Analysis: Arbitration clauses of many large companies include features that restrict consumer rights

The contracts of many of the largest consumer companies now include terms that make it harder to seek justice through the private courts, a FairShake analysis finds.

The restrictions include language mandating active customer participation in pre-dispute conferences, imposing bellwether procedures to slow the process when many individuals have similar complaints, and claiming the ability to remove claims from arbitration to small claims court any time they feel it would be advantageous.

FairShake reviewed the arbitration clauses of the 25 companies seeing the highest volume in the consumer arbitration system for which such agreements were easily accessible online. At least ten of these 25 companies were found to impose one of the anti-consumer contract features we looked for.

This analysis matches FairShake’s observation in the market that clauses seeking to restrict consumers’ access to arbitration are becoming increasingly common.

FairShake founder and CEO Teel Lidow noted that barriers placed on consumers pursuing justice through arbitration run against the principles under which alternative dispute resolution has been embraced as a standard in consumer contracts. “Corporations worked hard to convince the Supreme Court and state legislatures that forced consumer arbitration is a fast, easy and simple alternative to court. Now many corporations are trying to make it as difficult on consumers as possible.”

Pre-dispute requirements

The analysis finds that at least eight of the 25 companies’ claim to impose requirements for participating in an internal dispute adjudication process prior to proceeding to arbitration that go beyond sending a written legal notice to a company address.

Among these eight, at least four—Intuit’s TurboTax platform, Uber, H&R Block, and Match Group’s Tinder—require a customer to participate in a phone conference. 

Uber’s terms of service for example state:

 If you are represented by counsel, your counsel may participate in the conference, but you shall also fully participate in the conference,” and go on to note that “Engaging in an informal dispute resolution conference is a condition precedent that must be fulfilled before commencing arbitration, and the Arbitrator shall dismiss any arbitration demand filed before completion of an informal dispute resolution conference.
(Emphasis added)

Other companies including FanDuel, Cox, Chime, and Coinbase mandated that customers pursue their complaint through customer service channels without the specific telephonic conference requirements. 

Some of the agreements contained severe warnings for not following the pre-dispute processes they lay out, with Cox’s contract calling it “a material breach of this Dispute Resolution Provision” and FanDuel warning that “Failure to engage in this process could result in the award of fees against you in arbitration.”

Such pre-dispute requirements likely serve a dual purpose from a company perspective: by imposing an additional hurdle some customers will be deterred from seeking justice, while others may accept whatever is offered in the phone conference, heading off a company’s need to pay fees to an arbitration provider.

FairShake is also watching with concern the length of pre-dispute notice periods in even company contracts that don’t impose other pre-dispute requirements. Thirty day pre-dispute notice periods used to be something of a norm, but contract revisions often include a lengthening of these notice periods. The additional time between seeking and receiving justice further deters individuals from seeking justice.

Processes to delay batch arbitrations

At least five of the agreements reviewed by FairShake—those posted by Uber, H&R Block, Verizon, Tinder, and Coinbase—had provisions to slow batch arbitrations through bellwethers. These provisions allow only a certain number of claims about a given issue to proceed at any given time. 

When thousands of claims relate to the same issue these clauses can lead to particularly objectionable results in which it could take decades for some claims to be heard.

Removing claims from arbitration after it has started

At least five of the contracts reviewed by FairShake—those of Cox Communications, T-Mobile, Tinder, TurboTax and Verizon—contain language claiming the company’s right to unilaterally move claims from arbitration to small claims court after a consumer has initiated a case.

This poses a danger that a company can change the venue of a claim based on a fear that things won’t go their way in arbitration, or just to give a consumer the run-around.

Small claims courts also are not able to impose injunctive relief—for instance requiring companies to stop ongoing patterns of behavior like discrimination or predatory practices.

FairShake has seen a trend in practice of companies asking arbitration administrators to remove cases to small claims courts ad hoc, and we’re further concerned to see it gain a foothold in contracts.

Technology companies in particular are pushing the bounds of arbitration agreements

Based on our review of the data, a few trends come into view of the sorts of companies most likely to push boundaries (to the detriment of consumers) in their arbitration agreements:

• Web-based and technology were the most likely companies to include some or all of the features mentioned above, including TurboTax, Uber, FanDuel, Chime, Tinder, and Coinbase. In contrast, the only technology companies not to include at least one of the featured tactics were Lyft, PayPal, and Tesla.
• While ten of the 25 companies in our dataset provide users the option to opt out of arbitration requirements upon sign-up, only two of the 10 imposing anti-consumer terms had an arbitration opt out option. (Not that opt outs are likely to see much real-world use).
• The two companies in our dataset who have switched from their previous arbitration venue to “upstart” arbitration providers both include consumer unfriendly terms in their contracts. (Namely, Uber switched from the American Arbitration Association [AAA] to ADR Services, Inc. and Tinder switched from the AAA to NAM.)

Companies for this analysis were selected based on lifetime arbitration volume figures included in reports from the American Arbitration Association and JAMS. Companies were sorted by lifetime claims. Companies with only employment claims were removed from the data, as were those for whom relevant user agreements could not be easily found online.

FairShake is the online service giving American consumers the power and leverage to stand up to big companies. We’ve helped tens of thousands of Americans achieve fair resolutions in their disputes.

FairShake is based in Oakland, CA and was named a TIME Best Invention of 2020.