Mass Arbitration vs. Class Action Lawsuits: Here’s What You Need to Know

There’s a new way for consumers to band together and take action against companies who may have done them wrong—and it’s called mass arbitration.

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Though class action lawsuits have been around for a long time, mass arbitration—which is essentially when hundreds or thousands of consumers file individual arbitration claims against the same company over the same issue, all at the same time—is a relatively new way to accomplish the same goal: to resolve a consumer dispute that affects a large group of people.

There are several key differences between the two types of actions, however, and consumers should be aware of what’s involved in filing an arbitration claim as opposed to taking part in a class action lawsuit.

But before we get into what it means to participate in mass arbitration, we need to go over how it came about.

Arbitration: the class action killer

Arbitration is an alternative to traditional litigation that takes place outside of court before a neutral arbitrator or panel of arbitrators instead of a judge or jury. You can read all about it here, but in short, the process was originally designed to be a quicker and less expensive way to resolve disputes than pursuing traditional litigation in the courtroom.

Over the past 30 years, arbitration has grown in popularity among commercial entities as a way to keep consumer disputes out of court. In fact, if you’ve ever entered into any sort of contract—ranging from employment contracts, car rental paperwork and credit card agreements to a website’s terms and conditions—you’ve likely agreed to an arbitration clause, like this one in Microsoft’s services agreement.

Arbitration clauses restrict consumers to resolving certain kinds of disputes through arbitration instead of through the courts. Many of these agreements include class action waivers that bar consumers from bringing class actions against the company they’ve contracted with.

One problem with mandatory arbitration agreements, however, is that they generally don’t allow for one person to represent a group of people who have been harmed in the same way, meaning each person who potentially could have been covered by a class action would need to file an individual arbitration claim against the company to obtain relief. Many people wouldn’t be willing to invest the time and money it takes to hire a lawyer and file an arbitration claim for the relatively minor losses that are normally handled through class action litigation.

Faced with this obstacle, plaintiffs’ attorneys have been turning to another tactic to fight for class-wide dispute resolution: mass arbitration.

When life gives you lemons…

As stated above, mass arbitration occurs when hundreds or thousands of consumers file individual arbitration claims against the same company over the same issue at the same time.

The aim of a mass arbitration proceeding is to grant relief on a large scale (similar to a class action lawsuit) for those who sign up. In some cases, the company may agree to a quick settlement instead of arbitrating every claim and paying the costly upfront fees associated with doing so.

Though arbitration has historically been cheaper for companies than litigating class actions, that’s usually only true when relatively few people file arbitration claims. When hundreds or thousands do, the fees start to add up. Since many companies agree to pay the fees for consumers’ arbitration claims—which has helped them argue that their arbitration agreements are fair—they’re looking at an upfront cost of several thousand dollars per claim before the process even gets started.

In 2019, for example, DoorDash was facing over 5,800 arbitration claims filed by drivers who claimed to have been misclassified by the company as independent contractors instead of employees. The workers, who had agreed to the company’s arbitration agreement as part of their contracts, filed a motion to compel arbitration in federal court after DoorDash refused to pay the nearly $12 million in administrative fees to begin the arbitration proceedings. U.S. District Judge William Alsup granted the motion, issuing a scathing rebuke of DoorDash in his February 10, 2020 order:

The irony, in this case, is that the workers wish to enforce the very provisions forced on them by seeking, even if by the thousands, individual arbitrations, the remnant of procedural rights left to them. The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.”

Also in 2019, the same attorneys who represented the DoorDash workers filed 75,000 arbitration claims against Amazon on behalf of customers who claimed their Alexa devices had recorded them without their consent. Although the retailer didn’t dispute the fees—which totaled nearly $3,000 per claim just to hire an arbitrator—Amazon told its customers in July 2021 that it would no longer require them to resolve their disputes through arbitration.

What’s the difference between participating in a class action lawsuit and mass arbitration?

In most cases, each person who wants to participate in mass arbitration needs to file their own claim against the other party at the beginning of the process.

For class actions, on the other hand, only the lead plaintiff—i.e., the person who files the lawsuit on behalf of a proposed class—needs to take action when the litigation is first initiated. The people represented don’t usually need to do anything to “join” the suit until (and unless) it settles, at which point they may be required to fill out a claim form to receive their share of the deal.

Another difference is that although a class action usually provides similar relief to everyone covered, whether it’s a monetary payment or injunctive relief, mass arbitration claims may end up being handled differently. In other words, just because an arbitrator decided in favor of one person who filed an arbitration claim doesn’t mean the other claims will be decided the same way or provide the same amount of compensation, even if they’re related. But, as explained earlier, some companies, when faced with hundreds or thousands of arbitration claims, may end up deciding to settle them all at once instead of arbitrating each one.

So, do I need to hire my own lawyer to participate in mass arbitration?

Just like a class action, mass arbitration is usually handled by several attorneys who represent the people involved. The attorneys handling the mass arbitration proceedings will help you file your arbitration claim and navigate the rest of the process. In most cases, they’ll be paid only if they recover money on your behalf, and their payment will be a percentage of your award.

Though you don’t need an attorney to file an arbitration claim, the process can be complex and the outcome is often final. So, it may be a good idea to work with an attorney who can help you understand and fight for your legal rights.

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