Arbitration Clauses – Could they be turned against you?

Clients, what is your cost of arbitration? What if your customers try to demand arbitration all at the same time? What if you had to pay the filing fees for that arbitration? Are you really saving money? Maybe traditional litigation or a class action suit is more efficient.

Recently, global retailing giant Amazon elected to do away with their arbitration clause after receiving 75,000 arbitration demands at once, costing the company a fortune. Due to the rise in sophisticated plaintiffs law firms armed with targeted marketing and case management technology, plaintiffs firms are now able to file mass arbitration demands for hundreds if not thousands of clients all at once. This tactic is being used by plaintiffs firms to force large companies into settlements who want to avoid paying high arbitration fees.

Arbitration usually is preferred by companies over the traditional court process because arbitration can be less formal, requires less evidence, and there are limited appeals, thus keeping “litigation” costs down. While arbitration was initially sought as a means to avoid costly state and federal court proceedings, a new tactic of mass arbitration filings is making the traditional court process more appealing.

Amazon and companies like Uber, Lyft and Door Dash are now seeking to remove their arbitration provisions from their contracts. These companies are bucking the arbitration trend and now prefer the traditional court process, and even class action suits, as means to effectively to resolve disputes with its customers. These companies found that when there is a binding arbitration provision in place and they try to move a dispute away from arbitration and towards the traditional court process, courts are telling them tough luck.  If your company has an arbitration provision, it could put your company in a similar situation when faced with multiple arbitration demands.

As your counsel, it may be worthwhile to revisit any arbitration provisions within your company’s contracts and evaluate if it is something that should be removed. Alternatively, re-evaluate arbitration from a cost standpoint to see how you can avoid facing a very large bill for a mass arbitration filings.

For additional information contact your Buckingham attorney.