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Arbitration

Forced Arbitration / Mandatory Arbitration​

Mandatory Arbitration Refers to Terms within all Sorts of Contracts Forced Arbitration Clauses

The not-for-profit American Arbitration Association® (AAA®)-International Centre for Dispute Resolution® (ICDR®) is the largest private global provider of alternative dispute resolution (ADR) services in the world.

Putting a very low number like $5 or $20 will reduce your protection​

could make the entire arbitration clause unenforceable.

1. It Defeats the Purpose (It Makes Arbitration the Only Option)​

The beauty of the two-number structure is that it creates a tiered system:

  • Tiny disputes go to small claims court (cheap, fast, no lawyers).
  • Medium disputes go to arbitration, but you pay the fees (making it free for the user).
  • Large disputes go to arbitration with standard fee-sharing.

If you set the "we pay" threshold at $20, you have destroyed this tiered system. A user with a $100 claim can no longer use small claims court because you've promised to pay for their arbitration. They are forced into arbitration, which is a more complex process, even though their claim is tiny.

A court will see this and say, "You haven't provided a reasonable alternative; you've just funneled all disputes into arbitration." This looks predatory, not protective.

2. It Makes the Clause "Unconscionable" (i.e., Unenforceable)​

A court will likely throw out a clause it finds fundamentally unfair. Promising to pay for arbitration on a $20 claim is meaningless because the AAA's filing fees are hundreds of dollars. It's an empty promise.

A judge would reason: "The website's offer to pay fees for claims under $20 is an illusory benefit. It provides no real value to the user since the cost of arbitration for any meaningful dispute far exceeds this amount. Therefore, the cost-shifting provision is unconscionable, and we decline to enforce the entire arbitration clause."

You would lose your primary shield (the ban on class actions) over a number that was meant to protect you.

3. It Fails the "Reality Test"​

Think about the actual disputes you might face:

  • Someone claims your website gave them bad advice and they lost $500.
  • A user claims you misrepresented a service and wants a $1,000 refund.
  • Someone claims you copied their blog post and demands $2,000.

These are the real-world claims you want to manage. A $5 threshold is irrelevant to these scenarios. It doesn't address the actual financial risk.

What Should You Do Instead? Practical, Low-Budget Solutions​

You have a few defensible options that won't break the bank:

Option 1: The "True Hobbyist" Approach (Most Conservative)​

Delete the fee-paying provision entirely. Rely on a very strong small claims exception.

Drafting Suggestion:

"Any dispute must be brought on an individual basis in small claims court if it qualifies within that court's jurisdictional limits. For any dispute that does not qualify for small claims court, you and [Website Name] agree to binding arbitration under the AAA's rules, with each party responsible for their own costs, including sharing arbitrator and administrative fees."

  • Pros: Extremely defensible. You are not making any promises you can't keep.
  • Cons: A user with a legitimate $15,000 claim might be deterred from arbitrating because of the cost, which could lead them to try and sue you in court to challenge the clause.

Choose a number that has real meaning. The goal isn't to cover every single fee for every single user. The goal is to show a court you are being fair and to handle the "medium-sized" claims you're most likely to face.

A number between $5,000 and $10,000 is much more reasonable and defensible.

Why this works:

  • It's a meaningful number. Covering fees for a claim up to $7,500 is a significant concession that a court will respect.
  • It's financially manageable. The AAA's filing fee for a claim of $10,000 - $75,000 is $1,575. While not trivial, it is a known, capped risk for you. You can decide if that's a risk you're willing to take to make the clause stronger.
  • It covers the most likely dispute range for a hobby project.

Option 3: The "Carve-Out" Approach​

Specifically exclude certain types of claims from your fee-paying promise. For example, you could state that you will pay fees for claims under $10,000, unless the claim is frivolous or brought in bad faith.

Drafting Suggestion:

"...We will pay all AAA filing, administrative, and arbitrator fees for claims seeking less than $10,000, unless the arbitrator determines the claim is frivolous or brought for an improper purpose."

  • Pros: Gives you a potential recourse if someone abuses the system.
  • Cons: Adds a layer of complexity.

Strong Recommendation​

For your hobby project, Option 2 is the best balance of protection, defensibility, and financial prudence.

Choose a number like $7,500 or $10,000. It is high enough to be taken seriously by a court and to provide real value to a user with a legitimate claim, but low enough that it likely won't ever be triggered (most hobby project disputes will be for much smaller amounts or will be filtered to small claims court).

This approach maximizes the chance that your valuable class action waiver will hold up, which is the entire point of the clause. A one-time potential cost of ~$1,500 to save your project from a class action lawsuit is an excellent trade-off.