Law Firms Slap Companies With Cases, Make Mandatory Arbitration Expensive

When a company breaks the law at the expense of its customers or employees, the injured parties have a right to sue for damages. Or at least they did, until 1991, Sam Mellins reported for Jacobin magazine.

Photo Insert: Keller Postman claims that it has secured more than $200 million for its mass arbitration clients.

That year, a 7-2 Supreme Court decision found that companies can force their employees or customers to give up their right to sue and require them to use arbitration instead. The resolutions reached through the arbitration process are backed by the force of law.

In most arbitrations, companies have the upper hand. Not only are they able to select the arbitration referee, but they also employ mandatory arbitration deals that can require the injured party to pay an up-front fee as high as $1,900 just to bring their claim, said Mary Glover of the Georgetown University School of Law.

Many parties, like victims of wage theft or consumer scams, have complaints that are worth less than the fees that would be required to arbitrate them. That means that going the arbitration route “would not be an economically rational proposition,” said Glover. No wonder once the Supreme Court opened the doors to arbitration, employers and sellers rushed to weaponize mandatory arbitration against workers and consumers.

“It was almost malpractice for a lawyer not to advise their employer-client to adopt one of these things,” said Cynthia Estlund, professor at NYU Law School and an expert in employment law.

For nearly 30 years, it seemed that corporations had cracked the code and fully insulated themselves from a wide swath of legal claims. Then, in 2018, something interesting and unexpected happened. A few law firms, most prominently the Chicago-based Keller Postman, started filing thousands of arbitration claims against Peloton, Family Dollar, TurboTax, and other major companies employing mandatory arbitration agreements.

This strategy was founded on weaponizing the fact that it’s not only consumers or employees who are required to pay fees to arbitrators. Companies must do so as well.

When companies are hit with thousands of arbitration claims at once, these fees can mount to astronomical sums. A 2021 mass arbitration effort against Intuit left the financial software company on the hook for up to $128 million in fees.

“This tactic is basically giving the employer exactly what they claim to want,” said Estlund. It turns out that companies that mandate arbitration often don’t like the taste of their own medicine. Some companies have chosen to settle the claims filed against them, to the tune of huge sums of cash.

Keller Postman claims that it has secured more than $200 million for its mass arbitration clients. Some firms have abandoned arbitration altogether and take their chances in the courts. This means ditching what for 30 years has been their main strategy for shirking their legal responsibilities to their consumers and employees.

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