The Future of Binding Arbitration in an Era of Stakeholder Capitalism


Whether or not one believes we are entering a real age of stakeholder primacy,[1] it is hard to ignore the fact that consumers are getting savvier[2]—at least in some ways.[3] At the same time, corporate practice has increasingly relied on restrictive binding arbitration agreements to minimize legal liability and financial exposure.[4]

There is no question that pre-dispute arbitration clauses save companies money. And indeed, arbitration—and alternative dispute resolution (ADR) generally—can save time and money for plaintiffs. But the favored status of ADR in the legal system has been gradually put into jeopardy by restrictive agreements that clearly and overwhelmingly favor large corporations with outsized bargaining power.[5]

Since the Supreme Court’s ruling in American Express Co., et al. v. Italian Colors Restaurant,[6] the corporate case for tacking a binding arbitration agreement on to the end of every contract is as strong as it has ever been. There, the Court examined an arbitration clause, embedded in all American Express’s standard form contracts with merchants, which contained a class action waiver.[7] Plaintiffs argued that the class-action waiver had the function of prohibiting all antitrust suits by private parties because the cost of arbitrating individually would greatly exceed the potential recovery for a single plaintiff.[8] Nevertheless, the Supreme Court gave full force to the arbitration clause’s class-action waiver.[9]

But consumers are savvier than they used to be, and there have been some high-profile cases in which indignant consumers have exploited these provisions.[10] In those cases, the ban on class action suits contained a corollary promise to arbitrate each case individually. And because of the laws of the forum state—California in both cases—the companies had to pay the arbitration fees upfront.

The promise of ADR was that it would settle disputes quicker, cheaper, and more fairly than expensive and protracted court proceedings. By reducing the exorbitant transaction costs endemic to the justice system, it would lead to a massive Pareto improvement. Instead, the perception of the common man is that corporations have created their own justice system to operate outside of the law.[11] The result has been a—for now, small—popular insurgency against binding arbitration, and damage to ADR’s reputation that will be difficult to recover from.

Of course, it is not just about what the consumer, disenfranchised from the legal system, can do, but also what—and whom—she can influence. Attitudes toward arbitration have always been mixed at best; after all, “[c]ongress enacted the FAA in response to widespread judicial hostility to arbitration.”[12] But as the corporate ADR repertoire becomes increasingly aggressive, so does the pushback. For example, federal agencies have begun to respond in both substitutive and regulatory capacities to the proliferation of mandatory arbitration.[13]

Indeed, agencies may very well have the authority to regulate arbitration in various ways. While the FAA acts as a kind of imprimatur for ADR proceedings, Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,[14] has a similarly broad enabling effect on agency action.[15] One risk, then, of putting all the eggs in the arbitration basket, is that that basket may increasingly come to be designed and refitted by agencies—for example, the Federal Trade Commission (FTC)—whose mission statements include antitrust (or, within this metaphor, smashing eggs).

Other agency responses include disgorgement proceedings, which act as pseudo-class actions—the SEC’s “fair fund” actions are perhaps the best-known example.[16] The agency sues a defendant, or defendants, and uses the proceeds to make plaintiffs whole. What ought to alarm any corporate entity about these proceedings is that they do not usually bar plaintiffs from seeking further relief in private suits.[17] If legislation or regulation were subsequently to declare an arbitration clause to be invalid, corporations may then be hit first by a disgorgement action, and then subsequently by private suits or a class-action and end up paying out twice.

And the law of arbitration is changing. President Joe Biden recently signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“Act”).[18] The Act amends the Federal Arbitration Act (FAA)—which enables binding arbitration—to exclude pre-dispute arbitration agreements for matters of sexual assault and harassment.[19]

With these developments, the risk of a significant, black swan loss is greater now than ever before. Still, there can be no doubt that, under the arbitration status quo, corporations are the heavy winners.[20] Each corporation individually benefits from establishing a highly favorable (to itself) ADR regime. Nevertheless, these excessively aggressive binding arbitration tactics, in aggregate, pose a systemic risk. The more consumers feel exploited, the more likely it is someone—an agency, or congress, or even the Supreme Court—will intervene. If the greater business community wish to avoid this tragedy of commons, and for the FAA to survive in its current form, it will need to establish rules and guidelines and begin policing its own anti-consumer tactics.

In his 2022 letter to CEOs, Larry Fink said: “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.”[21] If there is a Straussian reading of this letter, I suggest it is this: the evolving standard of consumer protection is coming for your business, whether you like it or not, and it would be a mite better for the business world if corporations set their own standards, before regulatory agencies and politicians step in to do the job for them.

[1] Compare David Gelles & David Yaffe-Bellany, Shareholder Value Is No Longer Everything, Top C.E.O.s Say, N.Y. Times (Aug. 19, 2019),, with Lucian A. Bebchuk & Roberto Tallarita, ‘Stakeholder’ Talk Proves Empty Again, Wall St. J. (Aug. 20, 2021),

[2] See, e.g., Survey Shows that Americans Are Becoming Savvier News Consumers, Freedom F. Inst. (Jan. 12, 2018),

[3] But see, e.g., Lindsey Bever, Teens Are Daring Each Other to Eat Tide Pods. We Don’t Need to Tell You that’s a Bad Idea., Wash. Post (Jan. 17, 2018),

[4] See Katherine V.W. Stone & Alexander J.S. Colvin, The Arbitration Epidemic: Mandatory Arbitration Deprives Workers and Consumers of Their Rights, Econ. Pol’y Inst. (Dec. 7, 2015),

[5] See id.

[6] 570 U.S. 228 (2013).

[7] Id. at 231.

[8] Id. at 231–32.

[9] Id.

[10] See Ian Millhiser, DoorDash’s Anti-Worker Tactics Just Backfired Spectacularly, Vox (Feb. 30, 2020),; see also Patreon Loses Lawsuit with Owen Benjamin Fans, Likely To Pay Millions in Arbitration and Legal Fees, Nat’l File (Jul. 30, 2020),

[11] See, e.g., Millhiser, supra note 10.

[12] Italian Colors, 570 U.S. at 232 (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).

[13] Daniel T. Deacon, Agencies and Arbitration, 117 Colum. L. Rev. 991, 994–95 (2017).

[14] See generally 467 U.S. 837 (1984).

[15] Deacon, supra note 13, at 1033–41.

[16] See Will Kenton, Fair Funds for Investors, Investopedia (Sept. 27, 2020),

[17] Deacon, supra note 13, at 1046.

[18] Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, H.R. 4445, 117th Cong. (2022).

[19] Id.; Emily T. Patajo, President Biden Signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, Nat’l L. Rev. (Mar. 8, 2022),

[20] See Millhiser, supra note 10.

[21] Larry Fink, Larry Fink’s Annual 2022 Letter to CEOs: The Power of Capitalism, BlackRock, (last visited Mar. 23, 2022).


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Fordham Journal of Corporate & Financial Law