Mandatory Arbitration Clause Backfires Against DoorDash

A mandatory arbitration clause placed into its employment contracts may have backfired for DoorDash, the on-demand food preparation and delivery service. DoorDash put the clause into the contract to avoid class and collective action suits by its employees, forcing the employees into private arbitration instead. However, as a result, DoorDash may now be financially responsible for the costs of more than 5,700 individual arbitrations, bound by that same arbitration clause.

A mandatory arbitration clause, sometimes known as an arbitration agreement, is a contract (or part of a contract) that requires both parties to settle any legal claims against one another in private arbitration, rather than going to court. Many employers, like DoorDash, have taken to making their employees sign arbitration agreements to prevent them from bringing lawsuits against them, particularly class and collective action suits. And while they have been effective at doing so, many employers are now finding the downside, which is they are now forced into private arbitration with every single employee that has sued them.

DoorDash is in a particularly bad position, because it is headquartered in California, where employers must pay the administrative and arbitrator’s fees for every single arbitration brought about by mandatory arbitration clauses. The administrative fees alone will cost DoorDash about $12 million for the 5,700 arbitrations they are now involved with, and the arbitrator’s fees may cost upwards of $300 million. DoorDash tried to get out of the arbitration by simply not paying the private arbitrator, for which they were rebuked by the federal district court. It goes to show that you should be careful what you wish for and consider the possible costs of measures like mandatory arbitration clauses.

The business law attorneys at Blodnick, Fazio & Clark are skilled and knowledgeable in the area of business law and commercial transactions.  With offices conveniently located in Garden City, Nassau County, and Babylon, Suffolk County, the firm provides high-quality legal care at reasonable prices. If you require legal assistance concerning business startups, formation, corporate acquisitions and mergers, corporate restructuring, or another business matter, call (516) 280-7105 or fill out our contact form for a free consultation.

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