In a blog post last Thursday, popular online storage site, Dropbox, announced that it was changing its “Terms of Service” to, among other things, include a binding mandatory arbitration clause. I’ve written about binding mandatory arbitration before. It may sound like an issue that only a lawyer could get excited about, but in fact, arbitration has developed into an issue that has a huge impact on just about every American’s day-to-day life, whether you think you’ll ever want to file a lawsuit or not. You have an opportunity here to protect your constitutional rights. You should take it.
The threat of litigation: An important safeguard
When companies sell products or services to the public, people expect those products and services to have been tested. To work as advertised. To be safe (or, at least, for the risks to be highlighted). People’s confidence in these things being true is critical to making the economy work. If people don’t have that confidence that they will get a fair deal, they will be more reluctant to buy.
There are several ways to ensure fairness in commercial transactions. One is to rely on word-of-mouth among angry customers to punish bad actors. Another is for government regulators to keep an eye on companies to prevent them from selling products that could harm the public. And still another is for individuals who have been misled or harmed to sue the company that wronged them. Each option can have varying levels of effectiveness in different contexts, but that last one — your right to sue — is the only option that gives you, the individual, a way to take direct action to recover compensation from the person or company that harmed you. While the possibility of being sued makes most people a little nervous, the possibility of living in a society in which people could injure you without any recourse should sound at least as scary.
But it’s a society that we have been steadily moving towards over at least the last 20 years. This charge has been led by companies slipping binding mandatory arbitration clauses into the service contracts that they foist upon their customers as a requirement for doing business with them. You know those windows that pop up on your computer screen every time you sign up for a service on the internet or update a piece of software, asking you to confirm that you agree to the seller’s terms before you can complete your transaction with them? Those are contracts, and just about all of them include a provision saying that by clicking “Yes,” you agree to waive your 7th Amendment right to a jury trial, and that if the service or product that you’re buying ends up not working as promised or causing you harm, you will be forbidden from suing.
Arbitration for thee, but not for me
Must be nice. How would you like to able to stick a disclaimer on the outside of your car, letting other drivers know that by choosing to share the road with you, they are agreeing not to sue you if run into them while checking your e-mail, for instance? As absurd as this sounds, it’s basically what just about every company with whom you have entered into an ongoing contractual relationship (credit card providers, cell phone companies, your cable or satellite provider, your mortgage servicer, your auto lender, your stock broker, etc., etc., etc.), has done.
Of course, they can’t be so brazen as to say exactly what they’re up to. Instead, they characterize forced arbitration as a benefit for you — a way to get your complaints resolved cheaper and faster than they would be with litigation. But while arbitration can be both these things, it’s best used for resolving disputes between parties of relatively equal strength and size rather than situations where one party has significantly more resources and clout than the other. Consider:
- To sue someone in a court of law, you usually have to pay a filing fee, but the judge’s time is paid for with taxpayer money. In arbitration, on the other hand, the parties not only have to pay filing fees, but also the judge (a.k.a., the arbitrator) for his time. Most arbitrators charge hundreds of dollars per hour. This isn’t only cost that you will pay in arbitration that you wouldn’t pay in court.
- A judge working for the government gets paid a flat salary. That salary does not fluctuate depending on the number of cases he resolves. An arbitrator (or, at least, his employer), on the other hand, gets paid more the more cases he hears. Even with the best of intentions, he is incentivized to stay in the good graces of the party most likely to bring him repeat business. Is that you, the individual, or the business that has millions of customers all over the country?
- If a judge makes a mistake while handling your case, you can appeal to a higher court, and ask for that mistake to be rectified. Arbitration awards, on the other hand, usually can’t be appealed.
- In a court of law, if you have the right facts, you might be able to bring your case not only on your own behalf, but also on behalf of others who have suffered the same injury you did. This can give you much more leverage than you would have on your own, and make it much more feasible to bring a case, even if the injury was less than the tens of thousands of dollars that usually needs to be at stake to justify hiring a lawyer, paying the filing fees, and conducting the investigations that will be necessary to successfully build a case. In arbitration, on the other hand, a group case is only allowed if the contract between the parties requiring arbitration specifically allows it. Given that this kind of group action is by far the biggest threat the companies writing the contracts face, how often do you think they add provisions explicitly authorizing their customers to sue them as a group?
Maybe you’re thinking to yourself, “Of course this guy doesn’t like arbitration. He’s a lawyer. Quicker and cheaper dispute resolution is bad for his bottom line.” Fair enough, but while you’re in the process of evaluating underlying biases, you should also ask yourself why, if arbitration really is as great for consumers as the companies that use it claim, do they have to force it onto their customers, with fine print buried deep in agreements they know their customers won’t read? How about allowing customers to opt in to arbitration, rather than opt out if it’s so great?
What is the benefit to you of waiving your rights?
Following the well-established pattern, in its blog post announcing the change to its terms of service, Dropbox characterizes its addition of an arbitration clause as a favor they’re doing for you: “Arbitration is a faster and more efficient way to resolve legal disputes, and it provides a good alternative to things like state or federal courts, where the process could take months or even years.”
While it’s certainly true that, all else being equal, a quicker, cheaper resolution is better than a slower, more expensive one, not all else is equal. The biggest legal threat Dropbox faces from its customers is a class action lawsuit. There is almost no chance that Dropbox is going to cause any single user damages large enough to justify that user pursuing formal dispute resolution on his or her own behalf alone (Dropbox ensures that by including a limitation of liability that also prevents you from suing them for punitive or consequential damages). This arbitration clause eliminates that threat — without providing any added benefit to you in exchange. The excellent consumer advocacy website Consumerist does a fine job of totally demolishing Dropbox’s Orwellian claims about how great waiving your constitutional rights would be for you.
But even if you’re not sure that agreeing to arbitrate would be all that bad for you, here’s maybe the most important point to keep in mind: you can offer to arbitrate after a dispute has arisen! If there were some possibility that Dropbox might sue you some day, maybe it would be worth it to take that threat off the table. But what are the chances of that? Or that you will initiate a lawsuit, offer to arbitrate instead, and that Dropbox will refuse? Not high. If there is a benefit to you of acquiescing to this agreement now, I’m having difficulty imagining what it would be. If you wait until after a dispute has arisen to suggest arbitration, on the other hand, you will have significantly more leverage to dictate, for instance, who the arbitrator will be, or which arbitration rules the arbitrator will follow.
To Dropbox’s credit, unlike just about every other company that has ever slipped an arbitration clause into its customer terms, it actually has made it easy to opt out. Rather than requiring you to send a very specifically worded letter to them through the mail, you can simply go to this form and type in your name. It takes less than 30 seconds. I’ve done it, and would strongly suggest you consider doing the same.