[co-author: Spencer Reese]

When disputes arise due to confidential arbitration clauses in multilevel marketing matters, potential litigants must wrestle with what to fight. Nicole Westbrook, Jones & Keller in Denver, Colorado, and Spencer Reese, Reese & Richards in Utah, offer up some considerations for these situations.

Confidential arbitration clauses present an uphill battle to litigants seeking their day in court. When it comes to disputes in multilevel marketing matters, what is reasonable to fight and what is not?

Few distributors earn the kind of income necessary to litigate contract clauses with network marketing companies. Among those that can, arbitration clauses in their contract with these companies may force the dispute to the arbitration table. Arbitration may sound like a reasonable way to settle disputes but it can also be expensive. When the cost to enter into arbitration is a $25,000 deposit, the deposit alone may constitute a barrier to entry and a financial non-starter for most distributors and all but the biggest network marketing cases. The overwhelming majority of distributors do not earn enough money to be able to afford arbitration when disputes arise.

In addition, litigating in the court system is typically public, while arbitration can be quiet, private and confidential. It is often in the best interest of a network marketing company to lock up conflicts with distributors in confidential proceedings in order to prevent the spread of disease, if you will, throughout the network marketing ranks.

Why do network marketing companies strive to secret arbitrations from the field of other distributors?

Distributors like to try their cases in the court of public opinion, some even take out pages on Facebook for each case and cherry pick evidence and pleadings to post. One-sided evidence and pleadings are posted on social media pages in an effort to garner public support or positive public opinion. When people are browsing the internet, it does not take much for these pages to pop up and by design, scare them away from joining an MLM program. That can cause damage to the company that’s difficult to quantify.

Companies can be injured by such campaigns, and as such, are pressured into settling their cases. However, this same social media campaign can raise the ire of a judge or arbiter should litigation proceed.

Consequently, arbitration provisions can be written to require confidentiality to keep a legal matter out of the court of public opinion. Once something hits the courts, it can be difficult to keep quiet (unless the filing is under seal, but that is not the norm). But in arbitration, a company may specify confidential arbitration in their policies that gags the proceedings and prevents the dispute from being litigated in the court of public opinion.

Network marketing companies employing a confidential arbitration isolate distributors in the fight. While there may be other distributors involving the same facts, they will not know of one another because each case is handled confidentially. Even the outcome of a case involving an identical issue is unknown. For example, if a distributor was terminated for the same behavior as another is kept quiet. Because of a confidentiality clause in an arbitration agreement, a distributor may not know if she is being treated fairly, or even differently from other distributors.

To avoid disputes, network marketing companies should enforce distributor provisions uniformly and consistently. Litigation is expensive and can becomes more expensive when provisions are not enforced consistently, which is one of the first questions companies face in any discovery. They will be asked to identify all other cases where they have enforced this policy or that policy and reveal the resolution of those cases.

Distributors drawn into confidential arbitration need competent counsel that will help them get these issues with discovery out in the open and obtain other records that detail what the company has done.