On July 29, 2016, the Southern District of New York, in Meyer v. Kalanick, refused to enforce mandatory arbitration and jury waiver provisions against a putative class of Uber consumers. In a lengthy and strongly worded decision by Judge Rakoff, the Court held that consumers had not received sufficient notice of, and did not assent to, the online terms of service that contained the arbitration and waiver clauses at issue.

Every company that seeks to implement contractual commitments through online terms and policies should pay close attention to this decision. While not binding in other jurisdictions outside the SDNY, Meyer reflects a growing trend of more exacting judicial scrutiny on the enforceability of online agreements across the country, and represents an important development in a rapidly developing area of the law.

Uber’s “Sign-In-Wrap” Terms of Service

In Meyer, the court rejected Uber’s claim that in creating an online account through Uber’s mobile app, consumers had bound themselves to Uber’s terms of service and privacy policy. The court arrived at this result by carefully examining the Uber account registration process. First, the mobile app prompted the user to select a method for signing up and required the user to click “next.” Second, the app then displayed requested payment information, allowing the user to enter credit card information, or alternatively, to use PayPal or Google Wallet services.

The main button for continuing past the payment screen read “REGISTER” and did not otherwise indicate that the user was agreeing to anything. At the bottom of the screen, in much smaller font, was a notice that stated: “[b]y creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.” The terms of service and privacy policy were hyperlinked. To review the terms of service, which contained mandatory arbitration and jury waiver provisions, a user had to (i) click on the hyperlink, (ii) click another button to access the terms, and (iii) scroll to the relevant sections of the terms where the arbitration and jury waiver clauses appeared, which were near the very end of the document. The foregoing set-up is commonly referred to by the courts as a “sign-in-wrap agreement.”

Judge Rakoff Rejects Enforceability of Uber’s Terms of Service

On the foregoing facts, Judge Rakoff found that the plaintiffs did not have reasonable notice of the arbitration clause and jury waiver contained in the Terms of Service, and thus could not have assented to such provisions. In other words, no contract was ever formed between the parties. The basis for this determination was highly contextual and involved the following factors:

  1. the relatively small size of the font setting forth that creation of an account also constituted agreement to the Terms of Service and Privacy Policy
  2. the placement of the notice concerning the Terms of Servicebelow the “REGISTER” button, which meant that it was very easy for a user to register without even seeing the hyperlink for the Terms of Service (let along the Terms themselves), or even realizing that using the Uber app constituted assent to the agreement;
  3. that the phrase “Terms of Service” may not have been understood to refer to a contract between the parties relating to the responsibilities of both parties, as opposed to a description of Uber’s services;
  4. the fact that a user was not taken directly to the Terms of Service after clicking on the hyperlink; and
  5. once accessing the Terms of Service, the user had to scroll through several pages of “highly legalistic” language to find the arbitration provision and jury waiver.

Meyer Decision In Tension With Decision in Massachusetts Action

Interestingly, two weeks prior to the Meyer decision, a U.S. District Judge in Massachusetts DID enforce an arbitration clause in Uber’s online customer agreement and dismissed a putative class action against Uber. The Massachusetts court ruled that the plaintiffs, which had signed up for Uber’s services using a slightly different version of Uber’s mobile app than in Meyer, did receive reasonable notice of Uber’s terms of service agreement and, by signing up for Uber’s services, assented to those terms. This holding is difficult to square with Judge Rakoff”s decision in Meyer.

Taken together, these two Uber cases demonstrate that the smallest of details in the implementation of an online agreement—the size and color of a font, the placement of links and the number of clicks required to access terms of service—can mean the difference between an arbitration clause and jury waiver being enforced or not.

Practical Implications of the Meyer Decision

Companies are well advised to check not only the substantive text in their online terms of service and privacy policies, but the methodology used to effectively notify users of, and to obtain users’ consent to, such agreements. Here are some considerations in the aftermath of Meyer:

  • For maximum protection against claims of unenforceability, use a “click wrap” or “scroll wrap” agreement. Generally, a “click wrap” agreement requires a user to click “I agree” or a similar button that is placed in close proximity to a conspicuous hyperlink to the agreement, and which must be clicked in order to continue use of the website or register for a user account. A “scroll wrap” agreement requires a user to click “I agree” in conjunction with a scroll box (e.g., in a pop-up window) that displays the terms of the agreement.
  • Utilize conspicuous font size and color and placement of notices intended to form the contract. Such notices should be as prominent as other items appearing on a registration or sign-in page.
  • If the link for signing up for a user account does not state “I Agree” in clear reference to the terms of service, there should be a prominent notice that continuing with the registration process constitutes agreement to the terms that are available at a hyperlink or appear in a pop-up box. That notice should be placed in close proximity to the button intended to create assent to the agreement (e.g., “Register,” “Sign in,” “Done”) and in a conspicuous font.
  • Hyperlinks should be conspicuous and link directly to the agreement, not to other buttons that provide access to the agreement.
  • Place a prominent notice regarding the agreement to arbitrate and class action waiver on the top of the first page of any terms of service, preferably in all caps in bold text, or both.

Orrick will continue to monitor these issues and is also actively monitoring the series of class actions brought earlier this year under New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act, N.J.S.A. § 56:12-14 et seq. The potential class action plaintiffs’ in those cases claim that they were asked to give up “established rights” in consumer contracts, that “notices” in such contracts are unenforceable because they violate “clearly established rights”, and that contractual disclaimers stating that certain provisions may be void in “some states,” impermissibly fail to specify which provisions are void in New Jersey. Orrick looks forward to reporting the outcomes of the pending motions to dismiss and compel arbitration in these suits.