Corporations frequently rely on arbitration clauses in contracts to expediently resolve disputes, cut down litigation costs, preserve relationships with business partners and customers, and keep proprietary information private. However, despite their prevalence in other types of contracts, companies rarely use arbitration clauses in class action settlement agreements in California. For many companies, that may be a missed opportunity.

The absence of arbitration clauses in class settlements may stem from a myopic view of arbitration. When most individuals hear the term “arbitration clause,” they think about clauses in adhesion contracts that compel waiver of the contracting parties’ right to initiate or join class actions. Likewise, when people think about class actions, their minds limit these types of cases to litigation in courts. Thus, the common misconception is that arbitration and class actions are inherently at odds. As a result, companies fail to contemplate arbitration as an option once a class action has been filed in court.

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