I don't think that was the only reason your interviewee got nervous. There's no fundamental mechanical difference between "we help our clients skirt the law that nominally governs their contract with you by being biased" and "we help our clients skirt *their contract with you itself* by being biased".
The former could be something that both parties can value, because even if the law's terms aren't in force, the explicit terms of the contract still are. The latter is a nuclear option: All you have left is relying on the good faith of your counterparty, not just to uphold their end of the bargain willingly, but also to not sue you for everything you have and more, even decades after your contract nominally expired.
An arbitrarily biased arbitrator says every Microsoft user in the last 4 decades violated their EULA and each one caused Microsoft a trillion dollars in damage. They proceed to collect all the property of >half the population. Now in practice in a world where people knew this could happen with no recourse, they would never agree to binding arbitration, no company that wants any business would have such clauses in their contracts, and so the arbitration company would lose 100% of their business.
Most arbitration companies stay very far from anything that might even hint at being partial, and opt into private rules that further constrain their behavior (such as joining the AAA with its well defined rules, and even an optional mechanism for an appeals process) because they understand what happens if they get a reputation as a biased arbitrator.
Ultimately, those inefficient laws exist *because* the voters want to tell people how to behave. Whether it's out of beneficent desire to help people or to stick their nose into other people's buisness the point is that the public demands those regulations.
If arbitration becomes too effective at evading that demand the public will just pass laws gutting it. If you don't fix the incentivizes that lead to the laws then arbitration can only have limited impact.
You actually have very little way of knowing whether or not the *public* actually wants those laws, or it’s simply that the politicians they voted for want those laws.
Sometimes, of course, these are the same thing, but quite often - or at least, some indeterminate amount of the time - they are not. And laws such as these are a perfect example of where the voters may not in fact want such laws, but whether a politician will vote to overturn such laws is never sufficiently high on their list of reasons to vote for a candidate (and even for those for who it would be, it’s quite likely that all candidates on the general election ballot actually approve of most of the laws).
Uh yeah, as part of the contract you sign it is frequently the case that the possible arbitrators are limited, and in some cases actually specified.
As just one example, e.g. the NFLPA’s union-bargained contract with the NFL specified that the commissioner was the ultimate authority on discipline cases (in addition to specifying the set or arbiters).
Everything you said is true, because companies use arbitration to get out from under unjust procedures and, to some extent, substantive laws. But there is also a huge use case for business-to-business arbitration that no one talks about because it works. I think Brian’s point is that companies could, at least for business-to-business disputes also agree on a choice of law provision that chose some lex mercantile issued by a private body instead of a government. (Brian, if this interests you, I have a larger model for it.)
I am a fan of private arbitration and I think reputation would still solve the problem of them making unfair rulings in favor of businesses. If they were doing this employees could speak out about it still and hurt the arbitration agency's and company's reputation. Unless you sign a contract saying "I will never talk about arbitration if I go to it" which would be very suspicious and deter people from working for the company in the first place. They'd also have a higher employee attrition rate if they were systematically screwing people over. So those things combined probably make it not worth it for them to attempt it.
I'm mostly just pointing out common objections that I've heard. I'm interested in what you have to say, even if Bryan isn't lol.
If my brother always arbitrates all my contracts with my employees, minimum wage is not the only issue this might affect. Is it really plausible that my employees would be willing to agree to such a biased situation? It would make more sense if the specific exceptions to existing law were written into the contract, but some less obviously biased arbitrator would be chosen to resolve disputes. Those contracts might be more easily challenged in government court, I suppose.
I am having trouble thinking of good examples of other issues that might arise between employees and employers (I’m not a lawyer or a union official). Would it pass muster to have some areas of law in an employment contract subject to binding arbitration, and others not? I guess we are speculating about things that would not currently pass muster anyhow, so we might as well consider it. But the issue of how to get a genuinely impartial arbitrator seems more worthwhile.
“ Is it really plausible that my employees would be willing to agree to such a biased situation?”
Depending on the set of wages and benefits you offer relative to the skills of the employee, of course the answer might be yes.
Obviously in a competitive market where the wages, benefits, hours etc. are virtually identical, no one will choose that employer over many others ceteres paribus.
The employer as described basically has the right to withhold payment, perhaps even to compel continued work. That seems like even desperate persons would not consider it an improvement.
Yeah but now you are conflating *which* specific terms to agree to with the idea that some people would agree to some/many terms which are violations of state or federal law if the pay and benefits are good enough [and they ARE effectively agreeing to CERTAIN terms when they know that the arbitrator is going to rule against them on those terms, per the letter of the contract]
The point is no more and no less that truly binding arbitration would enable contracts - that people might readily be willing to accept - which current laws would not allow.
