Arbitration, National

Expanding Uses of Arbitration

Arbitration is an increasingly common feature of modern life. Once confined to the specialized provinces of international commercial transactions, the securities industry, and labor-management relations, arbitration clauses now appear in many day-to-day consumer transactions in the United States. Banks frequently include arbitration clauses in their terms for maintaining bank accounts. Health maintenance organizations (HMOs) routinely have provisions requiring that all disputes between the HMO and health consumer go to arbitration. Employers often require employees to use arbitration to resolve employmentrelated disputes. Many standard residential and commercial lease forms say that all disputes between the tenant and landlord must be submitted to arbitration. Finally, homeowner associations and residential condominiums frequently include arbitration clauses in their charter documents.

One reason for the surge in consumer arbitration in the United States is widespread dissatisfaction with the civil justice system, with its problems of delay, expense, and technicality. Arbitration is part of a larger movement toward alternative dispute resolution (ADR), which attempts to develop substitutes for an increasingly dysfunctional civil justice system. Arbitration, like all other forms of ADR, operates outside the civil justice system but not outside the law. Law polices the boundaries between arbitration and the legal system, defining the shape and role of arbitration in a legal order. In tandem with the expanded use of arbitration in consumer transactions, courts have expanded the scope of arbitration within the legal order.

In the United States, arbitration is governed by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–14 (2000), a federal statute enacted in 1925. The FAA makes promises to arbitrate “valid, irrevocable and enforceable” (§ 2). Until the 1980s, the FAA was interpreted as applying only to a narrow category of disputes—federal question cases or diversity of party domicile cases involving commerce that were in federal court. After that, the Supreme Court reinterpreted the act to expand its reach, adopting a national policy of promoting the use of arbitration in all relationships that have a contractual element.

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