Questions To Ask When Changing Your Arbitration Clause

• Published date: 01 July 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Law Firm: Sheppard Mullin Richter & Hampton
• Author: Mr Jay Ramsey and Abby Meyer

In a prior post (here), we highlighted some questions that companies may want to ask when evaluating whether their arbitration clauses are enforceable. If changes need to be made to those clauses, then companies should consider how to implement those changes so as to ensure those are enforceable too. The following is what you should be thinking about and asking.

If an agreement needs to be amended to add or modify an arbitration clause, you should strongly consider having customers re-agree to a contract or set of terms and conditions with the new arbitration clause. This could be done a number of ways, including by having customers agree to an entirely new contract or having them agree to just a replacement arbitration clause. For companies who engage their customers online or through mobile applications, this may be as simple as requiring customers to re-register or log-on in a way that confirms their assent to the new agreement.

In some cases, the original agreement may have a provision that permits the company to amend or modify the agreement unilaterally. These provisions generally require that the company post the amended terms to its website or in some other location and indicate that a customer's continued use of the company's services constitutes agreement to the amended terms. The provision may also require that the company provide its customers with some type of notice of the amended terms.

The law permitting unilateral amendments in accordance with these types of modification provisions is still developing. Some courts have permitted unilateral amendments if the company follows the terms of the modification provision, even if notice of the amended terms is not separately provided. See Miracle-Pond v. Shutterfly, Inc., No. 19 cv 04722 (N.D. Ill. May 15, 2020). Other courts have rejected modifications if notice was not provided. See, e.g., Douglas v. U.S. District Court, 495 F.3d 1062 (9th Cir. 2007). What constitutes adequate notice is often up for debate.

In light of this mixed law, if you are considering modifying a set of terms without requiring a new agreement...