A Better Solution to Moral Hazard in Employment Arbitration : It is Time to Ban Predispute Binding Arbitration Clauses

Published in new online journal: Minnesota Law Review Headnotes. Mandatory arbitration is a neologism that describes the capacity of an economically stronger repeat player to impose an adhesive binding arbitration clause on the weaker, usually one-shot, player. Such agreements appear frequently as a condition of some economic relationship, most problematically employment, consumer purchases, or health care. Employers and businesses adopt adhesive arbitration clauses as a means to manage the risk of litigation and perceived “runaway” jury awards. Professor Michael LeRoy, together with his colleague Professor Peter Feuille, has made a series of important empirical and substantive contributions to the dialogue and controversy. In his recent article appearing in the Minnesota Law Review, Professor LeRoy outlines the debate over mandatory arbitration and proposes another way to view the developing and divided case law: that courts create conditions of moral hazard by vacating arbitration awards that employees win. We argue that the data do not support Professor LeRoy’s first recommendation, and that enforcing the narrow FAA review standards will not address the many abuses presented by mandatory arbitration. We conclude that the FAA, as the Supreme Court has interpreted it lately, is the problem and not the solution. The solution is legislation to ban predispute arbitration agreements for employment, health care, and consumer disputes