How Companies Weaponize the Terms of Service Against You  🔗 **Source:** [How Companies Weaponize the Terms of Service Against You](https://share.snipd.com/episode/cd764f71-6391-400e-93f3-e01ecd829b62) ## Highlights - **Forced Arbitration As A Private Justice System** - Forced arbitration is a private justice system that replaces courts for consumers and employees. - Brendan Ballew cites statistics: consumers win ~89% in small claims but only 20–30% in forced arbitration, sometimes as low as 0.2%. Transcript: Nilay Patel Our modern lives. Deep in almost every single terms of service for almost any product you buy or service you use, there's a clause that says by buying or using the thing, you're giving up your rights to Join a class action lawsuit if something goes wrong. Instead, you have to take the company to arbitration, which the company usually pays for. You can see how there's a conflict there. There have been some really high-profile cases these past few years, highlighting how deeply unfair arbitration clauses can be to consumers. One you'll hear Brendan and I talk about, which we also covered here on The Verge, was the very sad example of a man whose wife died of an allergic reaction after eating at a Disney World Restaurant. When the man sued, Disney tried to force him into arbitration instead, arguing that because he had signed up for Disney Plus, a streaming service, he had waived his right to sue. There was massive public pushback to this, and Disney eventually relented, as you may recall. But there are thousands, or maybe millions, of other lower-profile instances every year, where consumers and employees have completely lost their rights to redress if something Goes wrong. Brendan's book really delves into how and why we got here. Spoiler, you can blame Antonin Scalia for some of it. But also, most importantly, ([Time 0:01:00](https://share.snipd.com/snip/5ae68512-c520-4cb8-b8a1-db2dc6bbf82a)) - **Disney Tried To Arbitrate A Wrongful Death Suit** - Jeffrey Piccolo lost his wife to an allergic reaction at Disney World and Disney tried to force his wrongful death claim into arbitration. - Disney argued he consented via a years‑old Disney+ account before public backlash forced Disney to relent. Transcript: Nilay Patel Explain what happened there. Brendan Ballew Jeffrey Piccolo and his wife went to Disney World. His wife was a doctor, had severe allergies, and so they were trying to be very careful about where they ate. According to his subsequent legal complaint, they went to this faux Irish pub. They were assured that the food was safe. In fact, it was not. His wife died of anaphylactic shock. But when he tried to sue Disney for wrongful death, Disney tried to compel him into forced arbitration by saying that he had consented to it when he signed up for his Disney Plus account Several years prior. And I think it's kind of extraordinary for folks to imagine that, you know, by signing up for a streaming service, you could essentially sign away your right to sue over your wife's death. But to be clear, the law was very much on Disney's side. And they would have won, I think, you know, because of enormous public pressure, they eventually backed down. But they would have won if they continued. ([Time 0:14:11](https://share.snipd.com/snip/a03b6ca9-8ae4-4bec-9896-153c09382571)) - **Supreme Court Rewrote Arbitration's Scope** - The Supreme Court repurposed the 1925 Federal Arbitration Act to apply arbitration to consumers and employees. - Brendan traces this shift to conservative justices, notably Antonin Scalia, widening arbitration far beyond sophisticated commercial parties. Transcript: Brendan Ballew Well, by and large, they're taking their cue from the Supreme Court, which, beginning in the 1980s, really fell in love with forced arbitration. You know, there was this idea that there was this explosion of litigation that was costing big companies millions or billions of dollars, and there needed to be some way to get consumers And employees out of court. And forced arbitration was the way to do that. So the conservative justices, beginning with Warren Berger, but then Antonin Scalia, John Roberts, and so forth, took this little law from 1925 called the Federal Arbitration Act, Which was meant to really allow sophisticated companies and merchants to bind themselves into arbitration so they didn't have to go through the headache of going to court, and said, We're actually going to take this law, which is meant for sophisticated parties of roughly equal bargaining power, and we're going to extend it to employees and to consumers, And we're Going to extend it to the kinds of contracts that you just mentioned, the sort of click-to take-it contracts that we sign every day with companies. That was never the intention of the statute. And it really wasn't supported by the text of the statute either. But I think the conservative justices really saw this as a vehicle to keep certain people and certain kinds of cases out of court. ([Time 0:16:56](https://share.snipd.com/snip/27d787b6-7bb8-41bc-b72a-3f5df08841b5)) - **Arbitration Kills Class Actions** - Forced arbitration destroys class actions by forcing individual arbitration, making many harms too expensive to pursue. - Brendan links this to Concepcion (2011) and credits Antonin Scalia with enabling enforcement of one‑sided clauses. Transcript: Brendan Ballew So, you know, one of the key purposes of forced arbitration is to kill class actions. So, you know, class action is when everybody's hurt in the same kind of way, you can bring one lawsuit instead of hundreds or thousands or millions of lawsuits. And, you know, much if not most of our social progress on the courts has come through class action. So Roe v. Wade was a class action. Brown v. Board of Education was a class action. And then in the consumer and employee context, you know, you have cases, for instance, of, you know, women who are dying of cancer because of defective birth control. Those are cases brought as class