Many companies require clients, partners and employees to use arbitration to address disputes because it is quicker and costs less than litigation. It’s a standard practice included in many business contracts for employment, transactions and services. But Amazon faces an estimated 75,000 cases of arbitration just on behalf of Echo device users – the Amazon device allegedly improperly recorded and preserved conversations through its Echo Dot Kids devices.
Amazon changed its contracts on May 3 to allow plaintiffs to bring a class action or individual lawsuits against it — the lawsuits will be handled in King County in Washington state, where the company is located. This move follows in the footsteps of Google, which ended arbitration requirements in 2019.
Why the change?
The switch to litigation came about after it became easy to recruit plaintiffs to participate in arbitration. Rather than taking a case to court, arbitration is less daunting for individuals. For example, a federal judge ruled in 2020 that DoorDash drivers were miscategorized as full-time workers, and the company must arbitrate the disputes individually even though there were 5,000 drivers. It led to $10 million in arbitration fees and $85 million paid to 35,000 drivers.
Class actions deemed cheaper
Amazon now has several class actions on its hands, but it feels this is a better course of action than individually tackling 75,000 or more cases in the future – the Echo Dot Kid arbitration continues (with some exceptions going to litigation) because the company is bound to uphold its old contract.
It remains to be seen whether Google, Amazon and other companies are right about litigation as a cost-cutting measure. Plus, the same approach may not be work for small and mid-sized companies, but it could be worth a conversation with an attorney who works with businesses and contracts.