Aribtration: Is it necessary?

To arbitrate or not to arbitrate? That is the question. MLM companies commonly require their independent distributors to submit any dispute with the company to arbitration, which is essentially a private version of filing a lawsuit. Arbitration is where both parties pay a retired judge or other qualified person(s) to decide their dispute and that decision is final. No appeal. No jury. No public record.

Arbitration typically favors the MLM company and disfavors independent distributors. However, a threshold issue is whether arbitration is even enforceable.

A recent United States Supreme Court decision answers that question emphatically in the affirmative. In AT&T Mobility v. Concepcion, a wireless provider had a terms of service provision which provided for arbitration of all disputes and which required that claims be brought in an individual capacity, and not as a plaintiff or class member in a purported class action lawsuit.

The Concepcions, who were wireless subscribers, challenged whether this provision was enforceable by attempting to bring a class action lawsuit against AT&T Mobility. They lost.

The reason this matters to MLM distributors is because an MLM company’s Policies and Procedures typically contains an arbitration provision that is similar to the one in AT&T Mobility’s terms of service.

Even after this Supreme Court decision, there are still ways to challenge an arbitration requirement, but it usually requires showing that the requirement to arbitrate is so one-sided that it is “unconscionable.” There are specific legal tests for determining whether a provision is “unconscionable” but suffice it to say that the burden is quite high.

Despite the disadvantage that MLM distributors face when arbitrating, that disadvantage is not always fatal. There are cases where distributors have successfully arbitrated against MLM companies. However, those successes are not public record which is a major reason why MLM companies prefer arbitration.

In sum, requiring arbitration is a smart move for MLM companies and a necessary evil in most instances for MLM distributors.