Why Did Amazon Drop its Arbitration Clause? – When Arbitration is Not Cost-Effective
Elizabeth J. McInturff, Esq., with Jared Stape, Law Clerk
Surprisingly, Amazon has dropped its mandatory arbitration clause. However, don’t uncork the champagne yet—this decision was more about Amazon’s bottom line—not so much about customer care. In the past 16 months, around 75,000 arbitration requests have been filed against Amazon. The sheer volume of requests has cost the retail giant tens of millions of dollars in filing fees. These fees understandably caused Amazon to re-evaluate its legal options.
This headline may leave you first wondering what arbitration is. Well, in short, arbitration is a form of alternative dispute resolution. It is a private process and occurs when disputing parties agree that one or several individuals can adjudicate their dispute after receiving evidence and possibly hearing oral argument. Not to be confused with mediation, arbitration differs because a neutral arbiter possesses the requisite authority to decide the dispute.
In fact, the arbitration process is often more akin to a trial proceeding that you would find in a court of law. While the rules of arbitration differ based upon the arbitration agreements and the arbitrator, many involve some discovery process, and the parties present evidence to the arbiter.
The benefits of arbitration are that it is often less formal than a judicial proceeding and can usually be completed on a quicker timeline than a trial. For example, often parties will not have to follow the more stringent state or federal rules of evidence.
In binding arbitration, the decision is final, judicially enforceable, and can only be appealed on narrow grounds. If the limited instances when arbitration is non-binding, the award is merely advisory and can only be final when both parties accept the award. Parties should also be aware that they are often required to pay the arbitrator(s) for their time, in addition to any other related expenses they may have, including filing fees and hiring counsel of their choice.
Whether in anticipation of product litigation or employment disputes, among other things, many corporations employ mandatory arbitration clauses, which most consumers and employees unwittingly or apathetically sign. When a dispute arises, mandatory arbitration requires contractual parties to surrender their rights to sue using traditional courtroom channels. Instead, an arbiter adjudicates the dispute between the parties, and their decision is binding. Although arbitration generally provides both parties with participation, flexibility, simplicity, lower costs, and privacy, these benefits are empirically shown to overwhelmingly favor corporations.
Recent studies have concluded that arbitration clauses severely limit consumer relief options, leaving consumers with little recourse in disputes. Studies have further demonstrated that the arbiters that are systematically corporate-friendly are forty percent more likely to be selected than consumer-friendly arbiters.
Even the rare consumer who understands binding arbitration is still likely at the mercy of the corporation. Generally, most consumers are not dissuaded from using a service or product offered by the corporation, and courts have consistently held most mandatory arbitration clauses to be binding. As such, there is no indication that corporations will stop employing mandatory arbitration provisions anytime soon.
So why if arbitration is so corporate friendly did Amazon drop its arbitration clause? It comes down to money.
Amazon’s new approach is to handle all the complaints at once. A class-action suit would potentially be more cost-effective than paying for each individual arbitration claim. Further, the costs associated with litigation will likely act as a deterrent for many individuals looking to initiate an action against Amazon. Additionally, many federal courts do not treat Amazon as a seller, which allows them to escape liability in most product litigation cases.
While Amazon may be saving money in the short run, it may have just opened the floodgates to an indeterminate amount of class action suits. Generally, class actions are free to join, with the attorneys receiving compensation on a contingent basis. As such, there are likely thousands of unknown claimants ready to join the next class action against Amazon. This leaves the question open as to whether Amazon will recalibrate again and revert to arbitration. If they do, courts will likely accept their change, based on prior case law.
If you have further questions about arbitration or if you are thinking about bringing or defending an arbitration claim, the experienced attorneys at JDKatz are here to help. Please contact Elizabeth J. McInturff, Esq., at (240) 743-5410 or elizabeth@jdkatz.com