A U.S. District Judge in San Francisco has rejected on-demand transportation company Uber's bid to enforce arbitration agreements on its drivers, clearing the way for a driver lawsuit to go ahead.
In a ruling Tuesday, Judge Edward Chen said the arbitration provisions contained in both the 2013 and 2014 versions of Uber's contracts with its drivers "are both procedurally and substantively unconscionable" and therefore "unenforceable." The ruling was based on unclear wording in those contracts, as well as the "largely illusory" nature of drivers being able to opt-out of the 2013 arbitration agreement.
"We disagree with this ruling and plan to appeal it," an Uber spokeswoman said Wednesday.
Arbitration agreements have become increasingly popular with companies wanting to avoid litigation; those who sign a contract with an arbitration clause agree to settle disputes outside of court.
According to Judge Chen, the provision in Uber's contracts allowing drivers to opt-out of the arbitration agreement was printed on the second-to-last page of the 2013 contract drivers had to sign, and was not set off from the small and densely packed text surrounding it. In addition, the fact that the opt-out procedure required drivers to either hand-deliver a note to Uber's San Francisco headquarters or send a note via a nationally recognized overnight delivery service "renders the opt-out in the 2013 Agreement additionally meaningless."
"At bottom, the opt-out right in the 2013 Agreement was illusory, and thus there is no evidence that drivers could actually reject the arbitration provision," Judge Chen said. "Thus, the Court concludes that the delegation clause in the 2013 Agreement was 'oppressive' under California law in that it was 'imposed and drafted by the party of superior bargaining strength.' "
The lawsuit in question is being brought by two Uber drivers and concerns the company's background checks. Judge Chen also is the presiding judge in a separate case against Uber over workers' classification.