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Are Online Seller Arbitration Agreements Legal?

— September 23, 2016

Most online retailers, including Amazon and eBay, force both buyers to agree to arbitration in lieu of filing a lawsuit against them. Arbitration is an alternate dispute resolution process where a third party arbitrator will review the allegations and make a decision on resolving the issue. The arbitrator’s decision, much like a judge in a court of law, is final and binding on all parties involved. In short, by proceeding to use a website where the consumer agrees to arbitration by using the site, that the consumer cannot file a lawsuit against the company. But, are online seller arbitration agreements legal?

Arbitration agreements are increasing in use, especially by online sales websites. By providing a way to resolve disputes without going to court, the company may save a lot of time and money and it frees up the courts for other matters. The government agrees! The Supreme Court of the United States, SCOTUS, has held that, under the U.S. Arbitration Law, arbitration agreements are enforceable in every state.


Websites generally present arbitration agreements in one of two ways. The website may provide notification in the form of terms and conditions that the purchaser is required to read and click on a box indicating they agree before proceeding to checkout.  Others present a terms and conditions form as a link on their website, but do not have any process set up to verify that the buyer has read and actually agrees to its conditions.

A lawsuit was filed against that challenged whether its arbitration agreement was valid and legally binding. Plaintiffs alleged that did not provide a notification form that a purchaser was required to click on to verify that it had been read and agreed to, nor did it have a hyperlink that would take purchasers to the agreement to review before proceeding to checkout. As a result, the plaintiff’s were not aware that the website required any agreement that they could not file a lawsuit against them if a dispute arose.

The district court that the suit was filed with found that the agreement was binding and that the parties must abide by it. The defendants in the case,, appealed the case to the U.S. Court of Appeals for the Second Circuit. That court found that the agreement was not, in fact, enforceable because did not make it clear to its customers that disputes must be handled through arbitration.

The ruling in this case does not mean that arbitration agreements used by online websites that sell goods or services are not valid. It means that they should ensure that the purchaser is aware of that they must agree to arbitration before he or she can proceed to making a purchase.

When purchasing items or services from anywhere, consumers should read the fine print. In my case, I have been aware of and read arbitration agreements, but really paid no attention to them. If I wanted to purchase an item, I would do it regardless of that clause. I am sure many more do the same. A problem arises when an unscrupulous seller continuously bilks consumers out of money. In that case, individual cases would be arbitrated, but redress as a class action in a court of law that has the power to order punitive and other damages against the violator is lost.




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