The “binding arbitration that I ‘know’ full well I would lose” is merely the mechanism that would make it possible to accept below minimum wage, or accept above “maximum work hours”, or get around any other stupid (or smart…) law/regulation that exists to prevent free individuals for freely bargaining their labor for something that they believe would make them better off.
No more, no less.
(It has nothing to do with whether they know someone would rule against them on an unrelated point not specified in the contract- that wouldn’t happen because it’s not specified in the contract…)
Forgive me for being *that person*, but the principle that two contracting parties cannot oust the jurisdiction of the courts through what we would nowadays call fully binding arbitration is an extremely old feature of the common law. Such a contract would be void for illegality as being against the policy of the law. It's not 'the government' that wants it that way, but courts themselves. Granted, this is partly job security for judges, but it's also to allow oversight of capricious or ignorant arbitrators.
I’m surprised to see your point about common law. My impression was that common law precedent mostly applied in cases where the parties' contract did not specify what should happen in the circumstances that actually arose, and the common law precedent set a sort of default. Then if people didn’t like the default, they were free to expand the terms of the contracts they wrote later, specifying a different remedy. You seem to say that this never happened. I am not a lawyer or a legal scholar, so I could easily be wrong. But I can’t fill in the blanks in a way that makes your version seem reasonable.
We're talking about agreements between contracting parties to appoint an arbitrator if they have a dispute, with the arbitration decision being final. The English common law has always said this kind of agreement is illegal (not meaning it is a crime, but that it is void), because it 'ousts the jurisdiction of the courts'. The courts must always ultimately have jurisdiction. What this means in practice is that appointing arbitrators to resolve disputes is common commercial practice but there must always be some route to appeal the decision of an arbitrator in a court of law.
That makes it clearer. Courts just refuse to enforce binding arbitration agreements strictly. People can still arbitrate, but they have recourse if the arbitration is unsatisfactory. Is that right?
I don't think that was the only reason your interviewee got nervous. There's no fundamental mechanical difference between "we help our clients skirt the law that nominally governs their contract with you by being biased" and "we help our clients skirt *their contract with you itself* by being biased".
The former could be something that both parties can value, because even if the law's terms aren't in force, the explicit terms of the contract still are. The latter is a nuclear option: All you have left is relying on the good faith of your counterparty, not just to uphold their end of the bargain willingly, but also to not sue you for everything you have and more, even decades after your contract nominally expired.
An arbitrarily biased arbitrator says every Microsoft user in the last 4 decades violated their EULA and each one caused Microsoft a trillion dollars in damage. They proceed to collect all the property of >half the population. Now in practice in a world where people knew this could happen with no recourse, they would never agree to binding arbitration, no company that wants any business would have such clauses in their contracts, and so the arbitration company would lose 100% of their business.
Most arbitration companies stay very far from anything that might even hint at being partial, and opt into private rules that further constrain their behavior (such as joining the AAA with its well defined rules, and even an optional mechanism for an appeals process) because they understand what happens if they get a reputation as a biased arbitrator.
Ultimately, those inefficient laws exist *because* the voters want to tell people how to behave. Whether it's out of beneficent desire to help people or to stick their nose into other people's buisness the point is that the public demands those regulations.
If arbitration becomes too effective at evading that demand the public will just pass laws gutting it. If you don't fix the incentivizes that lead to the laws then arbitration can only have limited impact.
You actually have very little way of knowing whether or not the *public* actually wants those laws, or it’s simply that the politicians they voted for want those laws.
Sometimes, of course, these are the same thing, but quite often - or at least, some indeterminate amount of the time - they are not. And laws such as these are a perfect example of where the voters may not in fact want such laws, but whether a politician will vote to overturn such laws is never sufficiently high on their list of reasons to vote for a candidate (and even for those for who it would be, it’s quite likely that all candidates on the general election ballot actually approve of most of the laws).
Hyperlink for multitude of useless laws is broken somehow, could you fix it?
I’m confused. Are you assuming that binding arbitration means a party gets to choose the arbitrator? That’s not how it works
Uh yeah, as part of the contract you sign it is frequently the case that the possible arbitrators are limited, and in some cases actually specified.
As just one example, e.g. the NFLPA’s union-bargained contract with the NFL specified that the commissioner was the ultimate authority on discipline cases (in addition to specifying the set or arbiters).
