Ninth Circuit Sends Uber Driver Claims to Arbitration

This is a consolidated lawsuit brought by Uber drivers asserting FCRA and employee misclassification claims. Both named drivers were terminated after negative information surfaced in their credit report. Both drivers agreed to a 2013 version of Uber’s driver agreement, and one driver agreed to a 2014 updated version. Both agreements contained arbitration clauses, and drivers could opt out of the arbitration if they followed the appropriate steps. The 2014 agreement allowed for opt-out by email. Judge Chen denied Uber’s motion to compel arbitration. The Ninth Circuit reverses.

The Ninth Circuit focuses the fact that the agreement delegated to the arbitrator the question of whether a dispute arbitrable in the first instance:

Except as it otherwise provides, this Arbitration Provision is intended to apply to the resolution of disputes that otherwise would be resolved in a court of law or before a forum other than arbitration. This Arbitration Provision requires all such disputes to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial. Such disputes include without limitation disputes arising out of or relating to interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision.

Whether the delegation provisions were unmistakable: The district court held that the delegation clauses were not unequivocal because they conflicted with a venue provision in the agreement. The agreements said that state and federal courts in San Francisco had “exclusive jurisdiction” over disputes. The panel says that any conflict here is “artificial.” The jurisdiction clause should be construed to govern actions to enforce arbitration awards.

Unconscionability: Judge Chen concluded that the delegation provisions were also unconscionable. The 2013 agreement buried the arbitration clause. The 2014 agreement failed to apprise drivers of the “considerable” fees required to arbitrate. They were substantively unconscionable because they required fee-sharing.

The panel says Judge Chen gave insufficient weight to the opt-out provisions. Because the drivers could opt out, the clause was procedurally conscionable. Because California law requires some degree of procedural and substantive unconscionability, the trial court wrongly struck the arbitration clause. The court notes in passing here that the existence of substantial fees will not prevent drivers from effectively vindicating their statutory rights because Uber “has committed to paying the full costs of arbitration.” (The court does not provide any citation for this, but I assume Uber made this representation in pleadings along the way).

Waiver of Private Attorney General Claims: The Ninth Circuit agrees that the waiver of representative capacity claims is invalid. However, it parts ways with plaintiff regarding the effect of this on the overall clause. Plaintiffs argued the waiver was not severable and infected the entire clause. But the court disagrees, despite acknowledging that the severability language in the agreement was “hardly a model of clarity”.

Arbitration Coverage for Contractor: Finally, the court says that the background check company that performed some of the background check services cannot take advantage of the arbitration clause.

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It’s surprising to see the conspicuous absence of any discussion about contract formation from this decision. Judge Chen discussed contract formation, and it was also the basis of Judge Rakoff’s denial of a motion to compel arbitration brought by Uber. (See “Judge Declines to Enforce Uber’s Terms of Service–Meyer v. Kalanick.”) Also unmentioned by the court is the effect (if any) on the fact that the drivers putatively accepted the terms of service via their phones. Courts to date have not invalidated contracts merely because they were deployed over the phone. If there ever was a case where it would have come up, this should have been it.

Uber’s contract looks surprisingly messy, ranging from the venue clause’s conflict with the arbitration clause to the severability clause–which the court characterizes as “hardly a model of clarity.” Did the court rescue Uber from poor contract drafting here? For the most part, Uber’s arbitration clause has been upheld by courts, although Judge Chen’s and Judge Rakoff’s rulings went the other way.

The ruling contains some vague clues on how to insulate an agreement from unconscionability:

• implement an opt-out, although you need not make it too easy
• consider the effect of fees, although you may be able to adjust this mid-stream

And of course, it strongly counsels in favor of including a delegation clause, which saved the day for Uber here. This ruling picks up where Tompkins and 23andMe left off (see Anarchy Has Ensued In Courts’ Handling of Online Contract Formation (Round Up Post). Both rulings say certain things do not render a clause unconscionable, but don’t provide definitive guidance on where the line is.

Although I have no prediction as to its likelihood of success, I could see plaintiff filing a petition for rehearing en banc.

Case citation: Mohamed v. Uber Techs., No. 15-16178 (9th Cir. Sept. 7, 2016) [pdf]

Eric’s Comment: As Venkat indicates, this opinion and some other recent ones provide useful guidance for drafting enforceable and non-unconscionable arbitration clauses in online contracts. If you haven’t taken a careful look at your arbitration clause in the last 12 months to ensure it’s still best-practice, today would be a good day to do so.

Related posts:

Courts Approve Terms of Service-Based Arbitration Clauses for Uber and Groupon

Judge Declines to Enforce Uber’s Terms of Service–Meyer v. Kalanick

Anarchy Has Ensued In Courts’ Handling of Online Contract Formation (Round Up Post)