USA: Arbitration clause contained in Uber’s agreements with its drivers ruled unconscionable and unenforceable

On 9 June 2015, the U.S. District Court of the Northern District of California (the “District Court”) dismissed Uber’s request to enforce arbitration agreement against its drivers, holding that the arbitration clause included in the 2013 and 2014 versions of Uber’s Software License and Online Services Agreement (“Agreement”) with its drivers were “both procedurally and substantively unconscionable” and therefore “unenforceable”.

The case was ordered to proceed before the District Court on the merits, which relates in essence to the legal status of Uber drivers: while Uber argues that its drivers are independent contractors, the drivers, in turn, claim that they have been “misclassified” and should be considered as employees, which would entitle them to have their expenses like gas and vehicle maintenance reimbursed.

In the decision at study, the District Court only ruled on the procedural issue of Uber’s motion to compel arbitration.

First, the District Court agreed with Uber’s argument that the contract containing the arbitration clause was binding since the drivers had clicked a “Yes I agree” button near hyperlinks leading to the terms and conditions of the Agreement.

The District Court then reviewed the validity of the arbitration clause and checked whether “the arbitration provisions in any of the relevant [Agreements] are enforceable”.

  • Uber argued that the 2013 Agreement’s arbitration clause does not correspond to an adhesion contract since the Agreement contained an opt-out clause, which consequently allowed the drivers to avoid arbitration. However, the District Court noted that the clause (i) required the drivers to deliver their opt-out notices either by hand to Uber’s office in San Francisco or via overnight delivery service and (ii) was buried in the Agreement since it first appears on the eleventh page of the document without any warning. Therefore, it found that “the 2013 Agreement’s opt-out provision was illusory because it was highly inconspicuous and incredibly onerous to comply with”. Furthermore, the District Court noted that the arbitration agreement contains a “PAGA waiver” (i.e., a waiver to  representative action under California’s Private Attorney General Act that gives employees the right to pursue fines against an employer as an attorney general), which has been declared against public order by the California Supreme Court since “such an agreement has as its object indirectly to exempt the employer from responsibility” (Iskanian v. CLS Transp. L.A., LLC, 59 Cal. 4th 248 at 383). Accordingly, the District Court concluded that the arbitration clause was unconscionable, i.e., the clause is extremely one-sided in favor of the person who has the superior bargaining power.
  • As regards the 2014 Agreement’s arbitration clause, the District Court had ruled in a previous decision (O’Connor v. Uber Techs., Inc, 2013 WL 6407583, at *2-3), that it “contain[s] highly conspicuous and non illusory opt-out provisions allowing the driver to avoid arbitration proceedings” and thus was not unconscionable. However, in this case, the District Court decided that although this clause was conspicuous, it was not sufficient to also find the arbitration clause contained in the Agreement not unconscionable since: (i) Uber failed to “conspicuously disclose the disadvantageous terms of the arbitration agreement in connection with the opt-out provision”. Finally, the District Court mentioned that the PAGA waiver included in the arbitration clause was “substantively unconscionable”. Based on the foregoing, the District Court decided that the arbitration clause included in the 2014 Agreement was also unenforceable as unconscionable.

The District Court concluded that, although the drivers were bound by the 2013 and 2014 Agreements, the arbitration clauses contained therein were both unenforceable as unconscionable.

This motion was essential for Uber because if the two drivers were actually bound by an arbitration clause and the PAGA waiver, they would have been prevented from launching a class action in court and forced to initiate individual arbitration procedures.

A few days after this decision, on 16 June 2015, the California Labor Commission ruled on this same issue, holding that an Uber driver was an employee. The ruling was made public when Uber lodged an appeal in San Francisco. To date, French courts have yet to rule on the status of Uber’s drivers in France.

To our knowledge, there is no precedent in France in which an arbitration clause has been declared unenforceable because an opt-out provision has been declared illusory.

The decision is available here.

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