General Mills Retreats from Binding Arbitration Clause
Cereal giant General Mills created a stir this week when it attempted to change its legal terms to include a binding arbitration clause on any consumer who downloads a coupon or joins the company’s online community via Facebook. Arbitration clauses are growing in popularity amongst large companies, and General Mills’ attempt to update its legal policy is nothing unusual.
The situation took a unique turn, however, when consumers and advocacy groups across the country took umbrage with a legal policy that limits an aggrieved customer's right to sue. The mounting resistance quickly rose to levels of discomfort for General Mills, and the company hastily retracted its update, reversing the legal policy to avoid language binding consumers to arbitration. Although consumers have been begrudgingly accepting arbitration clauses for years, a line was drawn when the right to sue a food distributor for dangerously misleading packaging was limited by corporate legal policy.
What is an Arbitration Clause?
Arbitration is a less formal legal process during which the parties to the dispute present their case to a panel of arbitrators, typically one or three people, and agree to be bound by whatever decision the panel renders. Arbitration is widely used to settle business disputes, and has become popular to settle consumer complaints because:
- Arbitration is cheaper than litigation. Although attorneys are still involved in arbitration, legal fees and other costs are reduced because there is less legal formality prior to and during the case. Arbitration is a faster and more streamlined method of dispute resolution that cuts down on costs.
- Arbitration disputes are private. Large companies like to avoid potentially negative publicity that can accompany open trial, and arbitration provides the perfect solution. Without any public exposure, a dispute resolved by arbitration keeps bad press to a minimum.
- Arbitration clauses make the rules. An arbitration clause establishes the rules a consumer must follow in order to resolve a dispute – putting the company in charge of the process at a distinct advantage. Consumers with small pockets and less power can be easily dissuaded from pursuing arbitration on the company’s terms, meaning that disputes will be quashed before they grow.
- Arbitration disputes are resolved on a case-by-case basis: Class action lawsuits present serious problems to big businesses because large groups of consumers are able to join together to exert significant legal strength and bring more public awareness to a widespread problem. In 2011, the Supreme Court case AT&T Mobility v Concepcion allowed businesses to forbid class action lawsuits with an arbitration clause that forces each consumer to settle the dispute in one-on-one arbitration, opening the door for companies to avoid costly class action litigation.
Arbitration clauses have become increasingly popular amongst a number of big businesses, including credit card companies, car dealerships, cellular phone providers, home construction companies, and any other business that enters into a service contract with its customers.
Why General Mills Included an Arbitration Clause
With the growing popularity of the use of arbitration clauses, businesses that do not have customers sign formal contracts have begun to notify consumers that using the company’s product or service automatically binds them to arbitration. From restaurants to grocery stores, companies are updating legal policy to inform customers that patronizing the business creates an unwritten legal contract that comes with an arbitration clause that dictates disputes.
As arbitration policy expands to businesses without written agreements, it is no surprise that General Mills would attempt to take advantage of the trend. As customers become more concerned about food packaging and labeling, food distributors face increased scrutiny from consumers that can easily translate into costly legal action. Last year, General Mills paid $8.5 million to settle litigation filed over its packaging of Yoplait yogurt, and faces additional concerns over a pending lawsuit regarding the packaging of the company’s Nature Valley product line.
With litigation concerns mounting, amending its legal policy to force consumers into an arbitration clause is a sensible move by General Mills, however, the public’s strong opposition to the decision stems from legitimate concerns that removing the fear of lawsuits could easily lead to inadequate food labeling and misleading packaging.
General Mills Retreats from Arbitration
Only days after announcing its shift in policy, General Mills was bombarded by bad publicity and consumer outcry over the over-expansive application of an arbitration clause that limits a customer’s right to pursue legal action. Facing what the company considered to be an unexpected reaction, it quickly released a statement that its legal terms had reverted back to what they previously were – eliminating the binding arbitration clause for consumers who downloaded coupons or “liked” the company’s Facebook page.
The story of General Mills’ failed arbitration clause is an important one for American consumers. With more companies trending towards arbitration policies that are potentially disadvantageous to customers, a strong reaction against such contractual terms can be an encouraging sign. With the Supreme Court unwilling to declare arbitration clauses illegal, only a well informed and active consumer base stands in the way of the expanding use of binding arbitration among large companies eager to avoid litigation at any cost.