Uber Legal Advice is not for you

Mandatory arbitration clauses have become a fad. The Supreme Court just approved their inclusion in employment contracts to limit the number of workplace class action lawsuits that reach court. Arbitrators are more helpful to business owners in employment disputes than juries, and this is a common belief. Arbitration clauses are now being included in almost every business document, in the hope of making future legal costs more predictable.

But predictable doesn’t always mean less. Uber is a well-known company that enforces arbitration clauses against unhappy customers, drivers, and employees. It quickly learns that arbitrating doesn’t always come cheap. Uber released financial documents this week, ahead of its IPO. They revealed that more than 60,000 U.S. drivers had filed arbitration claims against them and they expect to spend at least $600 millions on each case individually.

Pick Your Poison

“Uber picked its poison,” Nancy Cremins (general counsel at Globalization Partners, Boston), told Bloomberg. “The volume is too large to handle from both an administrative and legal standpoint.” Arbitration decisions are confidential, and they don’t establish any precedents. Future litigants cannot rely on them. Although arbitrating every grievance of an independent contractor driver may not prevent drivers from joining together in class actions and gaining precedential rulings against Uber, it does mean that the company must arbitrate each case individually, which comes at a cost. Cremins says it’s “a death of a thousand cuts”.

Model Litigation

For a company worth almost $84 billion, a sum of $600 million may seem small. It will likely be worthwhile if it means that drivers are kept independent contractors and not employees, which is Uber’s whole profitability model. This strategy is not right for every company or small business.

Uber is not the only company or small business that gets into litigation. Not all businesses and companies have to do this. And they don’t respond in the same way. Instead of trying to imitate a morally or financially questionable startup that is racking up billions in legal costs, it’s better to speak to an experienced contracts lawyer to determine if arbitration clauses are appropriate for your small business.