How to Mitigate BIPA Liability Exposure When Drafting Online Consumer Arbitration Agreements
The importance of arbitration as a liability risk mitigation tool has risen precipitously as a result of the sharp uptick in class action litigation pursued for purported violations of the Illinois Biometric Information Privacy Act (BIPA)—toady’s newest class action trend, which has shown no signs of slowing down at any point in the foreseeable future.
As such, it is imperative that companies expend the necessary time and effort to craft effective and well-thought-out online arbitration and class action waiver provisions for inclusion in their online consumer agreements in order to fully mitigate their risk of liability exposure stemming from BIPA (and similar types of privacy) class action litigation.
The Importance of Having the Right Language in Online Arbitration Agreements
The ability to resolve disputes through binding individual arbitration is an especially important tool for companies across all industries that face an ever-growing risk of privacy-related class action litigation. There are a myriad of benefits offered by arbitration, including cost savings and the ability to expeditiously and efficiently resolve disputes, among others.
With liability exposure under Illinois’ biometric privacy statute continuing to expand at a rapid pace, the ability to force class suits out of court and individual arbitration has become a pivotal tool for companies defending BIPA class litigation to greatly minimize the financial impact of being on the receiving end of a bet-the-company biometric privacy class action.
Practical Tips & Best Practices
Before compelling arbitration, a court must determine: (1) whether a valid agreement to arbitrate exists; and (2) whether the particular dispute falls within the scope of that agreement.
To maximize the ability to compel arbitration and ensure a favorable arbitration process, companies should consider the following tips for drafting effective arbitration and class action waiver provisions.
Before putting pen to paper, companies must remain cognizant of potential unconscionability arguments and roadblocks when developing the language to be included in an arbitration agreement. Unconscionability comes in two forms. Substantive unconscionability exists where contract terms are overly harsh or one-sided, while procedural unconscionability focuses on oppression due to unequal bargaining power. To head off potential unconscionability issues, companies should ensure they include consumer-friendly terms in their arbitration agreements, several of which are discussed below.
Define the Scope of the Arbitration Agreement
All arbitration agreements must define and explain the scope of disputes that fall under the agreement to arbitrate.
Here, broad (yet reasoned) language should be used to cast a wide net in terms of the scope of claims that are subject to arbitration and ensure the provision encompasses any potential claims or disputes that may arise under Illinois’s biometric privacy statute.
An equally important consideration is to define the claims that are excluded from mandatory arbitration. While an all-encompassing arbitration agreement may seem favorable in theory, crafting an agreement that is boundless in scope may backfire if it is found to be unconscionable and thus unenforceable.
In particular, companies should provide for the option to assert claims in small claims court instead of through arbitration. In addition to being required by many major arbitration bodies, the inclusion of this exclusion also demonstrates to consumers and courts that the company is being reasonable and not attempting to take advantage of its bargaining power vis-à-vis consumers.
At the same time, companies should also consider allowing the parties to pursue equitable relief in court for the infringement or other misuse of intellectual property rights.
Define the Rules That Will Govern the Arbitration Process
All arbitration agreements should also define and describe the rules of arbitration.
First and foremost, all arbitration agreements should contain an explicit delegation clause which specifies that “gateway” issues, such as disputes about arbitrability—or, in other words, whether the parties agreed to arbitrate a dispute—will also be decided by an arbitrator, and not a court.
Another important consideration is the designated location of arbitration. Companies run the risk that their arbitration agreements may be found unenforceable if the consumer is forced to travel far from home to arbitrate his or her claim, especially for low-dollar disputes. The most consumer-friendly option here is to provide for arbitration to take place in the county where the consumer resides.
Responsibility for the payment of arbitration fees is also another key consideration that companies must address with care. Because prohibitive arbitration expenses may be sufficient to invalidate an arbitration agreement on unconscionability grounds, to avoid this potential roadblock companies should consider agreeing to pay any filing, administrative, or hearing costs associated with the arbitration.
Class Action Waivers
In addition to providing for mandatory arbitration, arbitration agreements should also include a class action waiver as well.
As a starting point, companies must ensure that the class action waiver is encompassed within the arbitration provision, as opposed to making the class action waiver a stand-alone provision of its own in the online agreement. Failure to do so will negate the protections of the Federal Arbitration Act (FAA), leaving state law to control—which often bars class action waivers in consumer agreements.
All class action waivers should include explicit language making clear that—in addition to precluding class action litigation—class arbitration is also barred and the arbitrator is only authorized to award relief on behalf of the individual party and to the extent of his or her individual dispute, so as to remove any doubt that arbitrations must be conducted on an individual basis.
Additional Key Provisions
Finally, there are several other provisions companies should consider for inclusion in their arbitration agreements to further enhance the ability to mandate arbitration, while at the same time strengthening their ability to resolve disputes in an efficient, cost-effective manner.
Here, companies should consider including a provision that provides for an informal resolution process as a mandatory preliminary step that must be completed by consumers before seeking to arbitrate a dispute. While arbitration is much less costly than litigation, informal dispute resolution is even more cost-effective and less time-consuming than arbitration. In addition, the informal resolution process also serves secondary purposes as well, including demonstrating the reasonableness of the arbitration agreement.
Companies should also ensure the inclusion of a unilateral modification/change-in-terms provision. This provision is extremely important because courts routinely enforce arbitration provisions that are modified (or even added from scratch) to online agreements after the consumer has previously agreed to the terms pursuant to a unilateral modification clause—even where little to no notice is given—so long as the parties have agreed in advance that one party may unilaterally modify the terms without notice. In the context of BIPA class action litigation, this provision allowed Shutterfly to compel a plaintiff to arbitrate her BIPA claims in Miracle-Pond v. Shutterfly, Inc., which then enabled Shutterfly to subsequently settle the dispute out of court.
Lastly, all arbitration agreements should include a survival clause providing that that the remainder of the arbitration agreement shall survive in the event any portion is invalidated or required to be modified.
In the context of ever-increasing BIPA liability exposure, arbitration and class action waiver provisions can be utilized to minimize the risk of becoming embroiled in high-stakes class action litigation in connection with the use of biometric data.
Importantly, however, companies should not leave their ability to compel arbitration to chance by simply copying and pasting boilerplate arbitration and class action waiver language into their online agreements.
Rather, companies should give careful consideration to getting the language right—and tailoring well-drafted arbitration and class action waiver provisions to the specific, individualized intricacies and circumstances unique to each particular organization—to maximize the power to force arbitration if the need ever arises.
“How to Mitigate BIPA Liability Exposure When Drafting Online Consumer Arbitration Agreements,” by David J. Oberly was published in Legaltech news on April 19, 2021.
Reprinted with permission from the April 19, 2021, edition of Legaltech news© 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.