Last week, Senators Al Franken (D-Minn) and Hank Johnson (D-Ga) revived the Arbitration Fairness Act ("Act"), which would ban arbitration provisions in consumer contracts, as well as employment, antitrust, and civil rights cases, and only allow the parties to agree to arbitration after the dispute arises. The newfound interest in the Act demonstrates renewed opposition to arbitration as an alternative to litigation.
If passed, the Act would have a clear impact on marketers' ability to avoid class actions and limit their liability in contracts with consumers. Online marketers often implement binding arbitration provisions to reduce their exposure to class action lawsuits brought by consumers. But the proposed Act would ban those provisions and only allow the parties to agree to arbitration after the dispute arises.
Marketers go to great lengths to ensure that their arbitration clauses will be enforceable if challenged by prominently displaying the clause, requiring customers making purchases online to affirmatively agree to arbitration provisions and class action waivers, and reminding customers of the arbitration provision on their invoices. As we've noted before, website Terms of Use have already come under fire in recent cases. For example, in 2014, the Ninth Circuit held that a website's Terms of Use may not be enforceable unless users affirmatively agree to the Terms. However, the Act would have wide-reaching implications for marketers by exposing them to an increased risk of class action litigation, especially if companies engage in risky marketing practices. Because many arbitration clauses effectively prohibit consumers from joining claims in class actions, prohibiting such clauses would release the floodgates of plaintiffs' attorneys seeking settlements from marketers who don't want to expose themselves to the costs and risks of litigation.
Although another version of the Act was introduced in 2011 but fizzled the same year, the law surrounding arbitration clauses has quickly evolved in the past few years, muddying the ability to predict the future of the Act. Given the high stakes and serious ramifications of the Act, marketers would be wise to track its status while continuing to couch against litigation risks through robust arbitration clauses in consumer contracts.
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