approach is closer to that of Europe
than the United States." Drahozal & Frier, supra note 106, at 20. They recognize that "the
common law viewed arbitration as effectively a tool for the economically powerful and thus was
more likely to intervene in the arbitral process when the economic balance was not sufficiently
equal." Id. at 21 (footnote omitted).
155. A. Brooke Overby, An Institutional Analysis of Consumer Law, 34 VAND. J. TRANSNAT'L
L. 1219, 1290 (2001). Professor Overby contrasts the treatment of mandatory arbitration in the
two regimes. Id. at 1276-83. See also Kagan, supra note 86, at 3-14 (arguing that the American
approach to law, labeled as "adversarial legalism," in which lawyers dominate a great deal of
policy making and dispute resolution, can be distinguished from other countries' emphasis on
bureaucratic administration or expert decisionmaking).
156. See Drahozal & Frier, supra note 106, at 15-16 (comparing clauses provided by Dell to
United States, British, and Irish customers). They cite the following web sites: Dell Terms and
Conditions of Sale-Home, Home Office and Small Business Customers 12, at www.us.dell.
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

employees among countries they will have to pay attention to whether

the laws of such countries 57
permit or prohibit them from substituting
arbitration for litigation.
Second, it is likely that various jurisdictions including the United
States will increasingly attempt to develop worldwide policies, as our
economies become more closely linked. The disparate policies on bind-
ing arbitration may stand in the way. For example, in recent years both
the United States and various other countries have attempted to join
together to foster safe and productive use of on-line commerce. Recog-
nizing that consumers will often hesitate to use on-line dispute resolu-
tion if they do not feel that they can fairly and effectively resolve
disputes that might arise out of such transactions, a variety of govern-
mental organizations and non-governmental organizations have begun to
investigate how they might assure customers that an adequate dispute
resolution system exists.' 58 The United States Federal Trade Commis-
sion fostered a set of workshops on June 6 and 7, 2000, geared to focus
on these problems. 159 It turned out that the United States/European split
in approaches regarding mandatory arbitration posed an impediment as
these countries attempted to agree to mutually acceptable new policies.
Whereas representatives of the European Union insisted that companies
could not use the provision of on-line dispute resolution as an excuse to
eliminate customers' right to bring legal actions against those companies
in court, 16 some United States scholars urged that such a policy would

com/us/en/gen/misc/policy_008_policy.htm; Dell Terms and Conditions UK $ 20, at www.euro.

dell.com/countries/uk/enu/dhs/local/legal-terms.htm.
157. See, e.g., e-mail from attorney Richard Faulkner, to Professor Jean R. Stemlight (Feb. 20,
2002) (on file with author) (stating that several U.S. companies are currently mandating the use of
arbitration for resolution of disputes by extra-territorial employees and former employees in Latin
America and Central Europe, but are not doing so within the European Union).
158. For example, such investigations have been conducted by the European Union. See http://
wwwecommerce.gov/joint-statements/EUADR-5-0l.html; the Organization for Economic
Development and Cooperation, at http://www.oecd.org/EN/document/0,,EN-document-44-1-no-
24-320-44, FF.html (issuing Guidelines for Consumer Protection in the Context of Electronic
Commerce "setting out the core characteristics of effective consumer protections for online
business-to-consumer transactions"); Global Business Dialogue, at www.gbde.org (arguing that
"[b]usinesses and governments should cooperate to provide consumers with more efficient
remedial mechanisms [to resolve disputes arising from online transactions] by increased use and
legal recognition of ADR").
159. Department of Commerce/Federal Trade Commission, Alternative Dispute Resolution for
Online Consumer Transactions (June 6-7, 2000), at http://www.ftc.gov/bcp/altdisresolution/
index.htm. The purpose behind the workshop was "to examine the use of alternative dispute
resolution as one means of providing transparent, effective, quick, and inexpensive redress for
consumers engaging in online transactions." Id. "Over 120 representatives from academia,
consumer groups, industry and government filed 47 comments and attended the workshop." FTC
Workshop, supra note 100, at I (footnote omitted).
160. Comments by the European Commission, Alternative Dispute Resolution for Consumer
Transactions in the Borderless Online Marketplace, Department of Commerce/Federal Trade
2002] IS THE U.S. OUT ON A LIMB?

be reasonable.' 6'
Third, and most important, while the existence of divergent policies
toward mandatory arbitration will not necessarily place the development
of powerful, linked economies in dire jeopardy, 62 the existence of such
a sharp difference in attitudes should at minimum convince each juris-
diction to reexamine its own approach. Once apprised of the fact that
policymakers around the world do not share their welcoming attitude
toward binding arbitration, policymakers in the United States should at
least ask themselves whether their approach might be mistaken.
Equally, policymakers elsewhere in the world should spend at least a
few minutes considering whether the largest economy in the world
might have developed a procedural approach that might be desirable.

