Some companies no longer requiring waiver of consumer, employment class action claims

Thomas I. Elkind, BridgeTower Media Newswires

For many years, companies have required consumers and employees to sign contracts containing arbitration clauses that prohibit them from filing class action claims and require them to waive jury trials.

The history of how this trend developed is interesting in that it created unintended consequences that some companies are now trying to counter by no longer arbitrating consumer and employment claims.

The story begins in California, where the California Supreme Court held in 2005 that consumers could bring class actions in arbitration in certain circumstances. Discover Bank v. Superior Court, 30 Cal. Rptr. 3d 76 (2005).

The court said: “We do not hold that all class action waivers are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party ‘from responsibility for [its] own fraud, or willful injury to the person or property of another.’ (Civ. Code, § 1668.) Under these circumstances, such waivers are unconscionable under California law and should not be enforced.” 30 Cal. Rptr. 3d at 87.

The court also held that the Federal Arbitration Act does not prohibit a California court from refusing to enforce an unconscionable class action waiver.

However, six years later, the U.S. Supreme Court rejected the Discover Bank rule in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011).

Vincent and Liza Concepcion brought a class action in federal court in California. AT&T moved to compel arbitration under an agreement that required arbitration of disputes and precluded class actions.

The Supreme Court held that the “overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” 131 S. Ct. at 1748.

Because it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 85 L.Ed. 581, the 5-4 majority held that California’s Discover Bank rule was preempted by the FAA. 131 S. Ct. at 1753.

Justice Stephen G. Breyer dissented, writing that “California law sets forth certain circumstances in which ‘class action waivers’ in any contract are unenforceable. In my view, this rule of state law is consistent with the federal Act’s language and primary objective. It does not ‘stan[d] as an obstacle’ to the Act’s ‘accomplishment and execution.’ Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 85 L.Ed. 581 (1941). And the Court is wrong to hold that the federal Act pre-empts the rule of state law.” 131 S. Ct. at 1756.

After AT&T, the focus turned to whether the consumer or employee had become bound to arbitrate disputes by agreeing to the contractual terms proposed by the company.

In Norcia v. Samsung Telecommunications America, LLC, 845 F.3d 1279 (9th Cir. 2017), the plaintiff filed a class action complaint against Samsung for misrepresentations regarding its Galaxy S4 phone.
Samsung moved to compel the agreement to arbitrate in the Product Safety & Warranty Information brochure that was in the box containing the phone when it was purchased.

The court held that because “Norcia did not give any outward manifestation of consent … no contract has been formed.” 845 F.3d at 1286.

In Kauders v. Uber Technologies, Inc., 486 Mass. 557 (2021), the plaintiff commenced suit in Superior Court, claiming that three Uber drivers had refused to provide him with rides because he was blind and was with his guide dog. Uber moved to compel arbitration pursuant to the terms and conditions contained in its app.

Kauders was the first Massachusetts case to consider the standard for contract formation in online contracts.

The court found that the FAA preserved general principles of state contract law on whether the parties have agreed to arbitrate their dispute. It established a two-pronged test for determining contract formation: There must be both reasonable notice of the terms and a reasonable manifestation of assent to those terms.

Regarding reasonable notice, the court considered how easy it was to access the terms, how many steps were required to read the terms, and how clear and extensive the process was.

Regarding reasonable manifestation of assent, the court stated that “clickwrap” agreements (in which the consumer or employee needed to click on “I agree”) are preferred — otherwise, the court needs to find some other manifestation of assent.

The Uber app stated: “By creating an Uber account, you agree to the Terms & Conditions and Privacy Policy.”

The court found that was not reasonable notice, since the app did not require the user to click the link to the terms and conditions in order to register, and the link to the terms and conditions was not prominently displayed: “Uber has designed an interface that allows the registration to be completed without reviewing or even acknowledging the terms and conditions.” 486 Mass. at 579.

The Uber app did not have a “clickwrap” function to accept the terms and conditions. The user only clicked “DONE” to complete registration. The court found that “[t]here was nothing stating that “DONE” itself signified either creation of an account or acceptance of the terms.” 486 Mass. at 580. Therefore, the court held that the dispute was not arbitrable.

In Emmanuel v. Handy Technologies, Inc., No. 20-1378 (1st. Cir. 2020), decided shortly after Kauders, a housecleaner claimed that her employer had misclassified her as an independent contractor and brought suit in federal court. 

The 1st Circuit ruled that the housecleaner could not sue her employer in court because she was bound by a “clickwrap” mandatory arbitration agreement, and that the “clickwrap” agreement was sufficient to create a binding contract.

The plaintiff in Emmanuel had submitted an application through a website and had clicked a checkbox agreeing to its terms of use. She subsequently used the company’s mobile app to accept an independent contractor agreement, which was required for her to be connected with customers. The 15-section agreement included a mandatory arbitration clause toward the end of the agreement. That portion was not visible unless the user scrolled down through the entire agreement.

The housecleaner stopped working for Handy because of payment issues after performing 10 to 20 cleaning jobs. She then brought a class action alleging that she and others had been misclassified as independent contractors in violation of the state Wage Act and the federal Fair Labor Standards Act.

The 1st Circuit found that both prongs of the Kauders test had been satisfied here, because the housecleaner had reasonable notice of the arbitration clause and had made a reasonable manifestation of assent to the contract terms.

The above cases illustrate how companies have attempted to compel consumers to arbitrate their disputes individually.

However, plaintiffs’ lawyers recently have taken advantage of the restrictions on filing class actions by filing massive numbers of individual arbitration proceedings instead. Companies have attempted to prevent the filings, or, ironically, to compel the numerous plaintiffs to join together in one court class action to avoid the enormous costs of arbitrating a large number of cases.

Part of the reason is that the major arbitration management companies, including JAMS and the AAA, have instituted consumer and employee arbitration minimum standards that require respondents in arbitrations brought by consumers or employees to pay all the costs of the arbitration except for the claimant’s initial filing fee.

In Abernathy v. DoorDash, Inc., 438 F. Supp. 3rd 1062 (N.D.CA. 2020) 5,879 couriers for DoorDash brought individual arbitration claims asserting that they had been incorrectly classified as independent contractors instead of employees. Their contracts required individual arbitrations administered by the AAA, which charged each claimant a $300 filing fee and the respondent a $1,900 filing fee in each case.

DoorDash refused to pay its filing fees, and the AAA closed the cases. The couriers then filed suit to compel arbitration.

Under the Federal Arbitration Act, the court determines whether a valid arbitration agreement exists covering the dispute at issue. The court found that 5,010 couriers had  signed “clickwrap” agreements with DoorDash and granted the motion to compel arbitration of those 5,010 claims.

In conclusion, the court stated that “[f]or decades, the employer-side bar and their employer clients have forced arbitration clauses upon workers, thus taking away their right to go to court, and forced class-action waivers upon them too, ... . The irony, in this case, is that the workers wish to enforce the very provisions forced on them ... . DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a classwide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.” 438 F. Supp. 3rd at 1068.

As a result of rulings like those in Abernathy, some companies have now deleted the arbitration clauses from their consumer and employment agreements.

Thus, as the court in Abernathy observed, some companies have decided that it actually is better for them to face one class action with a jury claim than to face a large number of individual arbitrations.


Attorney Thomas I. Elkind is an arbitrator and mediator affiliated with JAMS in Boston.