Having addressed many times the unfortunate difference between the aspirational goals of arbitration and the way in which it’s played out — which, by the way, should serve as an apocryphal tale of all the glorious ideas that are doomed to fail because of our denial that people are, and will always be, people — there is a certain sense of schadenfreude about FairShake’s burning the system down.
Teel Lidow couldn’t quite believe the numbers. Over the past few years, the nation’s largest telecom companies, like Comcast and AT&T, have had a combined 330 million customers. Yet annually an average of just 30 people took the companies to arbitration, the forum where millions of Americans are forced to hash out legal disputes with corporations.
What was once hailed as the panacea of the little guy was co-opted by corporations with the impression that the system was rigged in favor of corporations, but they were left with no alternative since the courthouse doors were closed to them, individually or as a class. But only 30 people, thirty on average, took two huge companies to arbitration? Either Comcast and AT&T are such great companies that neither employees nor customers had a beef to resolve or arbitration clauses had so successfully stifled redress that only 30 people were foolish enough to waste their time and money.
Former Kennedy law clerk, Travis Lenkner, wasn’t buying.
About the same time last year, Travis Lenkner and his law partners at the firm Keller Lenkner had a similar realization. Arbitration clauses bar employees at many companies from joining together to mount class-action lawsuits. But what would happen, the lawyers wondered, if those workers started filing tens of thousands of arbitration claims all at once? Many companies, it turns out, can’t handle the caseload.
With the help of Google ads, Lidow solicited thousands of claimants. Using his mad tech skillz, he formed a startup called FairShake to automate the arbitration filings. As an aside, FairShake makes its money by feesplitting should a claimant prevail, which goes unnoticed and unmentioned. Lenkner handled the legal side of the gig.
Driven partly by a legal reformist spirit and entrepreneurial zeal, Mr. Lidow and Mr. Lenkner are leaders in testing a new weapon in arbitration: sheer volume. And as companies face a flood of claims, they are employing new strategies to thwart the very process that they have upheld as the optimal way to resolve disputes. Companies, in a few instances, have refused to pay the fees required to start the arbitration process, hoping that would short-circuit the cases.
For the companies on the other side of the arbitration clause, the initial problem was paying the arbitration fees. While they were happy to deal with 30 filings, thousands started costing them serious money.
One of the biggest obstacles for consumers and workers is that payouts on individual arbitration judgments don’t justify the costs of mounting a complex case against a big company.
By handling a thousand cases, mostly involving the same issues, Lenkner’s approach wasn’t to do a thousand complicated cases, but one complicated case a thousand times.
Mr. Lenkner said he believed that his firm could economically mount arbitration claims, one by one, because the gig workers had similar allegations against companies like Uber and Postmates — namely that they have been misclassified as independent contractors.
Did he beat the system? In a way, he did.
DoorDash specified in its contracts with its roughly 700,000 dashers that they had to use the association when filing an arbitration claim. The company also told the dashers that it would pay any fees that the association required to start the legal process.
Then DoorDash got the bill for the 6,000 claims — more than $9 million.
Corporations fought back, first trying to argue to the American Arbitration Association that it try a few representative cases, which the AAA refused to do, and then trying to switch to a more accommodating arb provider.
The International Institute for Conflict Prevention & Resolution, or C.P.R., was willing to allow DoorDash to arbitrate “test cases” and avoid having to pay the fees all at once. C.P.R. also took feedback from Gibson Dunn on the proposed new rules, though it did not consult with the dashers’ lawyers.
The company demanded that its
employees independent contractors acquiesce to the new arbitration agreement or find another door to dash. This was challenged before Northern District of California Judge William Haskell Alsup, who was unsympathetic to Doordash’s plight.
“Your law firm and all the defense law firms have tried for 30 years to keep plaintiffs out of court,” the judge told lawyers for Gibson Dunn late last year. “And so finally someone says, ‘OK, we’ll take you to arbitration,’ and suddenly it’s not in your interest anymore. Now you’re wiggling around, trying to find some way to squirm out of your agreement.”
“There is a lot of poetic justice here,” the judge added.
Judge Alsup apparently isn’t any more immune to schadenfreude then the rest of us. Unfortunately, the huge cost of arbitration fees may be good for the AAA, but it doesn’t do much to help the claimants or employees seeking to obtain redress through arbitration. As the system bogged down under the weight, cases dragged on and the payouts on the back end, an average of $700 per FairShake costumer, fall a bit short of winning the lottery.
As happens often, the new scheme managed to do a great job of accomplishing a few things, like making corporations suffer for their adoration of arbitration clauses and earning some money for FairShake and Lenkner. It’s unclear, however, that it did much to significantly benefit the claimants.
Now we have two systems, the official legal system and the informal arbitration system, neither of which do a great job of providing swift and inexpensive redress to claims. The problem with burning a system down is that afterward, all that’s left is a burned system.