actions, or people whose family members all die in a plane crash, brought as class actions. Forced arbitration kills this system by requiring people into arbitration and to arbitrate their cases individually. So they, each person has to bring an individual case. And you can immediately imagine, for anything other than the most expensive harms, that makes pursuing a case completely unaffordable. So you think about all those little fees that a bank might have on your bank statement or your cell phone company has, and you're like, why am I getting charged $30 a month for this? This seems like BS. You know, it may well be, but there is no effective way for you to resolve that because you're forced into individual arbitration. You can't join a class action over that $30 fee. ([Time 0:20:33](https://share.snipd.com/snip/212ce8e8-c82d-4abc-9d0c-6b37f217bccc)) - **Make Arbitration More Courtlike With Mandatory Transparency** - Make arbitration more like public court by requiring written, appealable decisions and disclosure of arbitrator statistics. - Brendan suggests mandatory disclosures and procedural fairness so plaintiffs can pick fair arbitrators and see patterns. Transcript: Brendan Ballew The first thing you could do is you could just fix arbitration itself. What would that look like? One of the reasons that I think corporations are so attracted to forced arbitration is if it's unlike a regular court. So, you know, in regular court, court happens out in open so people know that it's not corrupt. Decisions are written down so that, you know, people who have similar cases can reference those and be treated similarly. And if the judge makes a mistake, that decision can get appealed. None of those things are necessarily true in arbitration, which generally occurs in secret. Oftentimes, decisions are written down. In fact, sometimes companies contract that they specifically aren't. And ironically, it's actually much harder to appeal an arbitrator's decision than it is to appeal a real judge's decision. So there are ways that we can make arbitration more fair by requiring certain disclosures, by allowing procedural fairness, you know, so that plaintiffs can actually get the, you Know, you're a lawyer, what we call discovery from the other side, and, you know, allow or require decisions to actually be written down and shared. We can also require arbitration companies to actually share the statistics on how arbitrators rule. One of the advantages that companies have is you and I are probably going to arbitrate one case in our life. A company might arbitrate dozens or hundreds of thousands. And so they know which arbitrators to pick, and we don't. But by requiring actual disclosure on how arbitrators rule on things, you actually have a better chance of picking one that's going to be fair to you. ([Time 0:28:20](https://share.snipd.com/snip/09056fd1-9e4f-4211-b588-bdbd55848ab6)) - **Use State Laws Like PAGA To Circumvent Arbitration** - Use state lawworkarounds like California's PAGA to bypass individual arbitration by deputizing employees to sue on the state's behalf. - Brendan recommends expanding PAGA‑style rules to consumer protection, antitrust, and securities laws. Transcript: Brendan Ballew A lot of progress on this. You know, one of the biggest changes that they've made is not just making arbitration fairer, but actually finding ways to get people out of arbitration in the first place. And there's this law called the Private Attorney's General Act, PAGA. And it's really smart. So what it says is, if you're an employee that's been harmed by your company, you didn't get the wages you were deserved, you were discriminated against, or whatever it happens to be, And you sign an arbitration agreement, normally that's too bad. You can't sue your company. But we're going to say to you, employee, that you can represent us, the state, which can enforce all these same laws in the state labor department. And you're representing us in a lawsuit against the company. And if you win, the state will get a cut and you'll get the rest. But what's so clever about that is while you're bound by an arbitration agreement, the state is not. And so it's effectively a way to circumvent arbitration agreements. Now, that's great for employment law, and I think it has made California employees much better treated than a lot of other states. We need to expand that sort of legislation to all sorts of laws, to consumer protection laws, securities and anti-fraud laws, antitrust, and so forth. If we can do that, then we can narrow down arbitration to become a much smaller part of our lives and companies are going to treat us better. ([Time 0:30:10](https://share.snipd.com/snip/3c11c554-9345-4528-8994-1d3b4917f8dd)) - **Mass Arbitration Turns Companies' Terms Against Them** - Mass arbitration flips arbitration's purpose by forcing companies to honor their fee promises and pay for thousands of arbitrations at once. - Early organizers used company provisions that said the company would pay initial arbitration costs to create leverage via volume. Transcript: Brendan Ballew You know, and you're talking about hacks. This was a fascinating one. So, you know, arbitration, you know, like you said, is meant to kill class action so that, you know, each person has to bring a case individually. It's too expensive for each person to do it. So nobody ever does it. One thing that the companies who were doing this just messed up on is in order to make these agreements seem facially a little more fair, they said, we're going to pay for the initial cost Of the arbitration. We'll even pay for the arbitrator. You just have to start the arbitration. And some very smart lawyers said, okay, we're going to take you up on your offer. And we are going to initiate thousands of arbitrations all at once. And you have to pay for all of them all at once. It's clear that the company's just never even considered the possibility that a lot of people would arbitrate their cases because as soon