Amazon has recently dropped its mandatory arbitration clause for customer claims. The move comes after the company received thousands of complaints alleging its Alexa digital assistant illegally preserved voice recordings. Arbitration has long been the preferred conflict resolution method for corporations. But why has an influx in product complaints moved Amazon to such an about-face?
Corporate Preference for Arbitration
Mandatory arbitration clauses require contractual parties to forgo their right to sue the other via traditional courtroom channels. Instead, they must use an arbiter and accept any decision as final without further recourse. Proponents of arbitration are generally drawn to its focus on participation, flexibility, simplicity, cost savings, and privacy. However, these benefits tend to overwhelmingly favor corporations.
A 2015 study concluded that arbitration clauses severely restrict consumer relief options in disputes. Three years later, researchers further established that arbitrators showed bias toward industry-friendly decisions. That same study also examined the overwhelming influence of companies over the choice of arbiter. In the end, these findings have not been enough to curb the enforcement of such binding arbitration agreements.
Customers might have a vague notion of what such provisions mean. Of course, that is assuming they actually read that far into the service agreement before agreeing. Yet, even with a full understanding of mandatory arbitration, that requirement is not likely to dissuade customers from using the service. In other words, corporations are giving consumers a false choice in accepting terms to a contract.
Customer Care or Bottom Line?
Consumers might be surprised to hear that Amazon is suddenly having a change of heart. But hold off on the celebrations. This about-face is not so much about customer care as it is the company’s bottom line.
Over the last 16 months, near 75,000 arbitration requests have been filed with Amazon. This adds up to tens of millions of dollars in filing fees for Amazon’s part. Many of these requests were based on complaints that the Echo Dot Kids devices were preserving recordings of children. This was sometimes even after a parent actively tried to delete the files from the cloud.
Such privacy concerns were prime real estate for law firms hoping to use Amazon’s binding arbitration clause against it. And that is exactly what happened. Chicago-based firm, Keller Lenkner LLC. orchestraed the vast majority of the 75,000 requests. Though customers achieved their goal, they now have other things to consider.
The consequences of this mass arbitration understandably caused Amazon to re-evaluate its options. It became clear that the company was reaching a financial tipping point and they needed a new approach. Faced with so many complaints, Amazon could see it would be much cheaper to handle them all at once. A potential class action could actually be more cost-effective than paying for each individual arbitration. It also does not hurt that the costs of bringing an individual lawsuit will still bar many from seeking separate relief.
Amazon’s new contractual provision will certainly lessen its bills in the near future. However, it also opens the company up to an indeterminate amount of class action suits. The company is already facing several such cases in litigation since allowing lawsuits. Mass suits can be much less daunting to the average person. As such, there are likely thousands of unknown claimants ready to join. It is only a matter of time before Amazon recalibrates all over again. At any moment, Amazon service agreements can revert back to previous versions just as quickly as the present change happened. Further, courts will likely accept this kind of change, considering prior caselaw on the subject.
Until then, consumers have every reason to breathe a sigh of arbitration relief. However, there is also reason to be cautious of Amazon’s decision and stay vigilant to further changes. Consumers and attorneys alike would be wise to stay updated on relevant class action lawsuits. This is particularly relevant if they would not have gone through the original arbitration process. It’s far easier to join an ongoing lawsuit—and often free.