UPON REFLECTION, SHOULD EITHER JURISDICTION CHANGE?

Should other jurisdictions permit mandatory arbitration? To date,

there is little to convince other countries that the United States pro-
mandatory arbitration policy is superior. Although United States com-
panies and their representatives may assert that mandatory arbitration is
quicker and cheaper for everyone, that it will increase access to justice,
and that the savings it generates will redound to the benefit of all mem-
bers of society, those companies cannot point to empirical evidence veri-
fying these claims.' 63 For example, although companies like to claim
that mandatory arbitration will permit more consumers to present claims
than could do so in court, the statistics released by one credit card com-
pany showed that in the year or so after it imposed mandatory arbitration
just four customers filed claims against the company. 164 In contrast, the

Commission Invitation to Comment and Public Workshop, T 23 (May 30, 2000), at http://www.
ftc.gov/bcp/altdisresolution/comments/postworkshopecomments/europeancommission.pdf
(asserting that access to legal redress should not be conditioned on the use or exhaustion of ADR
remedies, and that in many jurisdictions compulsory arbitration would be seen as unfair).
161. FTC Workshop, supra note 100, at 11.
162. Companies that engage in multi-jurisdictional business have always had to deal with
differences in both substantive and procedural laws.
163. For example, Professor Christopher R. Drahozal asserts as a matter of economic theory
that seemingly "unfair" arbitration clauses may be better for all concerned, see Drahozal, supra
note 61, at 695, but presents no data supporting this assertion. Are the savings that companies
accrue actually passed down to consumers or employees? Does arbitration really provide a
cheaper, quicker form of dispute resolution or does it deter disputants from filing claims? See also
Hylton, supra note 62, at 209 (suggesting that arbitration agreements should be enforced when
they are entered into by parties who have full information, but recognizing that where
informational disparities exist, enforcement may not be socially desirable). For a critique of the
argument that companies' savings will trickle down to benefit consumers and employees see
Sternlight & Jensen, supra note 54.
164. Caroline E. Mayer, Win Some, Lose Rarely? Arbitration Forum's Rulings Called One-
Sided, WASH. POST, Mar. 1, 2000, at El (discussing policy implemented in early 1998).
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

company filed 51,622 claims against customers in this same period.' 65

Of course, these statistics do not even begin to get at the question of
whether customers who bring claims have any realistic chance of pre-
166
vailing in binding arbitration.
Indeed, United States companies' attempts to impose binding arbi-
tration are highly controversial and generate much criticism in the aca-
demic and popular press. For example, a recent series in the San
FranciscoChronicle argues that mandatory arbitration has deprived citi-
zens of numerous legal rights, disregards conflicts of interest within
arbitration firms, and tempts judges to issue pro-arbitration decisions in
hopes of obtaining high-paying jobs as arbitrators after leaving the
bench. 167 Similarly, prior stories in such publications as the New York
Times, 168 Washington Post,169 and U.S. News and World Report, 7 ° have
emphasized the deprivation of certain legal rights resulting from compa-
nies' increased use of binding arbitration.
Moreover, the mandatory arbitration phenomenon has generated a
great deal of litigation. Although the Supreme Court has generally been
supportive of companies' use of adhesive pre-dispute arbitration provi-
sions, 17 courts have repeatedly stepped in to strike down some of the
most egregious provisions. 72 As Professor Michael Z. Green argues, it

165. Id.
166. Virtually no studies have been done on this important question because data on arbitration
is typically private and unavailable for empirical analysis. Even to the extent that customers
prevail, the question remains: how much do they recover?
167. See Holding, supra note 52, at I; Reynolds Holding, Can Public Count on Fair
Arbitration?: FinancialTies to CorporationsAre Conflict of Interest, Critics Say, S.F. CHRON.,
Oct. 8, 2001, at A I5; Reynolds Holding, Judges' Actions Cast Shadow on Court Integrity: Lure of
High-Paying Jobs as Arbitrators May Compromise hnpartiality, S.F. CHRON., Oct. 9, 2001, at
A13.
168. Meier, supra note 52, at Al (arguing that "companies have unilaterally wiped out
customers' right to sue by sending out notices of new arbitration requirements in the form of
envelope stuffers").
169. Mayer, supra note 52, at Al (discussing the increase in companies use of binding
arbitration).
170. Margaret Mannix, No Suits for You; Mad at a Firm? Arbitration Could Be Your Only
Recourse, U.S. NEWS & WORLD REP., June 7, 1999, at 58 (discussing increase in companies' use
of arbitration and noting that "[t]here's never been a better reason to read before you sign").
171. See Sternlight, Panacea, supra note 10, at 660-74, for a summary of relevant Supreme
Court precedents through 1996. Since then, the Court has continued to endorse mandatory pre-
dispute arbitration quite enthusiastically. See, e.g., Circuit City Stores, Inc. v. Adams, 532 U.S.
105, 119 (2001) (holding that arbitration clauses governing employment disputes are not exempt
from Federal Arbitration Act, and are thus typically enforceable); Green Tree Financial Corp.-
Ala. v. Randolph, 531 U.S. 79, 90-92 (2000) (refusing to void clause mandating arbitration of
consumer disputes under Truth in Lending Act merely because consumer asserted arbitration
would not be financially feasible).
172. See, e.g., Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 894 (9th Cir. 2002) (finding
arbitration agreement in employment contract unconscionable, in part, due to the limitation of
remedies of back pay to one year, front pay to two years, and "punitive damages to the greater of
20021 IS THE U.S. OUT ON A LIMB?

