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Understanding Arbitration Clauses

When you sign an arbitration agreement, you may be waiving your constitutional right to a jury.

The following is a transcript of " The Legal Lad's Quick and Dirty Tips for a More Lawful Life," a podcast from The audio program is available via RSS feed here and at'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-patientarbitration agreement" which clearly states it's a "contract to haveany issue of medical malpractice decided by neutral arbitration andyou are giving up your right to a jury or court trail."Obviously, doctors want to avoid being sued for malpractice. What isyour view of what patients have given up, and what might individualpatients 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.

First, turning to our caller's question about the right to a jury trial. The Seventh Amendment to the United States Constitution provides: "In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law." On its face, this text seems to say that you get a jury if you want it. That is true.

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However, the right to a jury trial is waiveable. When you sign an arbitration agreement, you are effectively waiving your constitutional right to a jury. So, if the arbitration clause is valid, then you no longer have right to a jury trial in that case.

But, as Mark's question suggests, these arbitration clauses do not seem fair because you do not always have a choice. Mark has basically asked, "When does an arbitration agreement become so unfair that it is not enforceable?"

There are several reasons that a contract is not enforceable. The one that Mark has hit upon is called unconscionability, which basically means grossly unfair. While the law varies from state to state, a contract is unconscionable, and thus unenforceable, where there are both unfair procedural and unfair substantive elements. Procedural unconscionability exists when either inequality of bargaining power or surprise prevents real negotiation or assent. Substantive unconscionability exists when one-sided or oppressive terms have been imposed.

Applying this rubric to Mark's situation, it is clear that there is an element of procedural unconscionability because the doctor has a superior bargaining position than the patient. When a patient comes into a doctor's office, he is typically sick, and needs the services of that doctor. Also, the patient does not usually have the luxury of shopping around because most insurance carriers limit which doctors you may see.

Last, the doctor simply hands you the contract with the arbitration clause in it, and you take it or leave it. If you do not agree to the arbitration clause, the doctor will not treat you. Take it or leave it contracts like this are sometimes referred to as "contracts of adhesion."

Turning to the question of substantive unconscionability, courts that are reviewing your arbitration agreement will generally inquire into the bilateral nature of the agreement. That is, the question is whether the arbitration clause contains the same benefits and burdens for both parties. So, arbitration clauses that give the doctor the right to choose the arbitrator at his discretion, or allow the doctor to choose which law will apply, are substantively unconscionable. Most companies are smart enough to write their arbitration clauses such that they grant the same rights under the clause to both parties.

So, if the doctor's arbitration clause provided that Florida law would apply, and that the arbitrator will be selected at random from the American Arbitration Association, then that arbitration clause is fair to both of you. It might turn out that Florida law is less kind to patients, but the clause is considered fair because the same law applies to both parties.

In the end, most standard arbitration agreements are enforceable when you sign them, have notice of the terms, and the terms are the same for both parties.

Mark also asked what individual patients could do. Well, if the dispute arises out of one patient's specific problems with the doctor, then the arbitration clause will likely be enforced. But, where a large class of patients has the same dispute with the same doctor, then those patients might consider a class action lawsuit. Several courts have held that an arbitration clause that bans class action lawsuits is substantively unfair and oppressive.

Some courts have held the opposite. Last, Mark asked whether arbitration will protect patients' rights. This is a very complex question that I do not have time to answer today. But, I will say this: most arbitrators are highly respected lawyers and retired judges who are well trained, and uphold their duty to apply the law objectively.

So long as you have a decent attorney and a decent arbitrator, you have a very good chance at receiving the award you would if you tried your case in court. The major downside is the confidentiality clauses that many agreements contain. This confidentiality might stop you from telling your story to the world as a warning to others.

Michael Flynn writes and records the

Legal Lad articles and pocdasts. A graduate of Tufts University and the University of California, Hastings College of the Law, he currently works as a research attorney for a California trial court.

Disclaimer: Please note that the legal information featured in Legal Lad articles and podcasts is presented for educational purposes only and is not intended to be a substitute for seeking personalized legal advice from an attorney licensed to practice in your jurisdiction. Further, Michael Flynn's name is only being provided for authorship purposes, and not to advertise any legal services. To request a topic or share a tip, send an email to or call 206-202-4LAW.