The 9th Circuit’s decision to enforce the arbitration agreement in Uber’s agreements with drivers made lots of news last week. And although it includes no new principles of law, it does emphasize some principles that come up regularly in consumer and employment arbitration, so it’s worth reviewing the details.
Former drivers brought an action in federal court, alleging two primary things: that when Uber terminated them for having bad consumer credit, Uber violated statutes regulating the use of credit reports; and that Uber had misclassified them as independent contractors. Mohamed v. Uber Technologies, Inc., __ F.3d __, 2016 WL 4651409 (9th Cir. Sept. 7, 2016). Uber responded by moving to compel arbitration. The district court denied the motion, finding that the delegation clauses were not “clear and unmistakable” and that the delegation clauses were unconscionable.
The appellate court disagreed on both fronts. Critically, the operative agreements had this language in the Arbitration Provision: “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.” Furthermore, the agreements mandated arbitration on an individual basis (precluding class or collective actions). Drivers could opt out of the Arbitration Provision, but the named plaintiffs did not exercise that option.
The 9th held:
- The delegation clause — authorizing an arbitrator to determine the validity of the Arbitration Provision — was clear and unmistakable (and therefore likely enforceable). Although the drivers’ contracts also had venue clauses, providing that San Francisco courts had exclusive jurisdiction, the appellate court found the “conflicts are artificial.” The venue provisions address the jurisdiction for fights over arbitration or those outside the scope of the Arbitration Provision; they don’t nullify the Arbitration Provision. [This is an issue that comes up frequently, and the 9th Circuit addressed it head on.]
- The delegation clause was not unconscionable. Importantly, the ability of drivers to opt out of arbitration meant the delegation clause could not be procedurally unconscionable (a requisite aspect of unconscionability) under 9th Circuit precedent. Nor did the requirement that drivers opt out in person or by overnight delivery make the ability to opt out illusory. The court noted that some drivers successfully opted out. [While not all federal circuits have addressed this issue, it provides good persuasive authority to use in favor of the conscionability of arbitration agreements with opt outs in any court.]
- The drivers could effectively vindicate their rights in arbitration. Plaintiffs argued they could not effectively vindicate their federal statutory rights because they had to split the costs of arbitration, which “may exceed $7,000 per day.” However, because Uber “committed to paying the full costs,” the court did not reach that legal question. [By agreeing to just pay the costs, Uber avoided a fight over the costs of arbitration to the drivers and probably helped its chances of winning the appeal. This is a tactic that other litigants should consider when facing strong opposition to enforcement of an arbitration agreement.]