Why it matters

Complicating the already convoluted lawsuits filed by Uber drivers seeking classification as employees and not independent contractors, the Ninth Circuit Court of Appeals ruled that arbitration provisions used by the company in 2013 and 2014 agreements were valid, requiring the drivers to individually arbitrate their claims. Multiple driver class actions against the company were consolidated in California federal court. Earlier this year, the parties appeared to have reached a record-setting deal of $100 million, but the judge overseeing the case refused to grant approval. Lowering the amount of any potential subsequent settlement negotiations, the Ninth Circuit decision reversed the district court's ruling that the agreements were invalid and unenforceable. The agreements were not unconscionable, the panel wrote, particularly given that drivers were provided with the option to opt out of the arbitration provision. The victory for Uber also provides some peace of mind for employers making use of arbitration provisions in employee agreements.

Detailed discussion

Former Uber drivers Abdul Mohamed and Ronald Gillette filed suit against Uber after their access to the company's app was cut off, effectively terminating their work. Mohamed began driving in 2012, and in July 2013, he accepted an updated agreement with the company. The agreement included an arbitration provision requiring Uber drivers to submit to arbitration to resolve most disputes with the company and included a provision requiring drivers to waive their right to bring disputes as a class action, a collective action, or a private attorney general representative action.

Drivers were given the ability to opt out of the arbitration provision by delivering notice of their intent to opt out to Uber within 30 days either in person or by overnight delivery service. Mohamed accepted the agreement and did not opt out. Gillette, who began driving in early 2013, similarly accepted the 2013 agreement.

In June 2014, Mohamed accepted an updated version of the agreement with an easier opt-out provision enabling drivers to opt out via e-mail (as well as the other options) and again declined to opt out. Mohamed's access to the app was terminated in October 2014—Gillette's in April 2014—both because of negative information on their consumer credit reports. Both drivers filed suit alleging violations of the Fair Credit Reporting Act (FCRA) and including a claim under the Private Attorney Generals Act (PAGA). Uber moved to compel arbitration in both cases.

The district court overseeing the litigation against Uber denied the motions. On appeal to the Ninth Circuit Court of Appeals, a three-judge panel reversed.

Both the 2013 and 2014 agreements contained provisions that provided that disputes would be resolved by arbitration and, importantly, that any dispute as to arbitrability would be resolved by the arbitrator, the court said.

"The delegation provisions clearly and unmistakably delegated the question of arbitrability to the arbitrator for all claims except challenges to the class, collective, and representative action waivers in the 2013 agreement," the panel wrote. "In accordance with Supreme Court precedent, we are required to enforce these agreements 'according to their terms' and, in the absence of some other generally applicable contract defense, such as fraud, duress, or unconscionability, let an arbitrator determine arbitrability as to all but the claims specifically exempted by the 2013 Agreement."

Further, the panel found the delegation provisions were not unconscionable, rejecting the argument that the opt-out provision was illusory because it was so onerous. "While we do not doubt that it was more burdensome to opt out of the arbitration provision by overnight delivery service than it would have been by e-mail, the contract bound Uber to accept opt-outs from those drivers who followed the procedure it set forth," the court said. "There were some drivers who did opt out and whose opt-outs Uber recognized. Thus, the promise was not illusory. The fact that the opt-out provision was 'buried in the agreement' does not change this analysis."

Because the panel found the delegation provisions in both agreements were not procedurally unconscionable, it did not reach the issue of substantive unconscionability, instead ordering the parties to arbitrate their dispute over arbitrability—with one exception.

The agreements also implicated the drivers' PAGA claims, as the arbitration provisions waived class, collective, and representative actions. While the district court found that the agreements did not allow for the PAGA waiver to be severed from the remainder of the agreements, the Ninth Circuit reached a different conclusion.

Describing the agreement's severance provision as "hardly a model of clarity," the panel nevertheless found it operated to make the arbitration provision invalid as to any PAGA representative claim. "Thus, while Plaintiffs' PAGA claim must be litigated in court, the PAGA waiver does not invalidate the remainder of the arbitration provision in the 2013 Agreement, and it should be enforced according to its terms," the court said.

To read the opinion in Mohamed v. Uber Technologies, Inc., click here.