What is Mandatory Arbitration? (And Why It Blocks Some Class Actions)

By Timo Bakker · July 6, 2026 · 5 min read

Mandatory arbitration is a contract clause that says: "if you have a dispute with us, you must resolve it in private arbitration, not court." Most consumer contracts (phone plans, apps, banks, credit cards) have them. Here is what they do and how they interact with class actions.

How it works

When you sign up for a service, you agree to the terms — almost always including an arbitration clause. If a dispute arises, instead of suing in court, you go to a private arbitrator (paid by both sides). The arbitrator's decision is binding and largely un-appealable.

How it affects class actions

Many arbitration clauses include a "class action waiver" that says: "you agree not to join a class action against us." Courts (post-AT&T v. Concepcion, 2011) generally enforce these. This means: if the company you have a dispute with has an arbitration clause, you often cannot participate in a class action — you have to arbitrate individually.

The workaround: mass arbitration

Consumer law firms have started filing "mass arbitrations" — thousands of individual arbitrations at once. Because arbitrators charge per-case fees (paid by the defendant), thousands of simultaneous arbitrations create huge financial pressure. This has led to settlements in cases that arbitration was supposed to prevent.

Can you opt out?

Some arbitration clauses give you 30 days after signup to opt out (mail a letter). Most people miss the window. Some newer state laws (California's AB 51) attempt to restrict mandatory arbitration in employment contracts, but employer-side federal law generally prevails.

Check the settlement notice

If a class action settlement notice arrives in your mail, it means the case cleared the arbitration barrier — you can still file your claim. If a company you have a dispute with does not have a class action, but does have arbitration language in their terms, that is likely why.