Clauses in the terms and conditions of your site or app. Could any topic be more boring? Well, snap to Sparky. Today, we take a look at the value of including an arbitration clause in the terms and conditions for your online properties. Specifically, how this collection of legalese language can save your bacon in a worst-case scenario.
Mandatory Arbitration Clauses
The terms for your online property acts as a contract with your users. When drafted correctly, the language in the terms can discourage lawsuits against your business, particularly massive lawsuits. The mandatory arbitration clause is key. To understand why, we need to look back to the olden days – 2010.
In 2010, the law of the land was relatively clear. Evil businesses [that would be you and me] could not force poor, defenseless consumers who could barely put two thoughts together into arbitration hearings to settle legal disputes. Nearly every state had passed laws on the topic and, well, it was verboten, but things were about to change.
In 2011, the United States Supreme Court decided to hear a case known as AT&T Mobility vs. Concepcion. The issue at the heart of the matter was, you guessed it, whether businesses could force consumers to arbitrate disputes. Although the law on consumer arbitration had been settled for 80 years or so, the makeup of the Supreme Court had evolved from a liberal majority to a conservative majority by a 5-4 count. Liberal justices tend to be more consumer-friendly while conservative justices tend to favor businesses. Consumer arbitration was ripe for review.
The Supreme Court took a good long look at all the published opinions on business-consumer arbitration issues that had been handed down the last 80 years, rolled them into a metaphorical ball, and tossed them in the circular filing cabinet. The Court ruled that state law on the topic was preempted by the Federal Arbitration Act of 1925. Under the Act, businesses could force consumers to arbitrate disputes as well as [and this is important] waive the right to participate in class-action lawsuits.
And there was much rejoicing in board rooms and country clubs.
You are likely not running a multi-million dollar, multi-national company. No problem. The AT&T Mobility decision is still important for your business.
Preventing Class Action Lawsuits
What is the price point for the average purchase on the Internet? I have no idea. Based on my personal experience, the price typically is $100 or less. How many people do you think are going to sue a business over a $100 purchase? Very few. Most will instead raise a hissy fit on social media and torch the business in reviews. Unless you are very unlucky, the chance of being sued by a single customer is very low.
Ah, but what if customers band together?
In the United States, the law allows customers to do just this in what is known as a class-action lawsuit. You’ve probably seen the ads on television at night. An attorney who often looks like a made man from The Sopranos asks if you ever took Sketchy-Company Vitamin X from 2008 to 2010 and, if so, suggests you might be entitled to compensation. These commercials are designed to round up as many potential victims as possible so a multi-million dollar class-action lawsuit can be filed against the company in question. While one customer suing you for $100 isn’t much to lose sleep over, 10,000 customers suing you for $100 each plus attorneys fee is going to have you staring at the ceiling while trying to sleep at night until the sun comes up.
And here is where an arbitration clause saves you.
Pursuant to the AT&T Mobility decision, businesses can force consumers to agree to arbitration as we’ve discussed above. Businesses can also force consumers to pursue their claims as individuals, waiving the right to form a class. In plain English, this means you can include a clause in the terms for your website or app in which consumers agree not to bring a class-action lawsuit against you. This significantly reduces the chances of a lawsuit. If we take our example above with the 10,000 customers in the class action lawsuit, the vast majority of those customers are not going to move forward with individual arbitration hearings. And by “vast majority,” I mean maybe ten would pursue your business.
Now are you interested in arbitration clauses?
I’m staring into the future through my crystal ball. Oh, wait. That’s the bottom of my coffee cup. Still, how long can we expect this arbitration/class-action advantage to last? Decades. The election of The Donald means the Supreme Court will be adding a conservative Justice soon, likely Judge Neil M. Gorsuch, which should maintain the 5-4 conservative majority for at least the next eight years and probably a decade or two beyond. Put another way, you have no excuse for not adding an arbitration clause to the terms for your website or app.
If you have questions regarding this article or need assistance, drop me a message using the contact link on the menu above.
Richard Chapo, Esq.