is not even clear that it is beneficial from the company's perspective to

impose mandatory arbitration, much less that this practice redounds to
the benefit of society at large.' 73 Thus, while the practice of mandatory
arbitration obviously exists in the United States, there is currently little
empirical evidence to commend the practice to other countries' policy
makers.
Professor Stephen Ware, responding to an early version of this
paper, suggested that the United States invention of mandatory binding
arbitration might be analogized to other highly desirable United States
inventions such as the automobile and the light bulb, and that other
174
countries should follow our creative lead in imposing this practice.
However, other countries would be well advised to examine the new
United States product carefully before taking home a procedure that may
prove quite disappointing or even dangerous. Why copy the Edsel?
Indeed, mandatory arbitration is arguably far worse than the Edsel, an
ugly car that sold poorly, but at least ran. Instead, a more appropriate
automotive analogy might be the Corvair, ultimately impugned as unsafe
at any speed. 175 Another analogy might be carbon monoxide, a gas
which silently and secretly has a deleterious impact on the global envi-
ronment. Permitting companies to use mandatory pre-dispute arbitration
clauses to prevent consumers and employees from enforcing their rights
may ultimately have a devastating impact on the laws that are intended
to ensure that employees and consumers are treated fairly.' 7 6

SHOULD THE UNITED STATES PROHIBIT MANDATORY ARBITRATION AS

TO CONSUMERS AND EMPLOYEES?

The fact that the United States position is unilateralist, rejected by

other countries in the world, should in itself give United States policy-
makers some food for thought. Whereas United States companies like to
claim that it is only United States trial lawyers' self-interest that has
prevented the wholesale embrace of mandatory arbitration as cheaper

the amount of back pay and front pay awarded or $5,000"); Ting v. AT & T, 182 F. Supp. 2d 902,
934 (N.D. Cal. 2002) (voiding arbitration clause imposed by phone service provider due to high
cost and elimination of certain remedies and shortening of statute of limitations).
173. Green, supra note 140, at 400 ("As a matter of general practice, the use of mandatory
arbitration as a dispute resolution mechanism for employment discrimination claims has failed to
give employers an overall advantage.").
174. Comments in response to symposium presentation, March 2, 2002.
175. See RALPH NADER, UNSAFE AT ANY SPEED; THE DEsIGNED-IN DANGERS OF THE AMERICAN
AUTOMOBILE (1965).
176. I will not, in this short piece, fully develop the arguments for why I believe mandatory
arbitration is a bad practice. 1,and many others, have spelled out these arguments in detail
elsewhere. See supra notes 51-60 and accompanying text.
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

and better for everyone, 77 it is quite hard to argue that United States
trial lawyers have successfully influenced policy makers all over the
world. Rather, it seems that these policy makers have concluded, on
their own, that public and private interests are not well served by
allowing companies to elude responsibility for their misconduct in court.
United States policy makers should rethink whether these other coun-
tries might have it right. While defenders of United States mandatory
arbitration like to assert that principles of economic theory will ensure
that consumer and employee interests are protected, upon reflection it
instead seems that problems of imperfect information, predictable cogni-
tive biases, and market failures will permit companies to use binding
arbitration to take advantage of consumers and employees. If nothing
else, hasn't the Enron debacle demonstrated once and for all that govern-
ment regulations are sometimes necessary to protect individuals from
corporate malfeasance?
An examination of dispute resolution around the world should also
lead policy makers to challenge the assertion that because voluntary
post-dispute arbitration could never be accepted by both sides to a dis-
pute, mandating arbitration on a pre-dispute basis is the only practical
way to provide binding arbitration to disputants whom it could benefit.
Asserting that the trial lawyers will inevitably reject voluntary post-dis-
pute binding arbitration in good cases, advocates for mandatory arbitra-
tion have claimed that when companies mandate arbitration they ensure
that this mechanism will be available for all disputants.1 78 They urge
that post-dispute voluntary arbitration is unworkable because claimants
would refuse to arbitrate strong claims and companies would refuse to
79
arbitrate weak claims. 1
However, reflection on other countries' approaches to these issues
shows several weaknesses to the argument that mandatory arbitration is
necessary to provide consumers and employees with access to justice.
First, it seems that at least some voluntary binding arbitration is occur-
ring on a post-dispute basis. For example, as noted earlier, the British
Chartered Institute of Arbitrators administers post-dispute binding arbi-
tration with respect to a variety of consumer claims involving such

