What Is an Arbitration Agreement — And How Plaintiffs' Attorneys Are Using Them Against Companies

If you've spent any time in consumer or employment litigation over the past decade, you've seen the clause. Buried on page 14 of a terms of service, tucked into an employee handbook, slipped into a credit card application — the mandatory arbitration agreement. Companies spent years fighting for the right to include these clauses, and they largely won. What they didn't anticipate was that plaintiffs' attorneys would eventually turn the strategy back on them.

This article explains what arbitration agreements are, why corporations adopted them so aggressively, and — most importantly for plaintiffs' practitioners — how the same clauses that were designed to kill collective action became the engine of mass arbitration, one of the most significant shifts in American civil litigation in decades.

What is an arbitration agreement?

An arbitration agreement is a contractual provision requiring one or both parties to resolve disputes through binding arbitration rather than through the court system. Instead of filing a lawsuit and having a judge or jury decide the case, the parties submit the dispute to a private, neutral arbitrator whose decision is typically final and enforceable.

In consumer and employment contexts, these agreements are almost always non-negotiated — presented on a take-it-or-leave-it basis as a condition of using a product, service, or accepting employment. The consumer or employee has no meaningful ability to opt out (in most cases) and often doesn't know the clause exists until they try to file a complaint.

These are sometimes called mandatory arbitration agreements, forced arbitration clauses, or binding arbitration agreements. They all mean roughly the same thing: you agreed to give up your right to sue in court.

Why did corporations adopt mandatory arbitration agreements so aggressively?

The corporate adoption of mandatory arbitration clauses accelerated sharply in the 1990s and 2000s for one primary reason: class actions were expensive, unpredictable, and often resulted in massive settlements that bore no relationship to the value of any individual claim.

A class action over a $5 overcharge affecting 10 million customers could generate a $100 million settlement — not because each individual claim was worth much, but because the aggregation created enormous leverage. Companies viewed mandatory arbitration, with its built-in class action waiver, as the solution. Force each dispute to be resolved individually, and the economics collapse. No plaintiff's attorney is going to spend three years litigating a $5 overcharge claim.

The strategy worked. For years. The Supreme Court consistently upheld arbitration agreements and class action waivers, culminating in the landmark Epic Systems Corp. v. Lewis decision in 2018, which held that employers could require employees to waive their right to class arbitration in addition to class litigation.

What did Epic Systems v. Lewis change for plaintiffs' attorneys?

The 2018 Epic Systems decision was initially seen as a major defeat for the plaintiff's bar. The Supreme Court upheld class action waivers in arbitration agreements, meaning employers could require employees to bring any claims individually — eliminating the efficiency and leverage of collective action.

But the decision had an unintended consequence that corporate legal teams didn't anticipate. If you can't bring claims collectively in court, the only alternative is to bring them individually in arbitration. And if you do that at scale — filing thousands of simultaneous individual demands — you trigger a different kind of leverage entirely: arbitration fees.

Under most arbitration agreements, the company is required to pay the arbitration forum's fees for each case filed against it. When a single plaintiffs' firm files 50,000 simultaneous demands, those fees can reach tens of millions of dollars — and the company must pay them just to have the right to defend itself. The settlement pressure this creates has nothing to do with the merits of the individual claims.

This is mass arbitration. And it was the direct, predictable consequence of corporations winning the arbitration agreement battle.

How does a mandatory arbitration agreement enable mass arbitration?

For a mass arbitration campaign to work, three elements need to be present in the target company's arbitration agreement:

1. A class action waiver — prevents claimants from filing collectively in court, keeping them in the arbitration system
2. Fee-shifting to the company — requires the company to pay arbitration fees regardless of outcome
3. A specified arbitration forum — AAA or JAMS, both of which have mass arbitration rules triggered at scale

When all three are present, the math is devastating for defendants. The AAA's mass arbitration rules are triggered at 25 or more simultaneous coordinated claims. JAMS triggers at 75. Once those thresholds are crossed, the company faces per-case fees — currently $325 per case for the first 500 at AAA — that accumulate rapidly. File 50,000 demands, and the fee exposure reaches into the tens of millions before a single arbitrator has been appointed.

What makes an arbitration agreement "binding"?

A binding arbitration agreement means the arbitrator's decision is final — it can't be appealed to a court except in very narrow circumstances (fraud, corruption, or the arbitrator clearly exceeding their authority). This cuts both ways in mass arbitration. On the plaintiff side, it means cases that do reach an award are collectible and final. On the defense side, it means companies can't use the appeals process to delay or dilute outcomes the way they might in litigation.

For mass arbitration purposes, the binding nature of the agreement is less relevant than the fee leverage — because the overwhelming majority of mass arbitration cases never reach an award. According to AAA data, only 1% of consumer mass arbitration cases closed in 2024 resulted in a formal award. The other 99% settled, were dismissed, or were withdrawn. The leverage is entirely in the filing volume and the fee exposure it creates.

