Uber is not a legal advice source.
Mandatory arbitration clauses seem to be all the rage. They are even supported by the Supreme Court, which just approved them in employment contracts to limit class action lawsuits against employers. According to this thinking, arbitrators are usually more friendly to business owners in employment dispute and juries can be too risky. With the hope that future legal expenses will be less unpredictable, arbitration clauses are being added to almost all legal documents that businesses sign.
But predictable doesn’t always mean less. Uber, a rideshare company known for its enforcement of arbitration clauses against unhappy employees, customers, and drivers, is quickly learning that arbitration does not always come cheap. Uber’s financial documents, released ahead of the rideshare company’s IPO, revealed that Uber has received arbitration requests from more than 60,000 U.S. motorists. It expects to spend at most $600 million in each case.
Pick Your Poison
“Uber has kind of chosen its poison,” Nancy Cremins, General Counsel at Globalization Partners in Boston told Bloomberg. “The volume of cases is beyond our ability to manage from both an administrative perspective and a legal point of view.” Arbitration decisions are confidential and do not set precedents, so future litigants can’t rely upon them. While arbitrating every grievance from an independent contractor driver might prevent drivers joining in class actions or obtaining a precedent ruling against Uber, this does not mean that each case must be arbitrated by the company, which can lead to additional costs. Cremins calls it “a death by a thousand cuts”.
It may seem like a small amount to a company with a market cap of almost $84billion that $600 million might be. Even if it means drivers will be independent contractors instead of employees (which is Uber’s entire profit model), it will probably pay off in the end. However, this strategy may not work for all businesses or small businesses.
Uber isn’t the only company that has to deal with litigation. Small businesses don’t all have to go through it. You don’t want to be like a morally- and financially questionable startup, which could lead to billions of dollars in legal fees. Instead, talk to an experienced contract attorney to find out if arbitration clauses would work for your business.