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Mandatory Arbitration Clause

A term in a consumer contract that sends any dispute to a private arbitrator instead of a court, usually alone rather than as part of a class - and federal law makes most of them enforceable.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

What it means

A mandatory arbitration clause is a provision - in a phone contract, a credit card agreement, a car purchase, a nursing-home admission, an app's terms of service - under which both sides agree in advance that any dispute will be decided by a private arbitrator rather than a judge or jury. Most also contain a class-action waiver, requiring each consumer to arbitrate individually, which is the part with the largest practical effect: a claim worth a small amount to one person is rarely brought at all if it cannot be brought for everyone.

Federal law strongly favours enforcing these clauses. A written agreement to arbitrate is enforceable on the same footing as any other contract term, and the Supreme Court has held that state rules refusing to enforce class-action waivers in consumer contracts are pre-empted. Consumers who did not read the clause, or who had no realistic choice but to accept it, are generally still bound, though a clause can still fall on ordinary contract grounds such as fraud or unconscionability, and the question of whether a contract was formed at all remains for a court.

Arbitration is not the absence of a remedy. It has rules, discovery of a kind, a written decision and, under most consumer clauses, the company bears most of the arbitrator's fees. What it lacks is a public record, a jury, most rights of appeal, and the ability to combine claims. Some clauses let the consumer opt out by written notice within a short period after signing, and those windows are routinely missed.

Where this comes from

The Federal Arbitration Act makes written arbitration agreements "valid, irrevocable, and enforceable" at 9 U.S.C. § 2. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), held that the Act pre-empts state law treating consumer class-action waivers as unenforceable. A 2017 federal rule that would have barred class waivers in many financial-services contracts was repealed by Congress before it took effect (Pub. L. 115-74). The one general statutory carve-out is narrow: claims of sexual assault or sexual harassment may not be forced into arbitration under 9 U.S.C. § 402.

When people hire a lawyer for this

Before a dispute, the useful question is whether the contract has an opt-out and when it expires. After one, the questions are whether the clause covers this dispute, whether it is enforceable on ordinary contract grounds, and whether the arbitration forum it names actually costs the consumer anything - consumer lawyers increasingly bring the individual arbitrations the clause requires, and a company that wrote the clause is sometimes the party least pleased to see it used.

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Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

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