Understanding Arbitration Clauses

The following is a transcript of "The Legal Lad's Quick and Dirty Tips for a More Lawful Life," a podcast from QuickAndDirtyTips.com. The audio program is available via RSS feed here and at TheStreet.com's podcast home page.

Hello, and welcome to Legal Lad's Quick and Dirty Tips for a More Lawful Life.

But first, a disclaimer: Although I am an attorney, the legal information in this podcast is not intended to be a substitute for seeking personalized legal advice from an attorney licensed to practice in your jurisdiction. Further, I do not intend to create an attorney-client relationship with any listener.

Today, I will discuss arbitration clauses. An anonymous caller asked:

How can cell phone companies and car rental places force someone to arbitrate? Don't we have a right to a jury trial in America?

Mark from California wrote:

It seems every doctor I see asks me to sign a "physician-patient arbitration agreement" which clearly states it's a "contract to have any issue of medical malpractice decided by neutral arbitration and you are giving up your right to a jury or court trail." Obviously, doctors want to avoid being sued for malpractice. What is your view of what patients have given up, and what might individual patients do? Will arbitration adequately protect patients' rights?

Thanks for the great questions. Most of us have signed contracts such as cell phone agreements that contain these arbitration clauses. Today, I will discuss what an arbitration clause is, when it is binding, and briefly answer Mark's questions. The short answers are that arbitration clauses effectively waive your right to a jury, and most arbitration clauses today are enforceable.

An arbitration clause is simply a clause in a contract that binds both parties to arbitration should a dispute arise out of the contract. These clauses are generally enforceable as contract terms that you agreed to. Arbitration is a form of dispute resolution, agreed on by all parties, in which one or more neutral arbitrators hear evidence from the parties, and give an award based on that evidence.

It is basically a substitute for going to court and presenting your evidence to a jury or judge. Most often, the arbitrator's decision is final and cannot be appealed. Arbitration is often cheaper than going to trial, and many arbitration clauses require that any grievance you have must remain confidential. By contrast, court proceedings are public.