Travel Law: Uber drivers and the validity of mandatory arbitration agreements

In this week’s article we discuss an important decision rendered on June 9, 2015 in the consolidated cases of Mohamed v. Uber Technologies, Inc. (No. C-14-5200 EMC) and Gillette v. Uber Technologies, Inc. (No. C-14-5241 EMC), both brought in the United States District Court for the Northern District of California. In Todd, Uber Loses Arbitration Bid in Driver Suit, therecorder.com (6/10/2015) it was noted that “Uber’s losing streak before U.S. District Judge Edward Chen continued on Tuesday, as the judge rejected the company’s arbitration agreement with its drivers as unfair and one-sided…The decision is a significant blow to the transportation network company, which faces a threatening wave of lawsuits on behalf of drivers who claim (that) Uber denied them minimum wage and other benefits by misclassifying them as independent contractors…Chen’s Tuesday order examined Uber’s 2013 arbitration agreement, as well as a subsequent version introduced in 2014, finding both to be procedurally and substantively unconscionable”.

Stated, simply, mandatory arbitration clauses in consumer and employment contracts as well as class action and class arbitration waivers have the effect of preventing aggrieved consumers and employees from suing together in class actions [see Dickerson, Class Actions: The Law of 50 States, Section 4.03[5], Law Journal Press (2015)]. Quite often the class action device provides the only viable remedial mechanism by which relatively small and/or complex consumer and employee claims may be aggregated and prosecuted together.

Travel Law Update

Leading The Charge

In Kendall, The Class-Action Lawyer Shaking Up the Share Economy, therecorded.com (4/24/2015) it was noted that “plaintiffs lawyer Shannon Liss-Riordon…is leading a wave of litigation that threatens to undermine the business models of Uber Technologies Inc., Lyft Inc. and other companies that make up the growing ‘sharing economy’. She claims many of these companies… deny their workers basic protection such as minimum wages by mislabeling them as independent contractors instead of employees…It’s a cost-saving measure…said Reuel Schiller, as associate dean of research at UC-Hastings College of the Law who studies the evolution of labor law. ‘One of the premises of the sharing economy is informalizing the employment relationship’… So far, her litigation seems to be confounding the courts. Judges are uncertain how to apply outdated California employment laws to a new breed of worker that doesn’t seem to match the legal definition of an employee or a contractor”.

Do Uber Drivers Want To Be Employees?

In Kendall, Lawyer: Uber Drivers Don’t Want to Be Employees, therecorder.com (7/9/2015) it was noted that “Lawyers for Uber…urged a federal judge not to certify a class in a wage-and-hour suit, arguing among other things that most Uber drivers don’t even want to be employees. Along with its 41-page opposition to class certification, Uber submitted declarations from more than 400 California Uber drivers, many of whom claim they enjoy the independence of being an independent contractor… With Thursday’s court filing, the company seemed determined to change the story line from one where its drivers are shut out of the benefits of traditional employment to one where its drivers have chosen to be free from the constraints of that arrangement”.

What Uber Can Learn From Airbnb

In Scott, What Uber Can Learn From Airbnb’s Global Expansion, nytimes.com (7/7/2015) it was noted that “Last week, the home-sharing service Airbnb had more than 40,000 listings in Paris, making the French capital the company’s most popular destination for travelers looking to rent a room or an entire apartment. Paris officials applaud it for bringing innovation to the city’s hotel industry. The ride-hailing company Uber had a much more difficult week. Thousands of Parisian taxi drivers took to the streets to protest UberPop, the company’s low-cost service that’s similar to UberX in the United States. French politicians denounced the company for defying the country’s transport laws…By Friday, the company had suspended UberPop across the country. Uber and Airbnb are similar is many ways…But the starkly different paths in France for these companies lay bare contrasting strategies as they encounter the world of global regulators. Since it began in 2009, Uber has entered city after city, in Europe and elsewhere, with a largely catch-me-if-can attitude. Airbnb, which offers more rooms than traditional hotel groups like Hilton and Inter Continental, has instead tilted toward courting local politicians in many of its most popular markets. So far, Uber’s approach had not significantly slowed it down…But Uber’s aggressive attitude has put it at odds with regulators in many of the cities that are crucial to the company’s global ambitions”.

New York City’s “Citi Bike” Program

In Fitzsimmons, A Mission for City Bike: Recruiting More Female Cyclists, nytimes.com (7/7/2015) it was noted that “When Citi Bike arrived here, it promises to spread the benefits of biking to the masses, an uphill push in a city where large potholes, heedless yellow cabs and darting pedestrians can make riding on busy streets seem like an activity best left for daring messengers. But two years in, Citi Bike’s inroads have been decidedly uneven, with men far outnumbering women in using the bike-sharing system (citywide rate of female cyclists-about 21 percent)…The bike-sharing service is looking at more than just the safety concerns that seem to nag more at women than men, which insurance actuaries long ago concluded are more likely to engage in risky behavior, such as not wearing a bike helmet”.

