Second Circuit Issues Important Decision Strengthening the Enforceability of Digital Arbitration Agreements
Action Item: Businesses utilizing web or smart phone app-based contractual terms containing arbitration clauses accessed by hyperlink should ensure that the link is reasonably conspicuous, and that the user is prompted to read the terms and unambiguously signal his acceptance.
In a decision that will have major implications on the vitality of digital arbitration pacts, on August 17, 2017, in Meyer v. Uber Technologies, Inc., Nos. 16‐2750‐cv, 16‐2752‐cv, the United States Court of Appeals for the Second Circuit held that an arbitration provision that car ride service company, Uber Technologies Inc. (“Uber”) wrapped into the hyperlink-accessible terms and conditions of service accepted by people who registered with Uber was enforceable. Significantly, the court enforced the provision even though the user could register with Uber without having to click on the hyperlink and scrolling through the terms and conditions of service.
On December 16, 2015, Meyer, filed a class action complaint in the U.S. District Court for the Southern District of New York against Uber’s CEO Travis Kalanick (to which Uber was later joined), alleging that the Uber app allowed its drivers to fix prices amongst themselves in violation of Federal and New York state antitrust laws. When Uber moved to compel arbitration based on the Dispute Resolution clause, District Judge Jed S. Rakoff denied the motion, concluding that the notice was not reasonably conspicuous and that Mayer did not unambiguously manifest assent to Uber’s Terms of Service when he registered.
Meyer v. Uber Technologies, Inc. strengthens the enforceability of online and app-based arbitration contracts, and provides valuable instructions on how to ensure such contracts’ enforceability. The Second Circuit’s decision suggests that best practice should entail, at a minimum, ensuring (1) that the link to the terms and conditions containing the arbitration clause is reasonably conspicuous, and (2) that the registration (or analogous) process include a clear prompt directing users to read the terms and conditions, along with an unambiguous mechanism signaling that their acceptance of the benefit of registration would be subject to the contractual terms.
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