Amazon Says Goodbye To Arbitration As It Backfires With 75K Claims

Amazon.com, Inc. AMZN recently altered its terms of service to drop arbitration requirements, meaning that customers can now file lawsuits. 

What Happened: The change comes after the company was bombarded with upwards of 75,000 individual arbitration demands on behalf of Echo users.

Amazon has made no comment on the change to its terms of service, according to The Wall Street Journal, which reported Tuesday that the company faces class action lawsuits, including one from May 18 alleging that Amazon’s Echo device records people without permission. 

Why It's Important: “Companies thought they were getting out of liability altogether” with arbitration requirements, Travis Lenker, a Chicago lawyer, told the Journal.

“Now they’re seeing exactly what they bargained for, and they don’t like it.”

Lenker’s firm filed the majority of the Amazon claims.

On the other hand, arbitration “has the potential to be pretty unfair to the company,” Patrick Bannon, an employment lawyer at Seyfarth Shaw LLP with experience representing clients facing mass arbitration, told the Journal.

“Whether the claim is valid or not,” the arbitration fees pressure businesses to settle, Shaw said.

What’s Next: Amazon’s move away from arbitration highlights how companies are responding to loopholes in the arbitration system and can influence other companies to drop arbitration.

When arbitration gets pushed beyond its limits, it can trigger millions of dollars in filing fees and has forced companies like Uber Technologies Inc. UBER, Lyft Inc. LYFT and TurboTax maker Intuit Inc. INTU to make an effort to avoid filing fees after facing mass arbitration claims.

In May, Amazon attorneys alerted plaintiff’s lawyers to the terms of service change.

Amazon’s website now features two sentences telling users that any disputes can be brought in state or federal court near Amazon’s Washington state headquarters.

Photo courtesy of Amazon.