Tesla’s Arbitration Clauses Might Come Back to Haunt the Car Company

Most people buy their cars from car dealerships, but Tesla sells its cars directly to consumers, claiming to cut out the middle person and allegedly save its customers money in the process. Tesla claims it uses this system to benefit consumers, but a closer look at the contract it requires its buyers to sign may tell a slightly different story.

Tesla’s buyer contract includes an arbitration clause. That means any buyer that wants to sue Tesla, for any reason, is required to go through arbitration, rather than the courts, to pursue their claim against the electric car company.

The contract does include the ability for buyers to opt out of the arbitration clause if they send Tesla a letter saying as much within the first month of having bought the car. But the directions for opting out of the arbitration clause are buried in the fine print and most people aren’t aware they have that option.

While some companies claim that arbitration benefits consumers by being less expensive, the truth is that arbitration has a number of drawbacks for consumers. The first is that there is no appeals process, and most arbitration agreements require both parties to abide by the decision of the arbitrator.

The second is that there is no option for class actions in arbitration. That means anyone with a claim against a company that is worth less than the cost of arbitration has no way to combine their claim with similar claims from other companies to get justice.

The third problem is that most arbitration agreements leave it up to the company to choose an arbitrator, and while there are some arbitrators who are known for maintaining their neutrality when rendering their decisions, many arbitrators find it too hard to rule against a company that brings them so much business, which means the consumers are often denied a fair hearing.

Finally, everything handled through arbitration is private, which means consumers are denied the opportunity to learn about other consumers with similar claims who filed against the company, even if the consumer won their claim.

Take the group of buyers trying to file a class action lawsuit against Tesla for allegedly misleading claims about their car’s self-driving capabilities. Tesla filed a motion to have the lawsuits moved to arbitration, which would break up the class action and force each plaintiff to file their complaint individually through arbitration. In the motion to have the lawsuit moved to arbitration, Tesla cited the arbitration clause it includes in all its buyer contracts, so the judge is expected to approve the motion, but it’s not a guarantee. Some judges have refused to move cases to arbitration if they deem the arbitration clause to be harmful to consumers.

At the very least, the process of filing the class action lawsuit has brought public attention to allegations that the self-driving capabilities of Tesla’s cars don’t live up to the company’s claims.

Tesla has also included arbitration clauses in its employment contracts, prohibiting employees from suing the company if they’re included in a mass layoff. A group of employees who were recently included in a mass layoff sued Tesla for allegedly failing to provide them with enough notice that they were losing their jobs. The judge refused to certify the class action, citing the arbitration clause in the employment contract. Shannon Liss-Riordan, a partner in the law firm representing the plaintiffs in the class action lawsuit, said they’re planning to flood the system by having each member of the proposed class action file an individual, identical claim against Tesla.

Tesla is far from the only company using arbitration clauses to its advantage. Twitter used similar clauses in its employment contracts even before Elon Musk took over the company. After Musk bought Twitter and went on a firing spree, employees who did not receive their full severance package sued. Akiva Cohen, a partner with the law firm representing the former Twitter employees, said he also plans to flood the arbitration system with identical claims if their class action status is denied and the cases are forced into arbitration.

Our car dealer fraud law firm has handled well over a hundred auto fraud cases and taken a number to judgment.  We have won punitive damages against deceptive car dealers and aggressively pursue our clients’ claims with the goal of making them whole through settlements or judgments.

Super Lawyers named Illinois consumer rights law trial attorney Peter Lubin and Patrick Austermuehle a Super Lawyer and Rising Star respectively in the categories of Class Action, Consumer Rights, and Business Litigation. Lubin Austermuehle’s Illinois class action and consumer protection litigation and arbitration lawyers have more than thirty years of experience litigating and proscuting care fraud and consumer rights cases and class actions.  Our Chicago and Highland Park consumer rights litigation, auto fraud and car fraud litigation, and alternative dispute resolution lawyers handle emergency litigation both in court before arbitration administrators including the BBB, JAMS, AAA and others. You can contact us locally by calling (630) 333-0333 or contact us online here.

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