Arbitration clauses are extremely widespread in the US. They’re generally accepted by businesses as a cost-saving measure in case of a dispute, and there are several high-profile examples of disputes being forced into mediation. However, the furore surrounding the wrongful death lawsuit a man has filed after his wife died from a severe allergic reaction at a restaurant in a Disney resort has thrown these clauses back into the spotlight. So, what should businesses take away from the media surrounding this claim (especially considering Disney walking back its position on arbitration in this case)?
A Refresher: Dispute Resolution Clauses
Contracts often contain dispute resolution clauses that require the parties to resolve any disputes through arbitration (or another dispute resolution mechanism), instead of court. They’re extremely widespread. A 2019 survey of the Fortune 100 companies revealed that 81 had arbitration agreements in their consumer contracts.
Arbitration is favored by companies because the process tends to be more predictable, timely and cost-effective. Moreover, the decisions have limited judicial review and allow the parties to reach a final resolution while avoiding the years of time and costs that accompany litigation. [This is one of the main arguments made by pro-consumers against arb clauses; if our audience is business, I don’t think we want to say this part directly.]
From the consumer perspective, arbitration clauses are not well-understood. 99% of consumers do not think they have entered into an arbitration clause but have likely done so (though this survey was before the Disney dispute debacle, so the number may be slightly lower today). Less than 1% of those surveyed understood the impact of the arbitration clauses.
What Happened in the Disney Wrongful Death Matter?
The Disney wrongful death dispute involved a lawsuit filed by Jeffrey Piccolo, whose wife, Kanokporn Tangsuan, died in 2023 after suffering an allergic reaction to a meal at a Walt Disney World Resort restaurant.
Piccolo sued Disney for wrongful death, alleging negligence on their part because Disney’s website contained claims about “allergen-free food.” The restaurant was not owned or operated by Disney.
Disney initially responded by attempting to enforce an arbitration clause found in the terms of service of Disney+, the company’s streaming platform. Piccolo had signed up for a one-month trial subscription for the streaming service in 2019.
This move drew significant public backlash. The optics of a large corporation using a seemingly unrelated contract clause to avoid a public court hearing in a wrongful death lawsuit were particularly damaging to Disney’s public image.
Disney has since reversed its decision and waived its right to arbitration, allowing the case to proceed in court.
You can learn more about the wrongful death lawsuit here.
Key Takeaways For Businesses
Legal documents should reflect business realities too
In the Disney dispute resolution matter, the widower’s claim against Disney in the wrongful death claim was for $50,000 USD. While impossible to know for sure, we would hazard a guess that the reputational harm to Disney as a result of the negative press is higher than the cost of the amount claimed by the husband. Enforcing contractual legal rights is usually not a straightforward matter and must be balanced against broader business realities.
Enforceability of arbitration clauses is not settled law
The enforceability of broad arbitration is not law that is set in stone. While broad arbitration clauses have been commonly used in US contracts for B2B and B2C businesses, they have been variously enforced across different states.
Moreover, broad arbitration clauses don’t protect companies from prosecution for illegal activities. The Department of Labor (DOL) published a release last year highlighting a rising practice where employers bury illegal terms in employment contracts and then enforce them via arbitration. The DOL noted a range of penalties it had brought against companies which had attempted to use arbitration to thwart employment law standards.
Potential for public relations incidents may encourage companies to define the scope of their dispute resolution clauses
Many companies currently have extremely broad arbitration clauses in their contracts. Given the legal precedents set in the past decade, it’s unsurprising. However, the Disney dispute resolution debacle may trigger growing consumer distaste for these clauses. So while it’s too early to say with certainty, we wouldn’t be shocked if this triggered companies to define the scope and limits on their dispute resolution clauses to maintain consumer goodwill – and avoid similar public relations crises.
Legal precedent and prevailing practices change over time and it’s important to have your commercial contracts reviewed periodically. Our attorneys are available to help.
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