Mass arbitration is a legal strategy where many individuals file similar arbitration claims against a common entity. The rise of mass arbitration in the past decade can ironically be attributed to the class action waiver clauses that companies put in agreements to avoid class action lawsuits. Companies have instead opted for mandatory arbitration clauses that require employees, customers, and other contracting parties to resolve disputes through individual arbitration proceedings.

Class action lawsuit and mass arbitration have the similar goal of aggregating many small claims against a common defendant, who is often a large corporation or organization. However, the details of each process are quite different. Understanding these distinctions had become increasingly important in today’s corporate legal landscape.

In the 2011 case AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court ruled that the Federal Arbitration Act (FAA) preempts state law and allows enforcement of mandatory arbitration clauses. The 2018 Supreme Court case Epic Systems Corp. v. Lewis further solidified this by ruling that agreements requiring employees to use arbitration to resolve disputes are enforceable.

Class actions and mass arbitration fundamentally differ in structure, forum, and governing framework. A class action lawsuit involves a large number of plaintiffs, but there are only a couple named plaintiffs appointed to represent the concerns of the entire class. Thus, there is one representative lawsuit on behalf of all the class members. If damages are awarded, the award is shared among all class members. In contrast, mass arbitration involves hundreds or thousands of separate individual arbitration demands.

Class actions are governed by the Federal Rules of Civil Procedure (FRCP) or the applicable state’s rules of civil procedure. These actions are litigated in a public court such as a U.S. district court. In contrast, arbitration occurs in a private forum and is facilitated by the American Association of Arbitration (AAA), Judicial Arbitration and Mediation Services (JAMS), or similar service provider.

Judicial gatekeeping, or the ability to filter out improper or frivolous lawsuits before it reaches an advanced stage, is another factor that distinguishes the class action process from mass arbitration. In a class action, the process for certifying a class involves satisfying rigorous standards for numerosity, commonality, typicality, and adequacy of representation. Such a rigorous threshold is lacking in the context of mass arbitration.

Both legal strategies can result in costly fees for companies. While one of the primary objectives of adding mandatory arbitration clauses to contracts was to avoid expensive class action lawsuits, a large volume of individual arbitration demands can result in hefty upfront arbitration fees for companies. Lawyers may launch a coordinate campaign against a company by filing a massive number of individual arbitration claims at once. This can trigger massive upfront filing fees since companies are required to pay per-case fees. If these upfront fees are not paid on time, companies often effectively waive their right to enforce the arbitration clause and opening the door to a class action lawsuit instead.

Companies have taken measures to counter the rise of mass arbitration, such as amending their arbitration clauses or refusing to pay initial fees. Such measures have been met with varying rates of success. Arbitration providers such as the AAA and JAMS are evaluating potential procedural changes to address the rise of mass arbitration. Companies operating in the United States should watch for new developments and seek ways to minimize their exposure to mass arbitration demands.