By: Mike Wolak
Binding arbitration clauses are an important and effective tool for businesses to avoid the high costs and risks of protracted litigation and consumer class actions. Used more commonly in employment and commercial contract situations, many companies are now expanding mandatory arbitration to customer agreements including retail sales.
For example, General Mills - maker of popular cereals such as Cheerios and Wheaties - recently announced and then backed off of its decision to add a binding arbitration clause and class action waiver to the terms of its website. With food companies facing consumer class actions alleging false and misleading food labels (e.g., claims of "organic" or "all natural"), General Mills added a pop-up banner announcement to its website that purported to bind consumers to arbitration simply by using its website to - among other things - view product offerings, download coupons, join its Facebook page, or enter a sweepstakes. While consumers could choose to opt-out if they notified General Mills in writing, the new terms sparked consumer and media outrage. General Mills defended its new policy but chose to remove the new terms to keep its customers happy.
In attempting to expand the reach of a mandatory arbitration agreement, General Mills was only the latest example of novel uses of such agreements following the U.S. Supreme Court's 2011 ruling in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which struck down California's judicial rule invalidating class action waivers in arbitration agreements. In the wake of AT&T Mobility, companies understandably continue to expand their efforts to invoke the benefits of mandatory arbitration with their customers. Not only does arbitration often offer a faster and cheaper forum to litigate disputes, properly worded agreements can eliminate the possibility of a massive class action claim which is many companies most significant litigation risk.
While General Mills removed its new website terms before they were subjected to judicial scrutiny, we will likely see other food companies implement similar arbitration terms to their websites and/or food labels. This will certainly raise the question of whether consumers "consented" to the arbitration clause simply by purchasing a food product off the shelf or surfing a food company's website to download coupons. Indeed, AT&T Mobility and its progeny generally involved an arbitration clause in a contract signed by the consumer.
As food and other companies continue to seek to bind consumers to binding arbitration, we will likely see their attempts tested in the courts. Stay tuned.