Uber’s Arbitration Clause Problem, Part 1

As I mentioned in a recent post, I think it would be worthwhile to examine some of the previous orders in the OConnor v. Uber class action litigation in California relating to Ubers various arbitration provisions. This post covers the first such ruling, issued by Judge Chen back in December 2013.

In 2012, before the OConnor case was even filed, similar class action lawsuits against Uber were filed by some of its drivers in state courts: Massachusetts (Lavitman v. Uber) and Illinois (Ehret v. Uber). The cases alleged Ubers advertisements were misleading as to who retained gratuities collected from passengers.

The following year, while Lavitman and Ehret remained pending, Uber advised its drivers they would be receiving an electronic notification asking them to approve new agreements, and their continued use of the Uber app was conditioned on approval of same. One of the agreements (Software Licensing and Online Services Agreement) contained an arbitration clause. The agreement could easily be accepted by swiping a button on the drivers phone. To opt-out of the arbitration clause, though, required a letter hand-delivered or overnighted to Ubers General Counsel within thirty days, notifying Uber of the drivers desire to opt-out.

Weeks later, the OConnor lawsuit was filed in California. Shortly thereafter the OConnor plaintiffs asked the Court for a protective order to strike the arbitration clauses, or, alternatively, to extend the opt-out period and provide notice of the pendency of the OConnor putative class action. Plaintiffs argued that because Uber drivers were not aware of the pendency of the OConnor action before accepting the above Agreement (and its arbitration clauses), and because the opt-out procedure is unreasonably burdensome, such Agreement may deprive potential class members of their right to participate in the case.

Judge Chen ruled on December 6, 2013, for the most part not convinced by Ubers argument that the Court cannot utilize FRCP 23(d) to assert control over communications by Uber with members of the putative class:

it would be particularly inappropriate to insulate the subject communications from review under Rule 23(d) where, as here, there is a distinct possibility that the arbitration provision and class waiver imposed by Uber was motivated at least in part by the pendency of class action lawsuits which preceded the new Licensing Agreement. Suspicion that the new Licensing Agreements arbitration provision was intended by Uber as a means to thwart existing class action litigation is heightened by the misleading nature of the communication and the unusually onerous procedures for opting out discussed infra.

Judge Chen concluded that the focus of the Courts analysis regarding the exercise of control over class communications should be on the effect of (Uber) interfering with the fair administration of a class action lawsuit. Then he really let it rip:

Here, the risk of interfering with the pending class action and the need for a limitation on communication with the class that adversely affects their rights is palpable. The communication which is the subject of this motion is likely to mislead potential class members about their right to join the current class action. The arbitration provision at issue includes a class action waiver, purporting to contractually bar Uber drivers from participating and benefiting from any class actions. Yet, the waivers were shrouded under the confusing title How Arbitration Proceedings Are Conducted. Despite the titles innocuous wording, only a single paragraph is devoted to discussing the what and how-to of arbitration. The remaining four paragraphs set forth three waivers of substantive rights class action, collection action, private attorney general action. Furthermore, the arbitration provision is not conspicuous and was not presented as a stand alone agreement. Instead it is one of many provisions in the Licensing Agreement.

Uber drivers likely did not know the consequences of assenting to the Licensing Agreement. Many likely were not aware they were losing the right to participate in this or any other lawsuit. Indeed, Uber drivers have no meaningful way of learning of the current lawsuit since there has been no class notice. Although Uber characterizes some of its drivers as large, sophisticated transportation companies, they do not dispute Plaintiffs factual contention that many, if not the majority of, Uber drivers are smaller outfits run by immigrants for whom English is not their native language. . . . Uber made no effort to inform drivers of the legal consequence of the arbitration provision barring them from participation in pending and future class action lawsuits brought on their behalf. Moreover, Uber drivers who desired to continue using Ubers mobile phone application, and as a consequence to continue receiving leads from Uber, were required to assent to the terms of the Licensing Agreement, including its arbitration provision.

the opt-out provision is buried in the agreement. It is part of the arbitration provision, which itself is part of the larger, overall Licensing Agreement. The opt-out clause itself is ensconced in the penultimate paragraph of a fourteen-page agreement presented to Uber drivers electronically in a mobile phone application interface. In sum, it is an inconspicuous clause in an inconspicuous provision of the Licensing Agreement to which drivers were required to assent in order to continue operating under Uber.

Judge Chen continued, noting the ease of accepting the agreement via a finger swipe, versus the burden of delivering or overnighting a physical letter to Ubers GC. Adding it all up, he found a substantial risk of interfering with the rights of Uber drivers under Rule 23, and concluded the Court had the authority to assert control over (post-case-filing) class communications in a manner that is narrowly tailored, supported by the record, and balances the interests of all parties involved consistent with precedent.

What to do? Judge Chen directed that Uber drivers must be given clear notice of the arbitration provision, the effect of assenting to arbitration on their participation in this lawsuit, and reasonable means of opting out of the arbitration provision within 30 days of the notice. These requirements must apply to new drivers and past and current drivers. As for arbitration provisions already distributed after the filing of the case to past and current drivers who accepted same without opting out, or still have the 30 day clock ticking, Uber must again seek approval of the arbitration provision for these drivers, giving them 30 days to accept or opt out from the date of the revised notice. The Court instructed the parties to return with proposed language consistent with its order.

The next chapter in the OConner v. Uber arbitration clause saga Ubers Motion to Reconsider Judge Chens order here will be the subject of a future post. In the meantime, if you are laboring away on an arbitration provision, you might give thought to the following, among other considerations:

Can the arbitration provision be offered as a separate agreement? If not, how conspicuous is it in the context of the agreement as a whole? Is it buried and unlikely to be noticed or carefully considered by a layperson?How is the arbitration clause titled? Must the reader delve into the guts of it to learn it includes a waiver of rights?Can the arbitration provision be easily found/read on a mobile device?Does the arbitration clause clearly explain the consequences of signing the agreement? the consequences, if applicable, of opting out of the arbitration clause?Is the agreement/provision available in languages besides English? If so, is the reader meaningfully made aware of this option?Is it burdensome to exercise any arbitration opt-out rights, in comparison to the method of accepting the agreement as a whole, or otherwise?Share this: