The retail behemoth is no longer steering customers away from the court system, as businesses scramble to avoid attorneys who file mass-arbitration claims.
Companies have spent the last decade coercing employees and customers into resolving disputes outside of the traditional court system, typically through secretive arbitration proceedings that do not allow plaintiffs to band together and obtain large-money payments akin to a class action.
Now, Amazon.com Inc. AMZN -0.14 percent is bucking the trend. Without warning, the company recently amended its terms of service to include a provision allowing customers to file lawsuits. It is already facing at least three class action lawsuits, including one filed on May 18 alleging that the company’s Alexa-enabled Echo devices recorded people without their consent.
The retail behemoth made the change in response to a barrage of individual arbitration demands filed on behalf of Echo users by plaintiffs’ lawyers. According to the lawyers involved, this action triggered a bill for tens of millions of dollars in filing fees, which Amazon is required to pay under its own policies.
Amazon’s decision to eliminate its arbitration requirement is the most egregious example yet of how businesses are responding to plaintiffs’ attorneys testing the arbitration system to its breaking point.
Arbitration clauses are tucked away in the contracts that consumers sign for everything from purchasing a phone to using a ride-hailing app. Numerous employers also require arbitration to resolve issues such as wage disputes or claims of discrimination. The United States Supreme Court has repeatedly upheld and strengthened businesses’ right to compel arbitration.
The proceedings are similar to court proceedings in some ways, but take place in privately funded settings with less evidence presented and no appeals. Frequently, businesses agree to pay between $100 and $2,000 in initial filing fees. Additional fees are charged by the companies that manage the proceedings, and arbitrators, or judge equivalents, bill for their time.
Consumer advocates and plaintiffs’ attorneys assert that the structure is inaccessible and frequently makes pursuing a claim financially unfeasible. The companies assert that this is a fair process.
In recent years, a few well-resourced law firms have used online marketing and other tools to sign up large numbers of consumers and employees to file arbitration claims alleging everything from unfair pay to fraudulent business practices. The filings can overwhelm arbitration providers and targeted businesses, which are accustomed to paying fees for small numbers of claims but not for tens of thousands at once.
“It has the potential to be quite unjust to the company,” said Patrick Bannon, an employment attorney at Seyfarth Shaw LLP who has represented clients in mass arbitration proceedings. Arbitration fees put businesses under intense pressure to settle, he explained, “regardless of whether the claim is valid or not.”
Plaintiffs’ attorneys take a different view.
“Companies believed they were removing themselves entirely from liability” by including arbitration clauses, according to Chicago attorney Travis Lenkner, whose firm filed the majority of the Amazon claims. “Now they’re getting what they bargained for, and they’re not pleased.”
Amazon declined to comment on the change to its terms of service, but noted that its Echo devices record only when they are in use and that customers can delete or opt out of having recordings saved.
Companies have been forced to scramble as a result of the mass arbitration filings. Uber Technologies Inc., Lyft Inc., and TurboTax maker Intuit Inc. have all attempted to avoid paying filing fees or resolving claims through arbitration in recent years.
Few companies, such as Amazon, appear to be prepared to forego arbitration entirely.
Rather than that, some employers require employees to consult with an in-house lawyer prior to filing an arbitration claim. One arbitration provider established a mass-claim protocol that requires the handling of a few test cases prior to charging the full filing fee.
When Mr. Lenkner’s firm, Keller Lenkner LLC, filed arbitration demands against food-delivery app DoorDash Inc. in 2019 on behalf of over 5,000 drivers alleging improper contractor classification, the company refused to pay the filing fees and instead attempted to resolve the claims through a class-action settlement. Keller Lenkner then requested, in a role reversal, that a federal court compel arbitration, a request that is typically made by businesses.
“Without a doubt, DoorDash never anticipated that so many would actually seek arbitration,” wrote United States District Judge William Alsup in a February order. “Instead, ironically, DoorDash now wishes to pursue a class-wide lawsuit, the very mechanism it denied the workers, in order to avoid its obligation to arbitrate. This self-righteousness will not be blessed.”
DoorDash announced in November that it had reached individual settlements totaling $85 million with 35,000 DoorDash and Caviar drivers regarding worker misclassification claims.
Keller Lenkner estimates that it has obtained more than $375 million in settlements for over 100,000 individual arbitration clients over the last two years.
Filing arbitration claims in bulk requires significant upfront resources and technology, as plaintiffs’ lawyers must develop relationships with each and every client. The majority of plaintiffs in class-action lawsuits have no involvement until they receive an email or postcard indicating they are eligible for payment.
It’s “not something most people imagined plaintiffs’ attorneys would or could attempt,” according to Mr. Bannon, the defense attorney.
The lawsuits against Amazon stemmed from news reports in 2019 alleging that Alexa devices stored user recordings. When consumers filed proposed class actions alleging that the practice violated laws prohibiting the recording of conversations without the consent of both parties, Amazon successfully argued that the claims should be resolved through arbitration.
Keller Lenkner and other firms began filing tens of thousands of individual arbitration demands in early 2020. Amazon stated that certain claims have been withdrawn or resolved in its favor.
In May, Amazon’s attorneys notified plaintiffs’ attorneys of the retailer’s change to its terms of service. Instead of 350 words detailing arbitration requirements, Amazon’s website now contains two sentences stating that disputes can be resolved in state or federal court near the company’s Washington state headquarters.
Adam Zimmerman, a Loyola Law School professor who specializes in class actions, said Amazon’s move may prompt other businesses to consider abandoning arbitration. However, he believes that a wave of change is unlikely, as lawsuits increase legal exposure.
“You will never find the same number of people for a mass arbitration as you will for a class action,” he explained.
Intuit has been defending itself against over 45,000 arbitration claims brought by low-income consumers alleging that they were duped into paying for tax preparation services when the law provided for free assistance.
Intuit initially argued that the claims should be arbitrated. It then sued several consumers in an attempt to transfer the disputes to small-claims court, which was denied by a judge, and the company appealed.
Additionally, it attempted to reach a $40 million settlement worth approximately $28 per customer. Anyone wishing to continue the arbitration process was required to submit a written opt-out request accompanied by a physical signature via mail.
A federal judge blocked the deal in March for offering such low payments and attempting to undermine the arbitration claims.
Intuit stated that it has been transparent and fair with customers and that over the last eight years, more than 100 million people have filed taxes for free.
Andrew Way, a 28-year-old musician from Asheville, North Carolina, filed an arbitration claim against Intuit in late 2019 after responding to a Keller Lenkner internet advertisement. He expressed surprise at the length and complexity of the process, but expressed gratitude for the possibility of holding companies accountable.
“If there is no recourse for that, then that behavior will continue in the future,” he explained.