The main disadvantages of arbitration are the ones you learn about too late: you gave up your right to a jury, your right to a real appeal, your right to full discovery, and often your right to join a class action, all in a contract you signed without reading. Arbitration is sold as faster and cheaper than court, but the savings often do not materialize, and the protections you traded away are gone for good once a dispute begins.
You Probably Never Actually Chose It
Arbitration clauses sit inside employment agreements, credit card contracts, checking account terms, student loan paperwork, and countless consumer contracts. The Consumer Financial Protection Bureau found that credit card issuers covering more than half of all credit card debt include arbitration clauses, affecting as many as 80 million consumers, and that banks representing 44 percent of insured deposits include them in checking account agreements.1Consumer Financial Protection Bureau. CFPB Study Finds That Arbitration Agreements Limit Relief for Consumers
The same study found that more than 75 percent of consumers did not know whether their agreements contained an arbitration clause, and fewer than 7 percent of those covered realized the clause blocked them from suing in court.1Consumer Financial Protection Bureau. CFPB Study Finds That Arbitration Agreements Limit Relief for Consumers These are take-it-or-leave-it contracts. You cannot strike the arbitration clause when opening a bank account or starting a job. Under the Federal Arbitration Act, the agreement is “valid, irrevocable, and enforceable” as long as it meets ordinary contract requirements.2Office of the Law Revision Counsel. 9 USC 2 – Validity, Irrevocability, and Enforcement of Agreements to Arbitrate
It Can Cost More Than Court
The public court system runs on taxpayer money. The judge, the courtroom, the clerks, and the infrastructure are already paid for. In arbitration, the parties pay for all of it.
At JAMS, one of the two dominant arbitration providers, the filing fee for a two-party dispute is $2,000. Disputes with three or more parties cost $3,500 to file. A counterclaim adds another $2,000. JAMS also charges a case management fee of 13 percent on all professional fees, which covers hearing time, pre- and post-hearing research, and preparation of the final award.3JAMS. Arbitration Schedule of Fees and Costs The American Arbitration Association uses a similar tiered structure that scales with the amount in dispute.
The biggest cost is the arbitrator. Arbitrators are usually retired judges or senior lawyers who set their own hourly rates, commonly ranging from several hundred to well over a thousand dollars an hour. A dispute that runs multiple hearing days with substantial document review can generate arbitrator fees alone that rival the cost of a full trial. For complex commercial matters, the total often exceeds what litigation would have cost.
You Cannot Really Appeal
Losing in court gives you the right to appeal legal errors. Losing in arbitration usually means the decision stands, right or wrong. The Federal Arbitration Act lists only four grounds for vacating an award:
- The award was procured by corruption or fraud.
- There was evident partiality or corruption on the part of the arbitrator.
- The arbitrator refused to hear pertinent evidence or otherwise committed misconduct that prejudiced a party.
- The arbitrator exceeded the authority the parties gave.
“The arbitrator got the law wrong” is not on that list. If the arbitrator misreads a statute, ignores controlling case law, or miscalculates damages, none of that supports vacatur. The Supreme Court held in Hall Street Associates, L.L.C. v. Mattel, Inc. that these statutory grounds are exclusive, and parties cannot expand them by contract.5Justia. Hall Street Associates, L. L. C. v. Mattel, Inc. Some federal circuits still entertain a narrow “manifest disregard of the law” theory as a reading of the statutory grounds, but the standard is extremely difficult to meet and other circuits have rejected it outright.
The deadline is short. A motion to vacate must be served on the opposing party within three months after the award is issued.6Office of the Law Revision Counsel. 9 USC 12 – Notice of Motions to Vacate or Modify; Service
Discovery Is Cut Down and Evidence Rules Loosen
Court litigation gives both sides real tools to force the other to turn over relevant information: sworn depositions, written interrogatories, and broad document requests. These exist so neither side can hide the ball.
Arbitration sharply limits all of this. Rules commonly cap depositions at one or two per side and restrict document requests. This hurts most when the other side holds most of the relevant information. An employee suing a large employer needs access to internal emails, personnel files, and corporate policies that only the company possesses. Without meaningful discovery, proving the claim gets much harder.
Arbitration also drops the formal rules of evidence. Federal and state evidence rules exist to keep unreliable, prejudicial, or irrelevant material away from decision-makers. Arbitrators have wide discretion to admit almost anything, and the common practice is to let it all in and weigh it later. A party who would benefit from strict evidentiary gatekeeping loses that protection entirely.