177. See, e.g., Stephen J. Ware, Arbitration Under Assault: Trial Lawyers Lead the Change,
Policy Analysis No. 433 at 1, 5-6, 10, available at http://www.cato.org/pubs/pcs/pa-433es.html;
David Sherwyn et al., In Defense of Mandatory Arbitration of Employment Disputes: Saving the
Baby, Tossing Out the Bath Water, and Constructing a New Sink in the Process, 2 U. PA. J. LAB.
& EMP. L. 73, 99-100 (1999) (asserting that arbitration is generally most favorable for all involved
except plaintiff's attorneys, who would supposedly prefer to settle cases by investing little time
than to adjudicate those cases); Estreicher, supra note 61, at 567-68 (attacking plaintiffs' attorneys
for being hostile to arbitration).
178. See, e.g., Ware, supra note 177, at 5-6; Estreicher, supra note 61, at 567-68.
179. Estreicher, supra note 61, at 567-68; Ware, supra note 176, at 8-9.
2002] IS THE U.S. OUT ON A LIMB?

issues as travel and mortgage lending. 180 Second, to the extent that com-
panies would refuse to engage in binding arbitration voluntarily on a
post-dispute basis, perhaps it is they and not consumers or employees
who should be compelled to arbitrate. As the European Commission has
recognized, it is appropriate to regulate companies through codes of con-
duct. These codes of conduct may be used to require the company to
offer a reasonable form of dispute resolution.'"' That is, to the extent
that economic or other logistical issues are preventing consumers or
employees from presenting their claims against companies, it could be
appropriate to encourage or even require companies to offer the option
of binding arbitration to those consumers or employees. 82 Such arbitra-
tion that was mandatory for the company but not the consumer would go
a long way toward presenting consumers and employees with the fair,
efficient justice we all claim to value. It would also prevent companies
from using their own potential unwillingness to arbitrate small claims as
an excuse for requiring consumers to arbitrate rather than litigate all
claims.
The fact that the United States approach to mandatory arbitration in
the consumer and employment areas is unique is not sufficient on its
own to justify elimination of the practice. Indeed, as Professor Ware has
observed, if this criteria were employed the United States might need to
eliminate such practices as the civil jury trial, punitive damages, and
class actions. Each is rarely employed by other countries. However,
several words of caution are in order. First, the fact that a country's
position is unique should encourage a country to rethink the practice, but
not necessarily abandon it. To the extent that we are convinced that the
civil jury trial, punitive damages, and class actions serve valid purposes
we should retain them; otherwise, we should not. Second, decisions
about our system of justice should be made by our legislature, and not
by individual companies. Just as companies should not be permitted to
exempt themselves from jury trials, punitive damages, or class actions
just because they find them displeasing, so too should we think long and
hard about allowing companies to exempt themselves from judicial pro-
cedures. Third, we should consider what kind of dispute resolution is
desirable within the broader context of how laws are enforced in the
United States. Our relative lack of bureaucratic and regulatory enforce-

180. See supra.

181. Comments by the European Commission, supra note 160, at 12 ("[Codes of Conduct]
should also include effective monitoring, sanctions and consumer complaint mechanisms. Most
codes of conduct also include subscription to an ADR scheme, so that if a dispute does arise, a
simple, cheap and informal channel for resolving matters is available.").
182. Of course, depending on the way such a law were designed, companies might argue that a
mandatory arbitration requirement violated their jury trial right, in some cases.
 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 56:831

ment mechanisma may call for a stronger private litigation system than
is needed in other countries.

CONCLUSION

The United States approach to mandatory binding arbitration in the

consumer and employment areas appears to be highly unusual, if not
unique. When United States policy makers, courts, and commentators
discuss the permissibility of the practice, they should take into account
the fact that the United States approach is out on a limb. There are many
reasons to question whether companies should be allowed to deprive
their consumers and employees of a court remedy that would otherwise
be available. As I and many other commentators have argued else-
where, the practice is highly questionable as a matter of public policy
and basic fairness. In examining these arguments, courts, policy makers,
and commentators should consider whether the uniqueness of the United
States approach reflects a brilliant new discovery akin to the light bulb,
or whether it instead represents the unusual ability of United States cor-
porate interests to control public policy in our country.