Travel Law Article: Background & Claims

“Plaintiff Ronald Gillette began driving for Uber in the San Francisco Bay Area in March 2013…Gillette’s access to the Uber application was ‘abruptly deactivated’ in April 2014…According to Gillette, an Uber representative told him he was terminated because “‘something had come up’ on his consumer background”… Gillette’s operative complaint alleges putative class claims under the federal Fair Credit Reporting Act (FCRA), individual claims under California’s Investigative Consumer Report Agencies Act and representative claims under California’s Private Attorneys General Act (PAGA). Generally speaking, Gillette’s FCRA and Investigative Consumer Report Agencies Act claims challenge Uber’s practices with regards to the use of background checks in its hiring and firing decisions…Plaintiff Abdul Mohamed began driving for Uber’s black car service in Boston in 2012 and for uberX around October 2014…According to Mohamed, his access to the Uber application was terminated…at least in part as a ‘result of information obtained [by defendants] through [a] Consumer Reporting Agency (and his) complaint alleges that these defendants violated numerous laws that ‘impose certain strictures on employers’ use of consumer background reports as a factor in their decisions to hire, promote, reassign or terminate employees’…Mohamed alleges putative class claims under FCRA, the California Consumer Credit Reporting Agencies Act (CCRAA) and the Massachusetts Consumer Reporting Act (MCRA)”.

Arbitration Provisions

Uber moved to compel individual arbitration of the claims of both plaintiffs relying on “three contracts that are directly relevant to the resolution of the pending motions to compel arbitration” (two of which) the 2013 and 2014 contracts (contain) an arbitration provision (which) share a number of key features (including inter alia)… First, each provision requires all disputes…be resolved in ‘final and binding arbitration and not by way of court or jury trial’…Second…any arbitration (will) proceed on an individual basis only-drivers are not permitted to pursue class, collective or representative claims…in arbitration…Third…provides that ‘disputes arising (from issues such as) enforceability, revocability or validity of the Arbitration Provision…’ shall be decided by the arbitrator’”.

Threshold Issues: Assent & Ambiguity

Initially, the Court found that both plaintiffs “took some affirmative step to indicate an assent to be bound (by the contracts including the arbitration provisions when) they clicked ‘Yes, I agree’ on two separate application screens (citing Tompkins v. 23andMe, Inc., 2014 WL 2903752 (N.D. Cal. 2014)). Next the Court found that it and not the Arbitrator would decide “threshold issues concerning the validity of the arbitration provisions (agreeing with plaintiffs) that the delegation clauses are ambiguous because they conflict with other language in the contracts”.

The 2013 Agreement Unenforceable

The Court found the 2013 Agreement both procedurally and substantively unenforceable. “[T]he entire 2013 arbitration provision is procedurally unconscionable…the 2013 Agreement’s opt-out provision was illusory because it was highly inconspicuous and incredibly onerous to comply with (and) presented to drivers on a take-it-or-leave-it basis and was adhesive and oppressive…the 2013 Agreement’s arbitration clause fails because it is ‘permeated’ with…unconscionable terms (such as a) fee shifting clause (requiring drivers to split the full cost of arbitration with Uber)…confidentiality provision, carve-out proviso that permits Uber to litigate the claims most valuable to it in court (i.e., intellectual property claims) while requiring its drivers to arbitrate those claims (i.e., employment claims) they are most likely to bring against Uber, and a provision allowing Uber to unilaterally modify contract terms at any time”.

The 2014 Agreement Unenforceable

The Court found the 2014 Agreement both procedurally and substantively unenforceable. Unlike the 2013 Agreements “The 2014 agreements contain highly conspicuous and non-illusory opt-out provisions that permit drivers to obtain all of the benefits of the contracts, while avoiding any potential burdens of arbitration. (However) In order to avoid a finding of procedural unconscionability altogether, Uber needed to conspicuously disclose ‘the disadvantageous terms of the arbitration agreement…The Court has already determined that the 2014 agreements did not conspicuously disclose one disadvantageous term of the arbitration agreement-the fee-splitting provision…The 2014 agreements contain the same five substantively unconscionable terms this Court discussed in connection with the 2103 Agreement..(And finally both the 2013 and 2014 Agreements) contain unenforceable PAGA waivers (which) cannot be severed from the remainder of the arbitration provision (s)”.

Conclusion

To the extent this important decision is upheld on appeal it will have a significant impact on whether groups of consumers or drivers may litigate their claims against Uber utilizing class action procedures. Stay tuned.

The author, Justice Dickerson, has been writing about Travel Law for 39 years including his annually updated law books, Travel Law, Law Journal Press (2015) and Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2015), and over 350 legal articles. For additional travel law news and developments, especially in the member states of the EU, see IFTTA.org.

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