Every day, companies must make strategic business decisions, including who to hire, what projects to pursue, and how to handle litigation. Large corporations face countless lawsuits every year. These suits can create headaches for the board of directors, the legal department, and the company’s shareholders. Fortunately, there is a way that companies can gain some control over what types of lawsuits they must defend against. This is through the use of arbitration clauses.

Arbitration clauses have been in the news recently as the Walt Disney Company has been trying to enforce one of their own. On October 5^th, 2023, a guest at a Disney Springs restaurant had an allergic reaction and passed away.[1] A wrongful death suit was filed against Disney, and Disney returned with a motion claiming the suit was subject to arbitration.[2] It argued that because the deceased’s husband (the plaintiff) had purchased tickets to Disney theme parks and was a Disney+ subscriber, he had agreed to the terms and conditions contained therein, which included an arbitration clause.[3] News broke of Disney’s intent to force arbitration upon the plaintiff, which resulted in public backlash, as many viewed the company’s actions as insensitive.[4] Disney has since retreated from this stance, forgoing arbitration and instead letting the case go to court.[5]

While the public might believe that Disney’s arbitration clause was a rare occurrence, they would be terribly wrong. Most businesses include arbitration clauses in their terms and conditions agreements. Consider this example scenario: a person visits Planet Fitness to exercise after a long day at the office. After the workout, he orders Chipotle through his rewards app for dinner. Once he gets home, he decides to turn on his PlayStation 5 and play a new college football video game. The day seems inconspicuous enough, however, this person has unwittingly agreed to arbitration clauses with Planet Fitness[6], Chipotle[7], Sony[8], and EA[9], all in one day.

So, why are businesses including these arbitration clauses so frequently? It’s simple: arbitration is better for the business in every way.  It gets to decide who the arbitrator will be, the number of arbitrators, where the arbitration will take place, and it gets to keep potentially complex cases away from a jury. Avoiding juries is especially beneficial to businesses in cases where the alleged conduct is outrageous, such that it may cause a jury may award punitive damages much higher than what is needed to make the plaintiff whole again.

Arbitration clauses are great tools for businesses. They keep the cost of litigation down, are faster than going through the courts, and are flexible in the location, required qualifications of the arbitrator, and number of arbitrators. They also give the business power over which state law will be applied. Arbitration is generally a good thing for businesses, and that is why Congress enacted the Federal Arbitration Act – to protect the integrity of such agreements.[10]

Arbitration clauses are here to stay. Many consider them as a key tool for mitigating risk. Although popular, there are notable exceptions to the trend – some companies may still allow you to opt out of arbitration or never agree to it in the first place. Sony gives such an option, with the ability to opt out of arbitration within 30 days of the original agreement.[11] For those consumers who are opposed to arbitration, it is especially important to read the fine print, because these clauses are extremely common. Businesses are always looking for ways to protect themselves, and arbitration clauses are a powerful way to do it.

[1] Daniel Wiessner, Disney Agrees to have Florida Wrongful Death Lawsuit Decided in Court, Reuters, (August 20, 2024), https://www.reuters.com/legal/disney-agrees-have-florida-wrongful-death-lawsuit-decided-court-2024-08-20/

[2] Id.

[3] Id.

[4] Disney’s Not-So-Magical Lawsuit Could Have Major Implications For Wrongful Death Victims, (August 28, 2024), https://www.forbes.com/sites/legalentertainment/2024/08/28/disneys-not-so-magical-lawsuit-could-have-major-implications-for-wrongful-death-victims/

[5] Id.

[6] TERMS AND CONDITIONS OF USE, Planet Fitness, September 7, 2020, Section 13.1, https://www.planetfitness.com/mobile/terms-use#a

[7] CHIPOTLE TERMS OF USE, Chipotle, https://www.chipotle.com/terms-of-use

[8] PLAYSTATION NETWORK TERMS OF SERVICE AND USER AGREEMENT, Sony Interactive Entertainment LLC, August 2023, Section 14, https://www.playstation.com/en-us/legal/psn-terms-of-service/

[9] Terms of Sale, EA, November 8, 2023, Section 13.C, https://www.ea.com/legal/terms-of-sale#:~:text=FOR%20RESIDENTS%20OF%20CERTAIN%20COUNTRIES,RESOLVING%20ANY%20DISPUTE%20WITH%20EA.

[10] Federal Arbitration Act, Legal Information Institute, https://www.law.cornell.edu/wex/federal_arbitration_act#:~:text=The%20Federal%20Arbitration%20Act%20is,the%20arbitration%20agreement%20is%20valid.

[11] PLAYSTATION NETWORK TERMS OF SERVICE AND USER AGREEMENT, Sony Interactive Entertainment LLC, August 2023, Section 14.3, https://www.playstation.com/en-us/legal/psn-terms-of-service/