In Mohamed v. Uber Technologies (9th Cir. 15-16178), published September 7, 2016, a three judge panel of the Ninth Circuit upheld Uber’s mandatory arbitration provisions in the contracts signed by its drivers. In its ruling, the Court held that Uber could require its drivers to waive their right to bring claims against the company in the court system. The court further held that it was not unconscionable to allow an arbitrator, rather than the courts, decide the fundamental issue of whether the agreements’ arbitration clauses were enforceable. In a small victory for the drivers, the 9th Circuit held Uber could not enforce a contract provision requiring drivers to waive their rights to bring representative claims pursuant to California’s Private Attorneys General Act of 2004 (“PAGA”).
The Mohamed action and a companion case were brought by two former Uber drivers, Abdul Mohamed and Ronald Gillette, on behalf of themselves and a proposed class of drivers. Before they were allowed to drive for Uber, Mohamed and Gillette were required to sign a “Software License and Online Services Agreement” and a “Driver Addendum.” The agreements contained provisions requiring drivers, including Mohamed and Gillette to arbitrate all disputes brought against Uber. The arbitration provision permitted the arbitrator to determine whether the arbitration provisions were enforceable, and if enforceable, to rule on the drivers’ substantive claims. Finally, the agreements contained a provision requiring drivers to waive their right to bring disputes as a class action, a collective action or a PAGA action.
In 2014, Uber cut off Plaintiffs’ access to the company’s smartphone application that paired drivers with riders “due to negative information on [their] consumer credit reports.” Without access to the Uber app, Plaintiffs could not receive information about potential riders and their ability to drive for Uber was “effectively terminated.”
Three months after he was cut off from the Uber driver app, Mohammed filed a class action lawsuit against Uber for violation of the federal Fair Credit Reporting Act (“FCRA”), the Massachusetts Consumer Credit Reporting Act (“MCCRA”), and the California Consumer Credit Reporting Agencies Act (“CCRAA”). Gillette filed a separate lawsuit against Uber for violation of FCRA and the California Investigative Consumer Reporting Agencies Act (“ICRAA”). Gillette also alleged Uber misclassified him and other drivers as independent contractors in violation of PAGA. Uber moved to compel arbitration of both lawsuits. The district court denied Uber’s motion, holding that the courts, not the arbitrator should determine whether the arbitration provision was enforceable.
The Ninth Circuit reversed the district court. It held that while the general rule is that the courts determine the predicate issue of whether an arbitration clause is enforceable, parties to an agreement can opt out of the general rule and allow an arbitrator to decide this issue. Here, the Court found that the language of the Uber contracts “clearly and unmistakably” indicated the “intent for the arbitrators to decide the threshold question of arbitrability.” (Citing Momot v. Mastro, 652 F.3d 982, 988 (9th Cir. 2011). Under the Court’s holding, the arbitrator was to “determine arbitratability as to all but the claims specifically exempted” by the Uber agreements.
In a victory for the drivers, the Ninth Circuit held that Uber could not require its drivers to contractually waive PAGA claims. The Court held under the Ninth Circuit’s holding in Sakkab v. Luxottica Retail North America, Inc. 803 F.3d 425 (9th Cir. 2015) and the California Supreme Court’s holding in Iskanian v. CLS Transportation L.A. (2014) 58 Cal. 4th 348 (it is “contrary to public policy for an employment agreement to . . . [require] employees to waive the right to bring a PAGA action before any dispute arises.”) The Court held, however, that Uber’s unenforceable PAGA waiver was severable from the agreements signed by the drivers, and did not invalidate the mandatory arbitration provisions.
The Mohammed decision reaffirms the federal policy in favor of arbitration of disputes. The Court’s holding also supplements existing precedent which allows employers to require employees to arbitrate all claims, including enforceability of the arbitration clause itself (See HBB Alert: “Can Arbitrators Rule on Their Own Jurisdiction? The Ninth Circuit Answers Yes” August 14, 2015). It is unquestionably federal precedent to permit employers to contractually require their employees, independent contractors and vendors to arbitrate not only their substantive disputes, but whether the arbitration clause itself is enforceable. Given the broad consensus that arbitration is more cost-effective and faster than court proceedings, the Mohammed decision is another reminder that employers should strongly consider requiring arbitration agreements with their employees, independent contractors, and vendors. However, it is also a reminder that not all claims can be arbitrated, and employers should consult with specialized counsel before including any provision in their agreements.
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