First Circuit Holds Online Mandatory Arbitration Agreement Is Unenforceable

Carlton Fields

The First Circuit recently held that an arbitration clause contained in the online contract of the ride sharing app, Uber Technologies, Inc., is unenforceable under Massachusetts law.

In this case, plaintiffs, Uber riders, filed a class action in Massachusetts state court, challenging certain fees and surcharges they were charged in addition to the ride-sharing costs to which they agreed as violations of state consumer protection laws. Uber removed the case to Massachusetts federal court and filed a motion to compel arbitration based on a mandatory arbitration clause included in Uber’s Terms of Service. In order to use the Uber app, the customers had been required to register for an Uber account and to agree to the company’s Terms of Service & Privacy Policy. The Terms of Service included an arbitration clause which required customers to resolve any disputes with Uber through binding arbitration and also contained a class action waiver. The Massachusetts district court granted Uber’s motion to compel arbitration and dismissed the lawsuit. The plaintiffs then filed an appeal to the First Circuit.

At the outset, the First Circuit acknowledged that federal policy favors arbitration under the Federal Arbitration Act (“FAA”). Despite this, the court stated a valid agreement to arbitrate must exist before the FAA applies. The Court then analyzed whether Uber’s mandatory arbitration clause was enforceable under Massachusetts law, and concluded that an online contract is enforceable only if it is reasonably communicated to the plaintiff, and accepted by the plaintiff. The First Circuit then found that Uber had not reasonably communicated its Terms of Service, including the mandatory arbitration clause, to its customers because the link to the Terms was not sufficiently conspicuous. The Court noted that Uber did not use a common method of conspicuously informing online app users of its terms by requiring users to click a box stating that they agree to the terms before continuing to the next screen. Instead, Uber displayed, on an enrollment screen, a rectangular box with the language “Terms of Service,” which customers were not required to click in order to review the contract. The Court noted that Uber’s terms were not conspicuously disclosed to its users because the link was not designed in a way that most users associate with hyperlinks and thus did not have the appearance of a hyperlink. Further, the hyperlink box was not sufficiently distinct from the rest of the screen, which had other links in bold with similarly sized font that were “more noticeable.” The First Circuit noted: “if everything on the screen is written with conspicuous features, then nothing is conspicuous.” Thus, the First Circuit found that the arbitration clause is unenforceable, and reversed the Massachusetts federal court decision and remanded the case.

Cullinane v. Uber Technologies, Inc., No. 16-2023 (1st Cir. June 25, 2018).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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