Amazon Changes Course on Arbitration

According to various news sources, last month, Amazon changed its requirement that those having a dispute with the company take the claim to arbitration.  One reason is the expense. For years, I have been telling clients to avoid agreeing to arbitration clauses when possible.   First, as Amazon discovered, arbitration is expenses.  Places like the American Arbitration Association charge filing fees which are much higher then the courts.  In addition, when you file a lawsuit in Court, you don’t pay for the judge’s time — your taxes do.  In arbitration, the parties are responsible for paying the hourly rates arbitrator(s).  In some instances there will be just one arbitrator, but sometimes, there is a panel of three.  At several hundred dollars an hour, those costs add up quickly.  Plus, in addition to paying for the arbitrator, you are also paying for your own lawyer, which is also a few hundred dollars an hour.

Another problem with arbitration is that except for very limited circumstances (or specific arbitration programs), arbitration decisions cannot be appealed.  Remember back to the 2016 Deflategate scenario involving Tom Brady and the New England Patriots?  Ultimately, the Second Circuit Court of Appeals found that the Agreement between the parties provided for a form of arbitration where the Commissioner of Football had the final say and that such a decision could not be appealed.  Most other arbitrations work the same way.  In order to overturn an arbitration award, you have to find that the arbitrator or the process was corrupt that there was serious misconduct.  The fact that an arbitrator misapplied the law or got the facts wrong is not enough to overturn the decision.  In court, if you get a decision you think is wrong, you can appeal it and another set of judges looks at the decision.

The next problem with arbitration is the arbitrator.  For some arbitrations (and depending on the parties’ agreement), you can agree on an arbitrator.  However, sometimes the arbitrator is assigned.  Certainly arbitrators have training and many are retired judges, but not all.  Many arbitrators do not do arbitrations full-time, but are just one part of what they do for a living.  While the arbitration company might charge you hourly for the arbitrator’s fee, the arbitrator herself might only get a flat fee, no matter how long the matter takes.  Consider whether you want someone whose sole job it is to decide cases or whether you’d prefer to have someone who does this work on the side or as just a part of the way they make a living.  Will they give the case the time it deserves if they are making a flat fee and spending as little time as possible is the most cost effective?  Or, if the arbitrator is getting paid by the hour, how much time will they spend reviewing documents and preparing for the matter?  This is not to suggest that arbitrators are dishonest.  I believe that the vast majority do their job to the best of their ability.  However, at least in Massachusetts, a judge’s sole job is to decide cases.  He or she does it every day and aside from keeping cases moving forward, a judge does not have a stake in the length of time it takes to deal with a case.

Finally, in general, arbitrations are private and the decisions are private.  Court opinions, on the other hand, are public documents.  You can go to the court (or probably look up from the convenience of your phone), how many times a company has been sued regarding a defective product or unsavory practice.  If that company requires all disputes to be arbitrated, then you can’t know that information.  Further, neither you, nor another arbitrator have the benefit of seeing what others have done in similar situations.  In other words, two arbitrators hearing two different cases with similar facts could reach opposite conclusions.  In court, lawyers can point judges to previous decisions which are similar and argue that the current case should be decided the same way.  When cases are arbitrated, no one has that information and arbitrators are free to rule how best they see fit.

I hope other companies follow Amazon’s lead and move away from arbitration clauses.