Arbitration Clauses
Frequently found in the terms and conditions of companies, especially online retailers, are arbitration clauses and class action waivers, sometimes both. When combined with a class action waiver, arbitration clauses limit the risk of facing large-scale claims and maintain the confidentiality of disputes between the company and its customers. Typically, these provisions work to minimize a company's vulnerability. As a result, consumers looking to make a purchase from the website are required to agree to the arbitration terms to finalize their transaction. This agreement then obligates the consumer to settle any claims through arbitration on an individual basis.
Mass Arbitration
Arbitration clauses have proven to be a challenge for the plaintiff's class action bar. To work around the practical limitations imposed by these clauses, there has been a recent trend among plaintiff's attorneys. They are now organizing large groups of individuals with similar or identical claims against a common defendant through the arbitration process.
These mass arbitration claims, often initiated through widespread filing campaigns, can create substantial financial strains on companies. While the costs of litigating an individual arbitration case are typically lower than those of a class action, companies are still responsible for filing and administrative fees. Therefore, when plaintiff attorneys gather and submit groups of claims, the filing fees can quickly add up to millions of dollars. This financial burden, combined with the complexities of managing due diligence with numerous claimants, can severely stretch a company's resources.
Key Points
Although plaintiff's attorneys have primarily targeted technology-based companies, businesses nationwide that employ arbitration clauses face similar risks. Consumer-oriented companies take proactive steps to prevent or lessen these potential risks.
In particular, companies should conduct thorough reviews of their existing arbitration agreements, ensuring they are easily understood, transparent, and fair to all parties involved. They should also contemplate amending these agreements to include clauses that deter or restrict the possibility of mass arbitration claims whenever feasible. This could involve mandating a pre-dispute resolution process for each individual claimant.
By taking a proactive stance, companies can significantly minimize their vulnerability to the complexities of mass arbitration. A comprehensive strategy not only safeguards the company but also helps in fostering a positive reputation within the industry and maintaining strong relationships with consumers.
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