Consumer and employment lawsuits are unpredictable liabilities in dealerships. Dealers can go years without any significant lawsuits and then be surprised by multiple suits in a short time frame. For years, mandatory arbitration agreements have been thought to be a panacea for controlling that exposure. But plaintiffs’ attorneys have gotten more aggressive about fighting to stay out of arbitration, and jury verdicts against dealerships have grown sharply larger. The question dealership owners should be asking in 2026 isn’t, “Should we use arbitration agreements?” The question should be, “Is our arbitration provision actually working, and are they worth the trade-offs?”

Here’s a summary of the real advantages, the genuine downsides and what a well-built program looks like.

Brief Legal Background

Arbitration agreements are governed primarily by the Federal Arbitration Act (FAA), and the United States Supreme Court and West Virginia Supreme Court spent the last three decades steadily strengthening employers’ ability to enforce them. If the FAA is not used, West Virginia also enacted an updated arbitration statute in 2015.

The trend line is clear with arbitration; courts have consistently sided with businesses who structure their agreements correctly. For example, an estimated 80% of Fortune 100 companies have used employment arbitration agreements since 2010, largely in response to the rise of employment cases, but the same considerations can be examined by West Virginia auto dealers with both employment and consumer claims and lawsuits.

The Advantages

• Class action waivers are the single biggest win. Eliminating even one class action can meaningfully cut a dealership group’s litigation costs — and it can also lower your profile with the plaintiffs’ employment bar, which tends to target companies known for large exposure.
• Lower overall cost of resolution. Studies show that well-run arbitration programs tend to reduce class litigation exposure, limit discovery and push cases toward earlier, lower settlements with a more streamlined process than court litigation. However, I personally find this questionable because of the significant upfront costs and the expense of an arbitration service and arbitrators. Of course, my impression is more anecdotal. This is a benefit that needs to be considered closely.
• No juries, no runaway verdicts. This may be the most important advantage for dealerships specifically. Jury verdicts of $10 million or more (“nuclear verdicts”) have grown sharply in both frequency and size. Arbitration takes the jury out of the equation entirely.
• Confidentiality. Arbitration proceedings and pleadings generally aren’t part of the public record, unlike court filings.
• Predictability and control. Arbitration outcomes are far more consistent than jury verdicts, and the agreement itself can be drafted and rolled out in the way that best fits your business.

What the Data Shows

There is no single national database tracking arbitration outcomes, but the following, albeit only for employment matters, available numbers consistently favor arbitration over litigation:

• According to the American Arbitration Association (AAA), for employment cases between late 2017 and late 2022, 77% settled, only 9% went to a final award and the rest were resolved other ways.
• Of the cases that did reach an award, employees won roughly 26% of the time.
• More recent data (2024) shows similarly high settlement rates between arbitration and civil cases.
• By comparison, employees who go to trial in federal court win less than arbitration, but the rare wins can be enormous, which is exactly the “low-probability, high-reward” dynamic that makes litigation so risky for employers. In West Virginia, I do believe a consumer or employee’s chance of prevailing is higher than the average in the federal system across the United States.
• Arbitration usually resolves faster with streamlined discovery procedures and more limited motion practice that occurs in court.

The takeaway for dealership owners: Arbitration doesn’t eliminate liability, but it substantially caps exposure to individual claims and will generally limit a runaway verdict, while resolving disputes faster for everyone involved.

The Disadvantages, They’re Real

Arbitration isn’t a silver bullet, and dealership owners should go in with clear eyes about the downsides.

• Disputes don’t disappear. Arbitration can reduce the volume and cost of disputes, but it doesn’t eliminate them.
• Compelling arbitration isn’t free or guaranteed. Motions to compel arbitration take time, cost money and aren’t always granted.
• You pay the upfront costs. If you use an arbitration provider/agency, those administrative costs — plus the arbitrator’s fees — typically fall on the company, not the employee.
• Extremely limited appeal rights. Under the FAA, your ability to appeal an unfavorable arbitration decision is much narrower than it would be after a court judgment. Practically, there is no appeal of even a bad decision.
• Not every claim is arbitrable. Unemployment claims, certain benefit claims, Dodd-Frank whistleblower claims (i.e., whistleblower claims protected under the Dodd-Frank Wall Street Reform and Consumer Protection Act) and sexual harassment/assault claims are generally excluded from mandatory arbitration by federal law.
• Mass arbitration risk. A coordinated wave of individual arbitration demands can generate extreme aggregate costs and can be more disruptive than a single class action would have been.
• Arbitration doesn’t stop agency action. Government agencies can still bring or process charges regardless of your arbitration agreement.
• King Solomon effect. I find that juries are more likely to tell a plaintiff they are wrong than an arbitrator, who may “split the baby” in their decisions.

Best Practices

If your dealership is adopting or updating an arbitration program, my recommendations are as follows:

• Use a standalone arbitration agreement rather than burying it in a retail installment contract or employee handbook. I realize we have to use the lender’s arbitration agreement in the retail installment contract. Let’s consider having a standalone arbitration agreement that is consistent with the lender’s agreement, which mostly uses the American Arbitration Association as their commercial service provider.
• Draft the arbitration provision under the FAA and make sure it clearly addresses: 
  • • Which claims and parties are covered
    • Explicit exclusions for non-arbitrable claims
    • A delegation clause (letting the arbitrator decide arbitrability disputes)
    • A class action waiver
• Plan for mass arbitration risk up front, rather than discovering it after a wave of demands arrives.
• Track which version of the agreement each employee signed, confirm signatures are on file and set a clear document retention policy. Agreements that can’t be proven to exist or be signed are agreements that can’t be enforced. If you use a commercial arbitration service, you will need to pre-file your arbitration provision with the service.

If you have an arbitration provision, be careful about deciding not to use it all the time. Plaintiff’s counsel has been arguing that such waivers void the arbitration provision. This creates another issue to address when having to file a motion to compel arbitration.

Bottom Line

For dealership owners, arbitration agreements remain a strong strategic tool. The data shows faster resolution and dramatically reduced exposure to large jury verdicts compared to litigation. But they only deliver those benefits when built correctly: standalone, FAA-compliant, clear about exclusions and actively maintained. A poorly drafted or poorly tracked agreement can cost you the very protection you hoped to gain.

Before rolling out or revising an arbitration program, loop in experienced counsel to make sure your agreement reflects current law in every state you operate, but particularly West Virginia. The federal and state landscape shifts often, and what worked five years ago may need updating today.

As always, the West Virginia Automobile Dealers Association is ready to assist you. Please do not hesitate to reach out to Jared Wyrick or myself for any help.