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Is the fight over to promote arbitration over class actions?

On Behalf of | Jan 11, 2021 | Commercial litigation |

For a decade or longer, large companies have been working to ensure that disputes with their employees and customers are handled via arbitration instead of class-action litigation. They have had significant success.

Many companies thought arbitration would be more advantageous than litigation, and they made mandatory arbitration clauses a part of their contracts. When compared side by side with litigation, arbitration is generally less expensive and time-consuming. There is some indication that arbitrators are more defense-friendly than judges and juries. And, it isn’t easy to bring a mass arbitration, so plaintiffs cannot bind together as they can in class-action litigation.

That said, many organizations may have been hoping that arbitration requirements would deter plaintiffs from bringing complaints at all. If so, it was apparently a forlorn hope.

In November, DoorDash filed a disclosure statement with the SEC in advance of its IPO. In that disclosure statement, the food delivery service said that it has found arbitration to be “costly and burdensome.”

This is because thousands of workers have filed arbitration demands for unpaid wages. Now, DoorDash owes tens of millions in American Arbitration Association fees, according to Reuters’ Alison Frankel.

Moreover, when it attempted to stop some of these individual claims, a federal judge refused to allow that because DoorDash had fought so hard to require arbitration in its contracts. “This hypocrisy will not be blessed,” he told the company.

In its IPO filing, the company acknowledged that its mandatory arbitration requirement was under “increasing public scrutiny,” creating “risks to our reputation and brand.” As a result, it said it might no longer enforce the provisions.

Other companies find mass arbitration costly, as well

Gig-economy companies including Lyft, Postmates, and Uber, along with more traditional organizations like FanDuel, Intuit and Chegg, are all reckoning with the expense of unchecked arbitration demands. And, federal judges are not allowing them to combine the plaintiffs’ claims into a convenient class-action, as these companies pressed arbitration on their customers and workers.

In mid-December, Intuit reached a class-action settlement with plaintiffs who had brought thousands of separate arbitration claims. The mass campaign has already cost the company over $30 million in arbitrator fees.

Unfortunately for Intuit, a federal judge threw out the settlement. He pointed out that Intuit has previously litigated to enforce its mandatory arbitration provisions. The company was hoist on its own petard.

Class actions may be looking like a decent dispute resolution mechanism when compared to thousands of individual arbitration claims.

Is your company considering a mandatory arbitration clause in your consumer or employment contracts? Have you had a negative experience with either arbitration or class-action litigation? Do you think the wave of arbitration requirements is ebbing?