Which industries use arbitration agreements most aggressively — and which are most exposed?

The industries that adopted mandatory arbitration agreements most aggressively are, not coincidentally, the same industries facing the most mass arbitration exposure today. According to AAA's 2024 mass arbitration data, the top targeted industries are:

• Gaming and entertainment — over 100,000 cases in 2024 alone
• Telecommunications — cable, wireless, streaming providers
• Healthcare — apps, platforms, and providers with patient arbitration clauses
• Financial services — banks, fintech apps, payment platforms
• Technology — consumer software, SaaS platforms, gig economy companies

Looking ahead into 2026, privacy law is creating a new wave of targets. Companies using website tracking pixels, biometric data, video streaming data, or recorded communications without proper consent are exposed under BIPA (Illinois), VPPA (federal), CIPA (California), and CCPA — and most of them have mandatory arbitration agreements in their terms of service. Every one of those agreements is a potential mass arbitration vehicle.

Have companies started removing arbitration agreements because of mass arbitration?

Yes — and this is one of the most telling data points about the effectiveness of the strategy. Several major companies have removed or significantly modified their mandatory arbitration clauses specifically in response to mass arbitration campaigns:

• Amazon dropped its mandatory arbitration clause for all customers after Keller Postman filed over 75,000 demands related to Alexa voice recordings
• Meta/Instagram removed its arbitration clause ahead of a threatened campaign by Milberg and Labaton Keller Sucharow over Instagram addiction claims
• DoorDash modified its arbitration agreement after facing coordinated mass filings
• Uber restructured its arbitration process after mass campaigns by gig workers

When a company removes its arbitration clause, it's effectively an admission that the clause was more liability than protection. It also means those consumers can now pursue claims in court — which is often the actual goal of the mass arbitration threat.

What should plaintiffs' attorneys look for in an arbitration agreement?

If you're evaluating whether a company's arbitration agreement supports a mass arbitration campaign, here's the practical checklist:

1. Class action waiver present? This keeps claimants in arbitration and prevents defendants from seeking a class-wide resolution that would reduce individual filing counts.
2. Who pays the fees? Company-pays provisions are the engine of mass arbitration leverage. If fees are split or capped, the model changes significantly.
3. Which forum is specified? AAA (25+ claims threshold) and JAMS (75+ threshold) have mass arbitration rules. New Era ADR uses a subscription model that neutralizes fee leverage.
4. Is there an opt-out provision? Consumers who opted out cannot participate. Your claimant pool is those who did not opt out.
5. Is there a bellwether or batching provision? Some companies have modified their agreements to include bellwether provisions that limit how many cases can proceed simultaneously. Courts are still deciding whether these are enforceable.
6. Is there a pre-dispute notice requirement? Many agreements require claimants to submit a notice of dispute before filing. Failing to comply can result in dismissal.
7. What is the governing law? California cases carry additional leverage under SB 707, which penalizes companies that fail to pay arbitration fees on time.

What is the current legal status of arbitration agreements in 2026?

Mandatory arbitration agreements remain broadly enforceable under the Federal Arbitration Act (FAA), which preempts most state law attempts to limit them. However, several developments are shaping the landscape:

California SB 707 — California penalizes companies that fail to pay arbitration fees within 30 days, potentially allowing claimants to proceed in court. The California Supreme Court softened this rule in Hohenshelt v. Superior Court (August 2025), excusing late payments under general contract principles — but California still carries more plaintiff-side leverage than most states.

Bellwether provisions — Companies are increasingly including provisions in their arbitration agreements that limit simultaneous filings to small batches (bellwether cases), adjudicate a few test cases first, then use the results in global settlement discussions. Courts have upheld some of these and struck down others, making this an actively contested area of law.

JAMS and AAA rule changes — Both major forums updated their mass arbitration rules in 2024 and 2025, adding counsel attestation requirements, flat initiation fees, and process administrator oversight. These changes reduce the risk of frivolous claims but don't eliminate the fundamental fee leverage model.

For attorneys entering the mass arbitration space now, the legal framework is favorable but evolving. The companies that are winning on the defense side are doing so through well-drafted arbitration agreements, not through broad legal victories. The plaintiff-side structural advantage — the fee leverage model — remains intact.

The bottom line for plaintiffs' attorneys

An arbitration agreement is no longer just a corporate defense mechanism. In the hands of a well-resourced plaintiffs' firm with sophisticated digital marketing capabilities, it is a precision instrument for generating settlement pressure at scale. The companies that fought hardest for mandatory arbitration clauses created the very infrastructure that mass arbitration exploits.

The practical implication is straightforward: if you're a plaintiffs' attorney evaluating whether to build or expand a mass arbitration practice, the first question isn't legal — it's operational. Do you have the technology and marketing infrastructure to recruit thousands of qualifying claimants? Because the legal theory is sound. The bottleneck is always intake scale.

That's the gap this resource — and the services at MassArbitrationClaims.com — is designed to close.