Do Opt-Out Clauses Save Arbitration Agreements from Being Unconscionable?

by Jeff Sovern

In Mohamed v. Uber, the federal district court for the Northern District of California said no.  Opt-out clauses appear in contracts and give the contracting parties the right to opt-out of arbitration to resolve disputes within a certain period of time after entering into the contract, often thirty or sixty days (which is frequently before any dispute actually arises). Industry lawyers sometimes claim that because consumers are given the opportunity to opt-out, the arbitration clause cannot be unconscionable and therefor is enforceable.  Here is part of how the court responded to that argument:

 

* * * Drivers’ opt-out right under the 2013 Agreement was illusory because the opt-out provision was buried in the contract. The opt-out provision was printed on the second-to-last page of the 2013 Agreement, and was not in any way set off from the small and densely packed text surrounding it. 2013 Agreement § 14.3(viii). Furthermore, the fact that those drivers who actually discovered the opt-out clause (if any) could only opt-out by a writing either hand-delivered to Uber’s office in San Francisco or delivered there by a “nationally recognized overnight delivery service,” renders the opt-out in the 2013 Agreement additionally meaningless.

 It probably did not help Uber that after claiming at oral argument that some drivers had opted out, Uber failed to present evidence that any had. 

(HT: Dalie Jimenez)

Comments

[Dalié Jiménez]

The court actually went further on opt-out clauses, Jeff. One plaintiff was only bound by a subsequent (2014) agreement, which provided a much more reasonable opportunity to opt-out (incidentally, one designed by another court in a different case). In examining that agreement, the court cited a 2007 California Supreme Court decision (Gentry) and found that the 2014 agreement was procedurally unconscionable because the explanation of benefits of arbitration was "markedly one-sided" and because it wasn't clear that someone in the plaintiff's position would have felt free to opt out.

In the court's words:

".. with respect to the delegation clause, the first portion of the Gentry test is met because the 2014 agreements utterly failed to notify drivers of a specific drawback presented by the delegation clause – namely, that drivers may be required to pay considerable forum fees to arbitrate arbitrability, whereas they would not be required to pay such fees if they opted-out of arbitration (and thus the delegation clause) ... like the employee in Gentry, Uber drivers here could reasonably assume that Uber prefers arbitration because 'arbitration was the default dispute resolution procedure from which the employee had to opt out.' ... Ultimately, while acknowledging that it is an extremely close question, the Court concludes that the second element of the Gentry test is met. Consequently, the Court finds that despite the conspicuous opt-out provisions in the 2014 agreements, the Court cannot conclude that the 2014 delegation clauses are without procedural unconscionability altogether; Mohamed’s ability to opt-out of the delegation clause was not sufficiently meaningful to eliminate all oppression from the contract."