Changes to Dropbox Terms of Service Could Spell Trouble For Class Actions

It comes as no surprise that companies love arbitration agreements – contract clauses also known as “class action waivers.” We’ve reported more than once about consumers who have faced difficulties after agreeing to terms of service that included arbitration clauses; Xbox One was one of the most widely reported last year, but even employers have attempted to lock their workers into arbitration agreements.

What exactly is an arbitration agreement, though? At its core, it’s a promise by whoever signs a contract or agrees to a company’s terms that, should a dispute arise or the product prove defective, they will forfeit their right to take part in a class action lawsuit and will instead take part in arbitration. Arbitration takes place outside of the courts, often in a confidential setting, and – some believe – in settings far more favorable to businesses than consumers.

It’s never been more important to make sure you understand exactly what you’re agreeing to when you sign a company’s terms and conditions

It might surprise you to learn that terms and conditions – which, let’s be honest, often go unread – can lock consumers into arbitration; however, the use of arbitration agreements is actually increasing as companies try more than ever to preemptively avoid class actions. Having an agreement in place is no indication that a company expects there to be a lawsuit – instead, it’s a handy way of taking care of consumers’ claims in the company’s preferred setting should a suit arise.

And so, to Dropbox. The cloud storage company recently began notifying its customers that a change in its terms of service would introduce an arbitration agreement. The updated terms specify that any disagreement should be dealt with through the American Arbitration Association. ComputerWorld reported last week that “the new terms appear designed to prevent users from filing class-action lawsuits,” pointing to new wording that states:

Interestingly, consumers can still opt-out of the new arbitration clause by submitting a form within 30 days of accepting the updated terms. (The Arbitration Opt-Out Form can be found here, though viewing the form requires that you sign in.)

The updates are due to take effect on March 24, 2014. On its website, Dropbox described arbitration as a “faster and more efficient way to resolve legal disputes, [providing] a good alternative to things like state or federal courts, where the process could take months or even years. “

A good alternative? That remains to be seen. It may be a genuine move by Dropbox to speed up any future disputes, but consumers should always be wary when signing away their rights. It’s never been more important to make sure you understand exactly what you’re agreeing to when you sign a company’s terms and conditions. Ignorance is no defense, and the last thing you want is to miss your best chance at a fair and open trial should problems arise.