Uber Terms and Conditions Do Not Bind Riders to Arbitration

Mobile applications do not create enforceable contracts with users if they do not satisfy a two-prong test of reasonable notice and consent. One state’s high court ruled that Uber riders need not arbitrate claims against the company despite an arbitration clause in the app’s terms and conditions. The design of the app, the appellate court held, did not adequately notify users of those terms and conditions, nor did the interface require a clear manifestation of user consent. According to ABA Litigation Section leaders, the case is a warning to e-commerce companies that enforceability of terms and conditions depends on careful design of customer-facing technologies.

A Double Standard for Riders and Drivers

In Kauders v. Uber Technologies, Inc., the plaintiff alleged that Uber violated state antidiscrimination statutes by refusing to provide him with rides because he is blind. Based on the app’s terms and conditions, Uber successfully moved to compel arbitration. In June 2018, the arbitrator ruled in Uber’s favor on all claims. However, three weeks after that award, the U.S. Court of Appeals for the First Circuit held in Cullinane v. Uber Technologies, Inc. that Uber’s registration process did not create an enforceable contract. When Uber then moved to confirm its arbitration award in the Kauders case, the Massachusetts trial court reversed its earlier decision and concluded there was no enforceable contract requiring arbitration. On appeal, the Supreme Judicial Court of Massachusetts held that it was error under the Massachusetts Arbitration Act for the trial court not to confirm Uber’s award, but that the arbitrability question was nonetheless preserved for appeal.

In evaluating arbitrability, the court closely examined the design of Uber’s app. Of particular note was a screen with text reading, “By creating an Uber account you agree to the Terms & Conditions and Privacy Policy,” which the court noted was “oddly divided into two parts.” The first part of the sentence (“By creating an Uber account, you agree to the”) was far less prominently displayed than an ensuing, boldface reference to the terms and conditions. Although there were various clickable buttons, at no point in the registration process was the rider forced to scroll through Uber’s terms, or even view them.

The court found “striking” the different process Uber uses to register its drivers. Before signing up as a driver, Uber’s app required individuals to review terms and conditions by clicking a hyperlink. Prospective drivers also had to click a prompt reading, “YES, I AGREE.” By contrast, the court noted, “the design of the app here [in Kauders] enables, if not encourages, users to ignore the terms and conditions.”

Insufficient Notice and Consent

The court adopted a two-prong test to determine whether online terms and conditions create an enforceable contract. The first prong requires reasonable notice of the terms of an online agreement. Absent proof of actual notice, this requires evaluating the totality of circumstances, including the nature and size of the transaction, the clarity and simplicity by which the terms are communicated, and the process by which the user must access the terms. Uber’s app did not satisfy this prong, the court concluded, because it did not reasonably communicate to users that they were entering into a contract with onerous waivers of rights.

Nor did the app satisfy the second prong, which requires a reasonable manifestation of user consent. A prospective rider could register for Uber’s service without ever agreeing to the terms, or even seeing them. The final step in registration was to click a button labeled “DONE,” which the court noted is less clear and decisive than more direct language such as “I AGREE.” Thus, the court held, there was no enforceable agreement to arbitrate.

“A Tort-Like Test” for Contracts

“The court was basically saying: Uber, your process here is really deceptive and fairly underhanded,” according to Michael D. Steger, New York, NY, cochair of the Section’s Intellectual Property Committee. Kauders is not a “radical pro-consumer decision,” in Steger’s view. Rather, it simply means that in designing apps and drafting terms and conditions, companies “can’t be too ridiculous in getting consumers to give up all of their rights.”

Other Section leaders criticize the court’s two-prong test for its uncertainty. “This is a tort-like test within the context of contract formation,” observes Donald R. Pocock, Winston-Salem, NC, cochair of the Section’s Consumer Litigation Committee. It does not “provide sufficient guidance to parties who are designing these contracts,” argues Pocock. “No one is going to know what is and is not reasonable until they put it in front of a fact-finder.”

The lesson for companies is that because contract formation is a state-law issue, “you want to make sure you are satisfying the most stringent tests within the state or federal court systems across the country,” according to Chad S.C. Stover, Wilmington, DE, cochair of the Intellectual Property Committee. Also, given the court’s criticism of Uber’s disparate treatment of users and drivers, “it makes sense to have a unified approach across the organization so you can avoid the situation Uber had here,” notes Stover.