No Jury
The Seventh Amendment preserves the right to a jury trial in civil cases where more than twenty dollars is at stake.7Library of Congress. U.S. Constitution – Seventh Amendment An arbitration clause waives that right. Your case goes instead to one or a few arbitrators, typically lawyers or retired judges.
This matters most in cases where the facts would move ordinary people. A consumer injured by a defective product, or a worker fired under circumstances that feel obviously unfair, may fare better in front of a jury than in front of an arbitrator evaluating the case through a narrower legal lens. Juries respond to power imbalances between an individual and a large company. Arbitrators, by training, are less likely to weight that.
The Repeat Player Problem
Large companies arbitrate constantly. An individual typically does it once in a lifetime. That asymmetry runs through the process.
A company that regularly appears before a particular arbitration forum knows which arbitrators tend to rule which way, which procedural moves work, and how to present evidence in that setting. The individual walks in blind. The company’s outside counsel has handled dozens of similar arbitrations; the individual’s lawyer may be doing it for the first time.
Arbitration providers also depend on repeat business from the companies whose contracts send disputes their way. The individual is a one-time customer; the corporation is a revenue stream. Ethics rules require arbitrators to disclose conflicts of interest and prior relationships with the parties.8JAMS. Arbitrators Ethics Guidelines The structural incentive still exists: an arbitrator who develops a reputation for large awards against corporate repeat players may find those companies stop selecting them.
No Class Actions
Arbitration clauses almost always include a class action waiver. When a company overcharges millions of customers a small amount each, no single person has enough at stake to justify pursuing a solo arbitration. A class action combines those claims into something worth a lawyer’s time. A waiver removes that option.
The Supreme Court has twice upheld these waivers. In AT&T Mobility LLC v. Concepcion, the Court held that the Federal Arbitration Act preempts state laws that would invalidate class action waivers in arbitration agreements, even where those state laws applied general unconscionability principles.9Justia. AT&T Mobility LLC v. Concepcion In Epic Systems Corp. v. Lewis, the Court extended that reasoning to employment agreements, holding that arbitration agreements requiring individualized proceedings must be enforced as written, even when employees want to bring collective claims under federal labor law.10Supreme Court of the United States. Epic Systems Corp. v. Lewis
The CFPB found that when credit card companies with arbitration clauses were sued as part of a class action, they invoked the clause to block it 65 percent of the time.1Consumer Financial Protection Bureau. CFPB Study Finds That Arbitration Agreements Limit Relief for Consumers For small-dollar claims, the practical result is that no one pursues them at all. The company keeps the money.
Secrecy Works Against You
Arbitration is private, which is often sold as a benefit. For individuals it usually is not. When disputes disappear behind closed doors, the public never learns about patterns of misconduct: recurring product defects, discriminatory hiring practices, or systematic consumer fraud. A company can lose or settle dozens of arbitrations over the same issue with none of it becoming public.
Court decisions create published precedent. If a judge rules that a specific practice violates consumer protection law, anyone with a similar claim can point to that decision. Arbitration awards create no precedent. A favorable ruling in your arbitration does nothing for the next person with the same problem. Over time, this stunts the development of law in areas where arbitration dominates and hides the information regulators and legislators would use to spot problem industries.
The Narrow Ways Out
Arbitration agreements are not completely bulletproof, but the exits are narrow.
Unconscionability
The Federal Arbitration Act preserves ordinary contract defenses, saying arbitration agreements are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.”2Office of the Law Revision Counsel. 9 USC 2 – Validity, Irrevocability, and Enforcement of Agreements to Arbitrate A court can refuse to enforce a clause that is both procedurally unconscionable (imposed through unfair bargaining, such as buried fine print in a contract of adhesion) and substantively unconscionable (unreasonably one-sided terms). After Concepcion, though, courts cannot apply unconscionability rules that single out arbitration for special treatment; the defense has to be one that would also invalidate a non-arbitration term under the same facts.
Sexual Assault and Sexual Harassment Claims
Since March 2022, federal law has barred enforcement of predispute arbitration agreements for claims involving sexual assault or sexual harassment. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act gives the person alleging the conduct the choice of whether to arbitrate or go to court, and it invalidates predispute class action waivers for those claims.11Office of the Law Revision Counsel. 9 USC 402 – No Validity or Enforceability A court, not the arbitrator, decides whether the statute applies, even when the arbitration agreement contains a delegation clause that would ordinarily send that threshold question to the arbitrator. The law covers only sexual assault and sexual harassment. Every other kind of employment, consumer, or commercial dispute remains subject to mandatory arbitration if the contract requires it.