Consumer protection: California restricts arbitration clauses

Arbitration clauses in consumer contracts in California now only apply to the specific legal transaction, not to new contracts for all eternity. Governor Gavin Newsom signed a corresponding amendment into law on Monday. The clauses hidden in the small print regularly prohibit recourse to ordinary courts and make class actions impossible. Instead, consumers are to submit individually to non-public arbitration tribunals, which are selected and paid for by the other party.

In principle, this is still permitted in California. What is no longer possible is to extend agreed arbitration clauses to other contracts subsequently concluded by the same contracting parties. The concise amendment applies to all agreements with consumers regarding the receipt or use of goods, services, money, or credit. As many large companies are based in California, the measure could also protect consumers from other parts of the country. There are many reasons for the consumer protection measure.

Uber, Disney, and other suspects

Disney's attempt to nip a lawsuit in the bud after a death attracted particular attention: a Disney restaurant, which advertises special precautions for allergy sufferers, allegedly served a woman food to which she was allergic despite several explicit warnings about her allergies. The woman died as a result, and her widower is suing Disney.

However, the entertainment company pointed out in court that the man had used a trial subscription to the Disney+ streaming service years before the fatal restaurant visit. And a document with an arbitration clause was linked in its terms of use. Following a public outcry, Disney withdrew this legal argument.

Uber, on the other hand, remains firm in a similar case: a married couple who were seriously injured during a ride arranged by Uber cannot sue because their underage daughter had ordered a meal delivery via Uber months before the accident. The child used an app on her mother's mobile phone with her permission. However, the daughter nodded to new terms and conditions with the arbitration clause without her mother's knowledge. Although the food order had nothing to do with the road accident, the clause also applies to it.

Californian Senator Thomas Umberg, who introduced the bill, refers to similar cases involving Airbnb, DirecTV, and Walmart. “No one should lose access to court because they clicked 'I agree' on a streaming test or a supermarket app years earlier,” Umberg said. “(The amendment) SB82 ensures that arbitration clauses only apply to the actual contract signed, not to any future conflict companies can dream up.”

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