The Rise of Mass Individual Arbitrations

Emboldened by a string of anti-worker, anti-consumer U.S. Supreme Court rulings, American corporations have widely adopted contractual provisions that force their employees and customers to resolve disputes through private, often- confidential arbitration proceedings rather than in open court. These individual arbitration proceedings are distinct from those following a grievance procedure in a collective bargaining agreement.

Such individual arbitration proceedings are administered by a private entity with no oversight. Historically, the American Arbitration Association (“AAA”) and Judicial Arbitration and Mediation Services, Inc. (“JAMS”) handled the vast majority of employment and consumer arbitrations nationwide, but new outfits are now entering the fray.

Congress enacted the Federal Arbitration Act (“FAA”) in 1925 to encourage merchants of equal sophistication and financial means to use arbitration to efficiently resolve disputes. Over time, however, corporations adopted the tactic of incorporating mandatory arbitration clauses in their employment and consumer contracts as an attack on the right of customers and workers to pursue class and collective actions in court and, secondarily, through arbitration. This trend has only accelerated during the pandemic. The current Congress and U.S. Supreme C ourt offer little optimism for adjusting this imbalance. The U.S. Supreme Court recently issued a decision in Viking River v. Morianaholding that mandatory arbitration clauses can be enforced against plaintiffs pursuing collective actions under California’s Private Attorneys General Act (“PAGA”), a mechanism for vindicating wage- and- hour claims.

Once again, advocates for workers and employees have adapted creatively by pursuing coordinated individual worker and consumer arbitrations against the same corporate defendant. Corporate mandatory arbitration agreements typically require that the defendant—i.e., the corporation—pay all or almost all arbitration costs in order to avoid an argument that the agreement is “unconscionable” and thus unenforceable. With arbitration costs averaging close to $40,000 in some cases, prosecuting mass individual arbitrations, however labor-intensive and duplicative, can lead to 10-figure exposure for defendants before damages even enter the equation (as seen, for example, in the Doordash case detailed below).

Plaintiffs’ willingness to pursue this tactic has led to some buyer’s remorse by corporate defendants. For example, Doordash in 2020 attempted to repudiate its own forced arbitration agreement after more than 6,000 workers filed for individual arbitrations in a coordinated campaign, producing a bill of more than $9 million in initial filing fees. Noting the “poetic justice” of the situation, Judge William Alsup scolded the company for “trying to find some way to squirm out of [its] agreement” when it refused to pay its chosen provider, AAA, initial filing fees and attempted to move the arbitrations to a newer provider, CPR, that offered more restrictions on aggregated individual arbitrations.

For now, all signs suggest that mass individual arbitrations will become an increasingly critical legal tool for workers and consumers wishing to seek justice against the companies that harm them.

Please contact your local labor and employment attorney for more information.

By Ben Fuchs | July 5, 2022

Legal Developments