The main opposition that would arise to this would be:
- evil companies have an unfair advantage and hire biased arbitration companies to exploit workers because the courts would rule against them
- arbitration is not open to public scrutiny since it's confidential and that makes point one worse
- it's the "Wild West" and they just make ad hoc, arbitrary and inconsistent decisions with no rules
I know this because I've heard them 😬
Everything you said is true, because companies use arbitration to get out from under unjust procedures and, to some extent, substantive laws. But there is also a huge use case for business-to-business arbitration that no one talks about because it works. I think Brian’s point is that companies could, at least for business-to-business disputes also agree on a choice of law provision that chose some lex mercantile issued by a private body instead of a government. (Brian, if this interests you, I have a larger model for it.)
I am a fan of private arbitration and I think reputation would still solve the problem of them making unfair rulings in favor of businesses. If they were doing this employees could speak out about it still and hurt the arbitration agency's and company's reputation. Unless you sign a contract saying "I will never talk about arbitration if I go to it" which would be very suspicious and deter people from working for the company in the first place. They'd also have a higher employee attrition rate if they were systematically screwing people over. So those things combined probably make it not worth it for them to attempt it.
I'm mostly just pointing out common objections that I've heard. I'm interested in what you have to say, even if Bryan isn't lol.
If my brother always arbitrates all my contracts with my employees, minimum wage is not the only issue this might affect. Is it really plausible that my employees would be willing to agree to such a biased situation? It would make more sense if the specific exceptions to existing law were written into the contract, but some less obviously biased arbitrator would be chosen to resolve disputes. Those contracts might be more easily challenged in government court, I suppose.
I am having trouble thinking of good examples of other issues that might arise between employees and employers (I’m not a lawyer or a union official). Would it pass muster to have some areas of law in an employment contract subject to binding arbitration, and others not? I guess we are speculating about things that would not currently pass muster anyhow, so we might as well consider it. But the issue of how to get a genuinely impartial arbitrator seems more worthwhile.
“ Is it really plausible that my employees would be willing to agree to such a biased situation?”
Depending on the set of wages and benefits you offer relative to the skills of the employee, of course the answer might be yes.
Obviously in a competitive market where the wages, benefits, hours etc. are virtually identical, no one will choose that employer over many others ceteres paribus.
But things are rarely all the same.
The employer as described basically has the right to withhold payment, perhaps even to compel continued work. That seems like even desperate persons would not consider it an improvement.
Yeah but now you are conflating *which* specific terms to agree to with the idea that some people would agree to some/many terms which are violations of state or federal law if the pay and benefits are good enough [and they ARE effectively agreeing to CERTAIN terms when they know that the arbitrator is going to rule against them on those terms, per the letter of the contract]
Maybe I have lost the context. If my brother always decides in my favor, why would anyone ever make an agreement with me?
You have lost the context.
The point is no more and no less that truly binding arbitration would enable contracts - that people might readily be willing to accept - which current laws would not allow.
The “binding arbitration that I ‘know’ full well I would lose” is merely the mechanism that would make it possible to accept below minimum wage, or accept above “maximum work hours”, or get around any other stupid (or smart…) law/regulation that exists to prevent free individuals for freely bargaining their labor for something that they believe would make them better off.
No more, no less.
(It has nothing to do with whether they know someone would rule against them on an unrelated point not specified in the contract- that wouldn’t happen because it’s not specified in the contract…)
Forgive me for being *that person*, but the principle that two contracting parties cannot oust the jurisdiction of the courts through what we would nowadays call fully binding arbitration is an extremely old feature of the common law. Such a contract would be void for illegality as being against the policy of the law. It's not 'the government' that wants it that way, but courts themselves. Granted, this is partly job security for judges, but it's also to allow oversight of capricious or ignorant arbitrators.
I’m surprised to see your point about common law. My impression was that common law precedent mostly applied in cases where the parties' contract did not specify what should happen in the circumstances that actually arose, and the common law precedent set a sort of default. Then if people didn’t like the default, they were free to expand the terms of the contracts they wrote later, specifying a different remedy. You seem to say that this never happened. I am not a lawyer or a legal scholar, so I could easily be wrong. But I can’t fill in the blanks in a way that makes your version seem reasonable.
We're talking about agreements between contracting parties to appoint an arbitrator if they have a dispute, with the arbitration decision being final. The English common law has always said this kind of agreement is illegal (not meaning it is a crime, but that it is void), because it 'ousts the jurisdiction of the courts'. The courts must always ultimately have jurisdiction. What this means in practice is that appointing arbitrators to resolve disputes is common commercial practice but there must always be some route to appeal the decision of an arbitrator in a court of law.
That makes it clearer. Courts just refuse to enforce binding arbitration agreements strictly. People can still arbitrate, but they have recourse if the arbitration is unsatisfactory. Is that right?
Maybe I misunderstood entirely.