The Rise of Mass Arbitration
In recent years, U.S. companies have increasingly included mandatory arbitration clauses in their contracts, meaning any disputes between consumers or employees and the company must be resolved through arbitration. As it commonly costs between $300 and $400 for complainants to initiate an arbitration claim and because these clauses also commonly prevent customers and employees from participating in class action proceedings, the move to arbitration was a tactic to thwart employees and consumers bringing claims against companies. Unlike class action litigation, disputes that go to arbitration are typically resolved on an individual or small group level.
Despite these barriers, plaintiffs’ law firms have begun filing mass arbitrations, sometimes consisting of more than 100,000 individual claims on behalf of consumers and employees. This initial filing of claims forces companies to respond by filing a response in their arbitration body of choice, which has cumulated in considerable legal fees. The best-in-class neutral services, such as the American Arbitration Association and JAMS, charge anywhere from $1,350 to $2,650 per claim. Accordingly, even as few as 100 claims can cost companies well over $100,000.
Arbitration: The Pros and Cons for Uber
Electing to resolve disputes through mass arbitration may be an attractive option for Uber, as it would allow them to avoid litigation and preserve the favorable status-quo. Uber will specifically seek to avoid any court ruling deeming its drivers employees instead of independent contractors, as such a change in designation would require Uber to incur significant costs to provide the labor protections granted to employees. Therefore, mass arbitration allows Uber to resolve disputes without risking government-mandated changes to its business practices if it loses a case.
Litigation in court results in decisions that are binding under the law. Any future disputes that arise with similar fact patterns and legal questions must follow the precedent of the earlier decided case. Unless Uber appeals to overturn an unfavorable decision, a court decision against the status quo would guarantee mandatory changes to its business practices. Alternatively, Uber’s arbitration process is completely confidential and results in final resolution, per Uber’s policy. Therefore, rather than risking the possibility of a court-imposed change, Uber can force employees and customers to resolve disputes without government interference through arbitration.
Uber increases its leverage and bargaining power regarding bringing claims to arbitration by inserting mandatory arbitration provisions in consumer and employee agreements. These provisions serve to limit the available options for dispute resolution and thereby leave opposing parties little choice but to cooperate with Uber.
Yet despite the precedent-evading benefits of arbitration, the possibility of mass arbitration presents Uber with different risks. The cost and repetition of arbitration, even when aggregated in groups, may outweigh any guarantee of preserving the status quo. Indeed, arbitrating only 100 individual claims could potentially cost Uber over a quarter of a million dollars.
If cost is the driving concern, Uber may prefer the traditional legal system, as the class action mechanism would allow Uber to resolve thousands of claims in a single suit. It is quite possible that the fees associated with litigating one case would be significantly less than responding to several complaints in an arbitral body. Moreover, it is possible that a single class action would be less time-consuming than repeated arbitrations, saving Uber additional overhead cost.
Uber drivers can attempt to push the company toward litigation by filing so many mass arbitration claims that the cost becomes untenable. Uber may reach a point where court proceedings or mediation are more favorable than the fees and other costs associated with mass arbitration.
Previous Uber Arbitration Litigation
On August 16, 2013, a class of California drivers filed O’Conner v. Uber Technologies, Inc., alleging Uber Technologies, Inc. (“Uber”) misclassified them as independent contractors instead of as employees. Employees are entitled to significantly more benefits and protections under the law than independent contractors. In O’Conner, the U.S. District Court for the Northern District of California determined Uber could not enforce its 2013 arbitration clause on the grounds that the transportation app giant did not provide enhanced notice and opportunities for drivers to opt out of arbitration. Although the O’Conner plaintiffs succeeded in certifying a class of California Uber drivers in 2015, later litigation caused their luck to change.
Another Northern District of California case, Mohamed v. Uber Technologies, Inc., was filed approximately a year after O’Conner.The named plaintiff, Abdul Mohamed, began driving for Uber in 2013 and was required to sign forced arbitration clauses and agreements waiving the right to class action dispute resolution. In October 2014, Mohamed was effectively banned from driving with Uber due to negative information on his consumer credit report. Shortly after, Mohamed filed a class action against Uber and the firm it partners with to conduct background checks. Mohamed alleged that the use of his consumer credit score violated the California Consumer Credit Reporting Agencies Act. Although the District Court denied Uber’s motion to compel arbitration of the dispute, the Ninth Circuit Court of Appeals overturned that decision in 2016, which rendered Mohamed’s claim subject to arbitration.
When O’Conner went up on appeal in 2018, it faced a similar fate as Mohamed. Adhering to its 2016 decision, the Ninth Circuit reversed the District Court’s decision denying Uber’s motion to compel arbitration. Furthermore, the Ninth Circuit reasoned that because the O’Conner class certification order was premised on the District Court’s faulty conclusion that Uber’s arbitration agreements were not enforceable, it too had to be reversed. Accordingly, the Ninth Circuit decision in O’Conner secured Uber’s ability to arbitrate disputes on an individual basis. However, Uber’s victory may become more of a curse than a blessing, as the rise of mass arbitration has brought significant costs and burden.
The Substantial Cost Mass Arbitration
In 2019, Uber faced a bill of over $146 million to settle more than 60,000 individual wage-and-hour disputes. To avoid this significant figure, Uber sued the American Arbitration Association (“AAA”) in New York State Court for charging close to $100 million in fees, including a “neutral service fee.” Uber claimed that these fees violated the AAA’s commitment to “a fair, cost-effective process.” The Court was not convinced by Uber’s arguments, though, and on April 14, 2022, the Appellate Division of the New York Supreme Court rejected Uber’s challenges, leaving Uber on the hook for the hefty arbitral fee.
The mass arbitration outlook looks bleak for Uber, and the company could see its future foreshadowed in the wave of mass arbitration against TurboTax’s parent company, Intuit, in recent years. The Intuit arbitration claims stem from a 2019 promotion TurboTax ran advertising the Free File Program, which purported to provide “federal tax preparation and electronic filing to economically disadvantaged and underserved populations.” Customers of the service originally filed a class-action lawsuit against Intuit, claiming they were charged for services that should have been free and that the advertising was misleading. However, Intuit’s forced arbitration clause mandated the suit be withdrawn and that the claims instead be arbitrated.
The law firm of Keller Postman LLC,[1] decided to bring over 100,000 individual arbitration claims on behalf of the consumers harmed by Intuit’s actions. As a result, 17% of all consumer arbitration claims resolved in 2021 involved Intuit and H&R Block, another corporate tax preparer that offered the Free File Program.
Unsurprisingly, the immense amount of arbitration claims has resulted in massive arbitration costs for Intuit. In fact, counsel for Intuit noted that the company could pay “$3000 in arbitration fees for a $100 claim.” If Uber intends to stay the course with mediation, its future could look like Intuit’s expensive situation, and Uber may need to spend several thousands of dollars more in arbitration fees than in actual settlement amounts.
Updates will be posted to this blog as the matter progresses.
The legal team at Miller Shah LLP has significant experience representing employment matters. If you have any questions regarding this subject or this post, please contact Anna D’Agostino (akdagostino@millershah.com) or Casey Yamasaki (ctyamasaki@millershah.com). The firm can also be reached toll-free at (866) 540-5505.
Miller Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. The firm is an active member of Integrated Advisory Group (www.iaginternational.org), which provides clients access to excellent legal and accounting resources around the globe. For more information about the firm, please visit https://www.millershah.com/.
[1] At the time the arbitration claims were filed, Keller Postman was known as Keller Lenkner LLC.
