Rutledge and Drahozal, ‘ “Sticky” Arbitration Clauses? The Use of Arbitration Clauses After Concepcion and Amex

We present the results of the first empirical study of the extent to which businesses have switched to arbitration after AT&T Mobility LLC v. Concepcion. The Supreme Court’s decision in Concepcion led commentators to predict that every business soon would use an arbitration clause, coupled with a class arbitration waiver, in their standard form contracts to avoid the risk of class actions. We examine two samples of franchise agreements: one sample in which we track changes in arbitration clauses since 1999, and a broader sample focusing on changes since 2011, immediately before Concepcion was decided. Our central finding is consistent across both samples of franchise agreements: the use of arbitration clauses in franchise agreements has increased since Concepcion, but not dramatically. Most franchisors have not switched to arbitration. Our results necessarily are limited to franchise agreements and may not be generalizable to consumer and employment contracts. But they are consistent with the Consumer Financial Protection Bureau’s preliminary results on changes in arbitration clause use in credit card and checking account agreements since Concepcion.

We then consider why only a handful of franchisors have switched to arbitration clauses since Concepcion. Those predicting a switch to arbitration assume both that there is no reason for a business not to use an arbitral class waiver and that businesses readily and costlessly can and will modify their form contracts. In our view, both assumptions are subject to question. First, some businesses have good reasons not to use an arbitration clause. By using an arbitration clause, businesses contract for a bundle of dispute resolution services, including, for example, a very limited right to appeal. If a business perceives itself as unlikely to be subject to a class action, these “bundling costs” may discourage the business from using an arbitration clause. Second, standard form contracts, like negotiated contracts, might be resistant to change even if change might be in the business’s best interest — in other words, standard form contracts might be “sticky.” We find empirical evidence to support both possible explanations. The Article concludes by considering how the Court’s subsequent decision in American Express Co. v. Italian Colors Restaurant might affect the future use of arbitration clauses, as well as the use of class action waivers that are not part of an arbitration clause.

Peter B Rutledge and Christopher R Drahozal, “Sticky” Arbitration Clauses? The Use of Arbitration Clauses After Concepcion and Amex, 67 Vanderbilt Law Review 955 (2014).

First posted 2014-06-16 13:10:56

Leave a Reply