Yesterday the First Circuit weighed in on a hot topic – the enforceability of arbitration provisions in online contracts. In Cullinane, several plaintiffs brought a putative class action alleging that Uber had violated Massachusetts’ consumer protection statute by assessing certain fees. Uber filed a motion to compel arbitration under its Terms of Service, which contained an arbitration provision and class action waiver. After the district court granted the motion, the First Circuit reversed, finding the arbitration provision unenforceable because Uber did not make its Terms of Service sufficiently conspicuous when its customers created a ride-sharing account. Cullinane underscores the importance of obtaining customers’ affirmative consent to an online contract.
At the outset, the First Circuit acknowledged that the Federal Arbitration Action places arbitration provisions upon the same footing as other contract provisions. It also emphasized that arbitration is a matter of contract and that a valid contract must exist in order for the arbitration provision to be enforced. The court’s decision therefore turned on a close analysis of the applicable state law regarding enforceability of online contracts and the details regarding how Uber disclosed its Terms of Service in its mobile app.
The court’s analysis regarding the applicable state contract principles was straightforward. Relying on Massachusetts state court cases, the court concluded that an online contract is enforceable only if it is (1) reasonably communicated to the plaintiff, and (2) accepted by the plaintiff.
Applying this standard, the court found that Uber had not reasonably communicated its Terms of Service because the link to the Terms was not sufficiently conspicuous. Uber had not required users to click a box stating that they agreed to the Terms. Uber instead displayed, on an enrollment screen, a rectangular box with the language “Terms of Service,” which customers could – but were not required to – click in order to review the contract. The court criticized Uber for not requiring users to click a box agreeing to the Terms, and held that the link on the enrollment screen was not reasonably conspicuous because: (1) the link did not have the appearance of a hyperlink, which, according to the court, is usually blue and underlined; and (2) the gray box and contrasting white bold font were not sufficiently distinct from the rest of the screen, which had other links in bold with similarly sized font that were “more noticeable.” The court observed, “if everything on the screen is written with conspicuous features, then nothing is conspicuous.”
Cullinane serves as a reminder of the simple steps that an e-commerce business should take to ensure that an online contract containing an arbitration provision and class action waiver (or any other provision) is enforceable. The court’s questionable assessment of how hyperlinks are displayed on mobile apps could have been avoided entirely had Uber required customers to affirmatively acknowledge consent to the relevant terms and conditions by clicking a link or checking a box prior to completing online enrollment. Uber also could have taken the simple prophylactic measure of requiring customers to scroll through the terms and conditions. Either step would likely have avoided the result the court reached. Given courts’ continued reluctance to enforce arbitration provisions, despite the Supreme Court’s clear directives that such provisions are valid and enforceable, businesses cannot be too careful in how they disclose their online contracts.