Requiring Employees to Arbitrate Claims Can Keep Employers Out of Court

By Marylou V. Fabbo - Skoler, Abbott & Presser, P.C.

February 12, 2019

Arbitration agreements require individuals to litigate their disputes before an arbitrator instead of in court in front of a jury.  Some believe that a sympathetic plaintiff can sway a jury.  For example, an older employee who has dedicated her working career to one employer and is separated may allege that her termination was based on her age.  Even though the jury may conclude that the termination decision was based on factors other than age, it may feel that it was unfair to terminate the employee on the verge of retirement who worked for an employer for 30 plus years.  Therefore, it may find a way to award her damages for the suffering and financial hardship she has faced as a result of her separation.  Bottom line – many believe that juries can be swayed by emotions and a sense of fairness, while arbitrators simply apply the law.  As a result, there’s been an uptick in the number of employers requiring employees to enter into arbitration agreements.

Lyft Learns from Uber How to Create Enforceable Online Agreement to Arbitrate

A party seeking to compel arbitration pursuant to the Federal Arbitration Act must show: (1) that a valid agreement to arbitration exists; (2) that the party seeking to arbitrate is entitled to invoke the arbitration clause; (3) that the other party is bound by that clause; and (4) that the claim asserted comes within the clause’s scope.  Lyft’s arbitration agreement met these elements; Uber’s did not.

A Lyft driver sued Lyft, Inc. in federal court for misclassifying him as an independent contractor rather than an employee.  Even more concerning was that he attempted to recruit others to join him in a class action lawsuit.  Lyft, however, pointed out that the individual had entered into an arbitration agreement with it and moved the court to require the driver to arbitrate his claim.  The court agreed with Lyft based on a checkbox the driver had clicked when he had enrolled online as a driver.

Lyft’s terms of services were highlighted as part of the enrollment process and were hyperlinked to the written terms.  The driver clicked the box indicating that he agreed to Lyft’s terms of service.  Among other things, the terms (in capital letters) provided that drivers must “SUBMIT CLAIMS … AGAINST LYFT TO BINDING AND FINAL ARBITRATION ON AN INDIUAL BASIS, NOT AS APLAINTIFF

OR CLASS MEMBER IN ANY CLASS, GROUP OR REPRESENTATIVE ACTION OR PROCEEDING.”   Subsequently, the driver reaffirmed a nearly identical arbitration provision posted by Lyft.  Online agreements, where a user selects “I agree” without necessarily reviewing the contract, are called “clickwrap” agreements and are generally enforceable.  Among other things, the court held that driver affirmatively adopted the arbitration provisions by clicking on the “I agree” box. You can read the court’s full decision here.  

Prior to the court’s decision upholding the enforceability of the Lyft agreement, the First Circuit (a federal appeals court) invalidated Uber’s arbitration agreement on the ground that it had not reasonably notified Uber’s riders of its terms.  Uber’s layout and design of its registration screen rendered the hyperlink to terms of its service (which contained the arbitration agreement) “insufficiently conspicuous.”  Uber’s agreements had no clickwrap.  The rider did not have to “agree” to its terms.  Rather, Uber displayed a notice of acquiescence and a link to its terms.  That decision is here.   

Time to Consider Arbitration?

In May 2018, we blogged about the Supreme Court’s conclusion that class action waivers included in arbitration agreements are enforceable.  Since that time, the courts continue to uphold the enforceability of arbitration agreements.  Among other things, arbitration typically is less time-consuming, less costly, and more private than court proceedings, but there are some cons, including limited appeal rights.  Is it time for your organization to think about entering into arbitration agreements with your employees?  Employers are wise to evaluate all pros and cons and consult with employment counsel in connection to draft an enforceable arbitration agreement.