“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
— Adam Smith, The Wealth of Nations (1776)
Two and a half centuries later, nothing has changed. Incentives still drive behavior.
Forced arbitration is no exception.
Arbitration is a private dispute resolution process created by contract. Instead of going to court, the parties agree to present their dispute to a neutral decision-maker, called an arbitrator. The arbitrator’s decision is generally binding and can later be enforced by a court.
In many employment and consumer settings, arbitration is not optional. It is required as a condition of employment or purchase.
The word arbitration often makes people tune out because it sounds complicated and unrelatable. In practice, it’s simpler than it sounds.
Private dispute resolution
Arbitrator
Yes
Often no
Arbitration itself is not the problem. When it works as intended, it can be an effective alternative to litigation—reducing court congestion and often resolving disputes faster and at lower cost.
The problem arises when arbitration is structured so that the party who requires and pays for the private forum cannot be meaningfully held accountable outside it. In those cases, arbitration is imposed with the understanding that courts will prioritize finality over fairness when enforcing the award.
An alternative to court cannot be effective if it is not fair.
At that point, arbitration stops being an alternative to justice and becomes a substitute for it.
When Congress enacted the Federal Arbitration Act (FAA) in 1925, it did so in response to a specific problem: courts were openly hostile to arbitration agreements and often refused to enforce them out of concerns about fairness.
The FAA was intended to place arbitration agreements on equal footing with other contracts, not to insulate arbitration outcomes from judicial oversight or eliminate judicial review.
At the time, arbitration was understood as an alternative to litigation. As such, courts were expected to enforce arbitration agreements while still ensuring that outcomes complied with governing legal standards. Congress did not remove the courts from that role.
More than a century later, judicial interpretation has evolved in the opposite direction. What began as a response to judicial hostility has become a system of extreme deference, in which courts have come to prioritize finality over fairness and convert private arbitration awards into enforceable judgments while disclaiming power or discretion to review them. The result bears little resemblance to what Congress originally envisioned when it enacted the FAA.
• Private forum, created by contract
• Often mandatory for workers or consumers
• Forum selected and paid for by the stronger party
• Limited discovery and evidentiary rules
• No judicial review of factual findings
• Designed for speed and efficiency
• Binding outcomes, even if incorrect
• Awards enforced through courts
• Public forum, created by law
• Access guaranteed by the Constitution and statute
• Independent, publicly accountable judges
• Full discovery and evidentiary rules
• Limited judicial review of factual findings
• Designed for limited oversight and correction
• Incorrect outcomes can be corrected
• Judgments issued publicly
When arbitration becomes mandatory and structurally insulated from meaningful judicial review, it no longer functions as an effective alternative to the legal system.
It becomes a business model—one where incentives, repeat players, and private forums quietly shape outcomes.
Courts exist to interpret the law and hold parties accountable through independent judgment. Arbitration, by contrast, is a private system created by contract.
When courts convert private arbitration awards into enforceable judgments but lack power to review the facts, a tension emerges: a private decision can carry the force of law without meaningful judicial oversight. That tension sits at the center of modern forced arbitration—especially when public safety is at stake.
If a wrongdoer can require private dispute resolution, choose the forum, and pay for it, telling the truth may no longer align with that party’s interests.
This is where incentives stop being theoretical and start shaping outcomes.
Some arbitration services are organized as nonprofits, while others are openly for-profit. In practice, all administer disputes as paid services and compete for business.
The two largest arbitration service providers are the American Arbitration Association (AAA) and Judicial Arbitration and Mediation Services, Inc. (JAMS). Because AAA is organized as a nonprofit, its financial disclosures are publicly available. JAMS, by contrast, is a private for-profit company and does not publish comparable filings.
AAA is organized as a nonprofit, which is a tax classification—not a commitment to operate without financial incentives.
According to its most recent publicly filed 501(c)(3) disclosures, AAA reported:
in anual revenue
in executive compensation
in salaries and wages
The nonprofit label describes tax status, not the absence of a revenue-driven business model.
JAMS is openly for-profit. As a result, unlike AAA, its financial disclosures are not publicly available.
Executive Director of the Government Accountability Project, Tom Devine, issued a statement that summarized the effect of forced arbitration:
Forced arbitration is private by design. Its consequences are not.
This is not theoretical. It has played out repeatedly in real cases.
One such case led to the founding of EFA. It involved a whistleblower who raised patient safety concerns about a medical device defect known to cause “very serious and potentially life-threatening” injury.
Despite documented evidence and the defendant later conceding the truth about both the defect and resulting injuries, a federal appellate court acknowledged that it lacked discretion and power to review the arbitrator’s factual finding that there was “nothing unsafe” about the device.
If you want to see how the system failed in that case, and how it led to EFA’s work, you can read the full story here:
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