as they did, they tried to back out of their Own agreements and said, we actually don't think we should pay these tens of millions of dollars that we promised to pay. There were some very funny court decisions where judges who had been watching sort of their powers slip away and consumers' powers slip away through arbitration say, you know, it is Sort of the height of irony that these companies are now trying to escape these things and compelled them to pay these costs. So mass arbitration is really a way to turn arbitration on its head and actually say, okay, companies, if you're going to force us to do this, we're actually going to do it, but you're Going to have to pay a bunch of costs, which creates leverage for consumers and employees. ([Time 0:37:20](https://share.snipd.com/snip/2a62bcab-d2c2-478a-a9ce-ae0c9aecdc4c)) - **Mass Arbitration Against Elon Musk At Twitter** - Brendan participated in mass arbitration representing hundreds of Twitter employees over unpaid severance after Elon Musk's layoffs. - He credits Shannon Ellis Reardon leading the effort and says they achieved substantial success against Musk's company. Transcript: Brendan Ballew Can't get into the details, but I think that we had enormous success, and I hope Elon Musk doesn't make the same mistake twice. Nilay Patel Can you not get into the details because the arbitration agreements keep you from talking about the details? Brendan Ballew I don't know if it's the specific arbitration agreements, but being a lawyer in general, sometimes when you're doing these cases, you have to be kind of cagey about things. Nilay Patel It does seem like Elon, he just doesn't want to pay the money. And now he's rolling up all of his companies. He might IPO SpaceX in some way. Somehow Twitter is now part of SpaceX. It's all very confusing. Did that all just wrap up because he needed it to go away? Brendan Ballew You know, it does seem like he's sort of rebuilding the sort of like Korean conglomerates that you see going on where you have, you know, a single family running, you know, 18 different Kinds of businesses, often supporting each other, you know, financially or, you know, the Japanese, what is it, Koretsu sort of banking conglomerates that you had. Those, Koretsu, you know, collapsed in the 1990s. And, you know, Japan's had a multi-decade recession as a result. So I'm not sure Elon Musk is necessarily going to do better than that. But speaking personally, I am enormously skeptical of Elon Musk's financial acumen. ([Time 0:39:59](https://share.snipd.com/snip/de21b3b0-f991-48ef-ab44-afc8f61090a7)) - **AI Arbitration Would Multiply Arbitrary Outcomes** - AI‑run arbitration threatens legitimacy because decisions need public, consistent case law to be fair. - Brendan argues black‑box LLM rulings without published decisions will produce arbitrary, unappealable outcomes and erode trust. Transcript: Brendan Ballew Speaking personally, it's horrifying. I don't want to be a Luddite about these things. And I think AI can be very useful for certain parts of legal work, document review and so forth. I think that there are two problems here. One, at a very high level is, you know, when you're talking about dispute resolution, you know, lawyers are one paid to understand the individual nuances of each case rather than sort Of the generalities. I have often found that sort of AI bots have been very ineffective at actually writing sophisticated legal briefs that are specific to a case because they can write sort of the generic Section about what the legal standard is and so forth. But actually understanding the nuances of the case, it's more than just a matter of natural language processing. But even if they were perfect at it, I think, you know, for a justice system to work, people need to be bought into its legitimacy. And I think it's very hard to buy into the legitimacy of, you know, large language model that's essentially a black box. How can people possibly believe that it was ultimately fair? I'll also say just at a more practical, technical level, one of the challenges, you know, we alluded to this earlier that you have with forced arbitration, is that decisions often aren't Written down, or if they are written down, they're not made public. And the reason why that's so important in a functioning legal system, it's actually kind of sort of the key to a legal system, is that similar cases get treated similarly. You know, that's what justice is. And when decisions aren't made public, it's actually literally impossible to come up, you know, to actually create a case law upon which people can make decisions. And so the way that arbitration is currently structured, even if in every other respect it was fair, if you have an AI that has no corpus of case law to rely on, the decisions are going to Be ultimately arbitrary and case dependent and have no internal consistency. ([Time 0:44:03](https://share.snipd.com/snip/7f1a6dd9-f69c-44ad-9b8f-98041a38567e)) - **Don't Read Contracts Alone — Push For Laws Instead** - You cannot ethically opt out of forced arbitration by reading contracts; solve it collectively through legislation. - Brendan offers model legislation at brendanballew.com and urges contacting local legislators to pass laws limiting forced arbitration. Transcript: Brendan Ballew Not going to escape it by reading your contracts more carefully, because most of them aren't negotiable, and Verizon's not going to let you negotiate them. So we're not going to ethically consume our way out of this problem. This is, to your earlier point, something we are going to solve collectively. Ultimately, that's going to happen in city councils and state legislatures. I worked with a young, very smart University of Chicago law student to draft some model legislation. I have a personal website, brendanballew.com, where you can download it, send it to your legislator, and get them starting to pass some laws. ([Time 0:52:20](https://share.snipd.com/snip/2cda2c9f-8aed-4a84-8929-e2cf928ebcfc))