Arbitration Costs and Forum Accessibility: Empirical Evidence

Abstract

Is arbitration cheaper than litigation, or more expensive? Does arbitration enhance access to justice for consumers and employees, or does it prevent them from vindicating their legal rights? Subject to the standard caveats, the available empirical evidence suggests the following tentative conclusions on those two questions. First, the upfront costs of arbitration will in many cases be higher than, and at best be the same as, the upfront costs in litigation. Whether arbitration is less costly than litigation thus depends on how attorneys’ fees and other costs compare, and the evidence here is inconclusive. Second, for employees and consumers with small and mid-sized claims, the availability of low-cost arbitration makes arbitration an accessible forum, and possibly a more accessible forum than litigation. But for consumers with large claims, and for employees not able to use low-cost arbitration, the evidence is less clear. For such claimants, administrative fees and arbitrators’ fees likely will exceed court filing fees. The question is whether other cost savings in arbitration offset the higher upfront costs. Moreover, even if arbitration is more affordable on net, it still may not be a more accessible forum than litigation. Accessibility depends not only on dispute resolution costs, but also on expected recoveries. Third, whether arbitration is an accessible forum for claims that can only be brought on a class basis remains uncertain. The extent of such claims, as well as whether class arbitration is a suitable substitute for class actions, needs further research.