Stipanowich Proposes a Clever Work-Around for Consumer/Employment Arbitration

Prof. Thomas Stipanowich writes a lot and writes well — two gifts that don’t always go together.  His most recent article, for the Kansas Law Review, addresses the concern he has always had that arbitration be — and be perceived to be — fair.  Stipanowich is worried that recent Supreme Court rulings may permit (and even reward) unfair arbitration schemes, and he proposes a solution that is both old and new.

Click here for the full article, which proposes an “Arbitration Index.”

Tom Prolific:       

Stipanowich starts by listing his woes: boilerplate contracts with hidden arbitration clauses of which consumers are unaware much less knowingly consenting; state statutes protecting consumer rights being pre-empted; court review of unconscionable agreements curtailed; judicial grounds to vacate unfair awards restricted; unilaterally promulgated and non-negotiable waivers of collective remedies held enforceable.  In such a legal environment it is no wonder that legislators are considering banning pre-dispute employment and consumer arbitration altogether.

And it is no wonder that Prof. Stipanowich and others sense even deeper concern at the prospect of consumers and employees having their only recourse in court.  Trying to recover your $36.50 in arbitration is bad enough — wait til you get served with requests to admit!

Stipanowich has always been concerned about the actual and perceived fairness of arbitration programs.  He took part in devising the Due Process Protocol and the predecessor to the FINRA arbitration program, and has written extensively on the facets of arbitration that must be attended to in order for it to fulfill its social function of providing private justice.  Do the participants know the rules of the process?  Is the program genuinely neutral?  Are the arbitrators competent, unbiased and independent?  Is the same relief available as may be granted by a court?

Stipanowich asks us to consider what at first glance might appear to be unconnected things:  the Underwriter’s Lab emblem on our desk lamp; the Zagat Guide in our briefcase; the Consumer Reports website; the Michelin Guide; the MPAA rating of the movie we’re considering taking our kids to; Moody’s rating of the bonds we’re considering buying; and the Nielsen rankings of last week’s Grammy Award program.

And what connects them?  They all give us, as consumers of products or services, broadly-based, comparative and relevant information on which restaurant to go to, movie to see, lamp to buy, and commercial time to purchase.


Why not a comparative rating of companies’ arbitration programs and policies for consumers and employees?  Why not just put it out there that AT&T Mobility offers X, Hooter’s offers Y, and Rent-a-Center offers Z?  If the ratings data are properly chosen, the information is accurate, and the various considerations properly weighted, would consumers and employees not have a pretty good tool to avoid getting ripped off — legal as the rip-off may be?

This is where it gets fun.  As long as you rate the fairness of actual companies, an Arbitration Fairness Index would not only help arbitration consumers, but also influence on corporate behavior.  It would reward companies who offered real, fair, just, efficient, evenhanded dispute resolution and tarnish the reputation of those who don’t.  Companies that require waiver of class action claims may suffer a bit compared to those that don’t, the Supreme Court notwithstanding.

If the ratings system itself were cleverly constructed, and the product of broad consultation, it might measure not only comparative fairness in terms of contracting behaviors of companies, but also fairness in terms of outcomes.  Stipanowich articulates four requirements for truly fair dispute resolution programs: They should be relied upon to offer compensatory justice (fair compensation for injuries), corrective or retributive justice (punitive or exemplary damages to inhibit bad behavior), social or distributive justice (producing the same fair outcomes regardless of the power or class of the disputant), and procedural justice (the perception that the dispute resolution process itself is fair).  Stipanowich cites empirical reserach tending to demonstrate that these indicia of fairness can in fact be captured, and can in fact take their place in a multi-faceted grid of concerns that combine in a measure of companies’ comparative arbitration fairness.

This article is a lot of fun, and thinking about its proposals is a way better way to spend your time than moaning about the Supremes’ misunderstanding of the FAA and the policies it is meant to serve.  And in keeping with the spirit of ADR, it reminds us that sometimes the best route to a fair outcome is one that goes around the law.


Leave a Reply

Your email address will not be published.