Worried About Class Actions? Consider Using Arbitration Provisions Online

Aug 18, 2015 11:20:00 AM

Class actions are a major pain for big companies.  In fact, a recent survey by Norton Rose Fullbright, polling more than 800 corporate counsel, revealed that class action lawsuits were the most important legal issue impacting their companies.

So how big is the problem?

Another recent survey by Carlton Fields Jordan Burt gives some insight as to why corporate counsel is concerned, as well as some quantification of the scope of the concern:

Across industries, companies spent $2 billion on class action lawsuits in 2014.

Fifty-four percent of major companies are currently engaged in class action litigation, up from 52 percent in 2013. While the increase is relatively modest, it continues an upward trend that began in 2012, when 50 percent of companies faced class actions.

While data privacy matters currently represent a small portion of class actions, when corporate counsel were asked what area they saw as the next wave, they most often identified data privacy.

Class actions can also result in substantial financial exposure. Corporate counsel reported that, even in routine class actions, there may be tens of millions at stake, and that this exposure can run into the billions on bet-the-company cases taking into account possible follow-on litigation and governmental actions.

They take up lots of resources also.  Companies dedicate—fully or partially—an average of six individuals in-house to manage class actions. This number includes four attorneys. While many companies fall within this range, a handful of organizations dedicate as many as 25 attorneys to class action management.

How Arbitration Provisions are Being Leveraged to Minimize Risk

Arbitration provisions are a common method employed to prevent a class from being certified altogether (i.e., if a customer is bound to arbitrate a dispute, they can't be certified as part of a class). According to the Carlton survey, since 2011, the percentage of companies that address class actions within their arbitration clauses has more than doubled, with most of those companies now using clauses that explicitly preclude class actions.

But the kicker is making sure customers are ACTUALLY bound to that arbitration provision. So how do you do that? Well, according to the Carlton survey, 88.6% of companies that use arbitration clauses do so in their contracts (duh - that's the obvious place to include them). But, others make them available elsewhere, either alternatively or additionally, with 34 percent posting their arbitration clauses online.

 

Putting arbitration clauses "on the internet" means nothing if it's not done in the context of a contract.

The distinction between "in contracts" and "on the internet" is a bit curious. Just posting an arbitration provision on a website doesn't necessarily make it binding on anyone. It would need to be posted as part of a contract to which people are agreeing to be bound, something we obviously take very seriously here at PactSafe. You can do that one of 2 ways:

Of course, just randomly putting these on a website won't do you much good unless it's done in the context of some underlying transaction with a customer. But, if done strategically, with the assistance of legal counsel (and of course the use of a Digital Legal Engine), a good clickwrap or browsewrap could end up saving your company millions of dollars, lots of time, and lots of reputations damage. 

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Brian Powers

Written by Brian Powers

PactSafe CEO & Founder