In the ongoing Uber class action litigation brought by Uber drivers, a recent Ninth Circuit Court of Appeals decision will likely have the effect of breaking up the class action, directing many of the claims of Uber drivers to individual arbitration. In Mohamed v. Uber Techs, Inc., the Ninth Circuit determined that Uber’s arbitration agreements required that an arbitrator, and not the court, determine the issue of whether the arbitration agreements were valid. This reversed the trial court’s ruling, which had previously invalidated the Uber arbitration agreements and allowed the case to continue in the federal court as a class action.
The general rule is that it is for the courts, and not an arbitrator, to determine the threshold issue of whether an arbitration agreement is valid, before a case can be compelled to arbitration. The Uber trial court applied this general rule to determine that the Uber arbitration provisions were invalid. However, if an arbitration agreement contains clear and unmistakable evidence of an agreement to arbitrate the issue of whether the arbitration agreement is valid, that decision must be made by an arbitrator, and not a state or federal court. The Mohamed court found that the Uber arbitration agreements contained sufficiently clear language, delegating to the arbitrators the authority to decide the threshold issues relating to the enforceability, revocability, and validity of the arbitration agreements. The courts are required to enforce the arbitration agreements according to their terms, and in absence of some other generally applicable contract defense, such as fraud, duress, or unconscionability, allow the arbitrator to determine the issue of arbitrability. This decision will have far reaching application to other class actions involving arbitration agreements.
While the Uber class actions appear to be thwarted by the ruling, Uber drivers may be able to continue in court with their California Private Attorney General Act (“PAGA”) claims. PAGA claims are similar to class action claims, in that they are representative claims, brought by individuals on behalf of themselves, other aggrieved current and former employees, and the state’s Labor and Workforce Development Agency, to recover penalties for violations of the California Labor Code. This allows a PAGA claim to encompass violations and penalties for a large number of individuals. Pre-dispute PAGA waivers contained in arbitration agreements have been found to be invalid as a matter of public policy. Accordingly, PAGA claims are typically litigated in court.
Class action litigation can be devastating to employers of all sizes. While not a cure-all for employers, valid and enforceable arbitration agreements can be a powerful tool for employers to stop the threat of class actions. As the law relating to the enforceability of arbitration agreements continues to evolve, employers would be wise to have their arbitration agreements reviewed by legal counsel and updated as necessary, to ensure that they are as effective as possible. Uber is undoubtedly breathing a large sigh of relief at this ruling, because its agreements contained adequate language to potentially stop the class action in its tracks.
Questions about your arbitration agreement? Contact Tom Daugherty at (619) 239-8131 or tdaugherty@klinedinstlaw.com.