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Are mandatory arbitration agreements enforceable?

It’s become increasingly common to put mandatory arbitration clauses in all kinds of consumer contracts, from cellphones to gift card sales.

In many cases, customers may not even realize the agreement is there — and they may not really understand what it means if they do. Are these agreements really enforceable if you end up having a dispute that needs to be settled?

The best answer right now is, “Probably — but it might not be wise to do so.”

Businesses love these kinds of clauses — precisely because it keeps them from being embroiled in an expensive lawsuit and often allows them to keep the publicity about a problem to a minimum. Mandatory arbitration clauses usually also give businesses the advantage of being able to choose their own judge in a dispute — which means it’s often possible to stack the deck against consumers in a dispute. Even class actions can be halted by a properly worded arbitration clause. In addition, you can force an aggrieved consumer to share in the cost of litigation — a factor that discourages all but those with the biggest grievances from pursuing anything. For the most part, their validity has been upheld in the courts.

Understandably, consumers and consumer advocates don’t share the appreciation for these clauses. They’ve already started to fight back — hard. In addition to legal challenges that have been mounted, consumers are taking the fight against these clauses where a fight can often hurt the most: social media.

For example, General Mills customers banded together over a mandatory arbitration clause on the company’s website that would have held anyone to its terms just by clicking a link for a coupon. After receiving the negative press, General Mills promptly backed down and changed the terms of its website once again.

Ultimately, whether or not you use a mandatory arbitration clause with your customers, business partners, suppliers and even employees is a choice that you have to make carefully. There’s no right answer. It’s always a good goal to avoid litigation in business — but you have to make sure that your reputation doesn’t get damaged in the process.