Uber ruling didn't force the case off the road entirely

APPELLATE ZEALOTS

Two days after Labor Day, the 9th U.S. Circuit Court of Appeals erected an impassable roadblock barring two former Uber drivers from detouring around the arbitration clauses in their contracts with the company. Mohamed v. Uber Technologies, Inc., 2016 DJDAR 9314 (Sept. 7, 2016). In a widely publicized decision, the court reversed (and sharply criticized) huge swaths of District Judge Edward Chen's ruling finding the arbitration clauses unconscionable. Indeed, the court held that under the clear language of the agreements signed by the drivers, even the question of arbitrability itself was largely a matter for the arbitrator, so the district court should not have ruled on it.

What was less widely reported was that the 9th Circuit also affirmed portions of the district court's decision, permitting some of the drivers' claims to remain in the court system. The court's reasoning on these issues traveled well-established routes, but the opinion still provides some valuable guidance to counsel when drafting, enforcing or seeking to avoid arbitration clauses in employment or independent contractor agreements under California law.

The cases involved two versions of the form agreement between Uber and its drivers - one issued in July 2013, and a successor issued in June 2014. Both agreements provided that they would be governed by California law, both contained arbitration clauses that applied to all disputes not expressly exempted and both precluded drivers from pursuing class, collective or representative claims. Both agreements also included delegation clauses - provisions stating that disputes regarding the interpretation, application, validity or enforceability of the arbitration clauses were to be decided by the arbitrator.

The 9th Circuit overturned Chen's determination that the arbitration clauses in both agreements were unconscionable and therefore unenforceable. In so doing, however, the court did not relegate the parties' dispute to arbitration in its entirety. Rather, the court accepted arguments that some aspects of the case remain to be decided by the courts for reasons other than unconscionability.

First, the court took note that the 2013 agreement (though not the 2014 agreement) included the following exception to its delegation clause: "Notwithstanding any other clause contained in this Agreement, any claim that all or part of the Class Action Waiver, Collective Action Waiver or Private Attorney General Waiver is invalid, unenforceable, unconscionable, void or voidable may be determined only by a court of competent jurisdiction and not by an arbitrator." Given this language, the court unsurprisingly held that the scope of the arbitration clause did not include "challenges to the class, collective and representative action waivers" exacted by the agreement.

Accordingly, Uber drivers may still challenge in court the 2013 agreement's requirement that they waive their rights to bring claims on behalf of a group. (Of course, the court's determination that the overall arbitration provision is not unconscionable remains the law of the case, but it remains an open question whether the collective action waiver in particular is invalid.)

Second, the court noted that the 2013 agreement specifically required the court, not the arbitrator, to consider challenges to the enforceability of the drivers' waiver of their right to bring representative claims under California's 2004 Private Attorneys General Act (PAGA). Accordingly, the court went on to consider on the merits the question whether the PAGA waiver was unenforceable. Having done so, it agreed with the district court that under California law (Iskanian v. CLS Transportation, 59 Cal. 4th 348 (2014)), workers cannot be required to waive their right to bring a representative action under PAGA. As a result, Uber drivers will be able to continue to pursue PAGA representative actions in court.

Third, the court alluded, in a footnote, to the possibility that if the agreements had not included a provision allowing drivers to opt out of the arbitration clause, Uber's requirement that drivers waive the right to bring class or collective actions might have violated the National Labor Relations Act. The court declined to decide this question because the drivers raised the argument too late in the proceedings. However, the footnote clearly leaves the door open for other Uber drivers to make this argument.

Finally, the court declined to allow Hirease, an independent background-check company sued by only one of the former drivers, to join Uber's motion to compel arbitration. Hirease was not a party to either of the agreements between the drivers and Uber that required arbitration. Hirease argued that it should be covered by the arbitration agreements anyway, because the driver's complaint alleged that Hirease was Uber's agent; Hirease's interests were identical to those of Uber; and the driver's case against Hirease was closely factually related to his case against Uber. The 9th Circuit rejected all of these arguments, thus leaving the driver free to pursue his claims against Hirease in the district court.

In short, while the 9th Circuit's decision in Mohamed v. Uber rejected Chen's efforts to totally sidetrack the agreements' arbitration clauses by finding them unconscionable, it did not force the case off the road to the courthouse entirely. The lesson here is that just because an agreement with an arbitration clause is upheld in the face of an unconscionability challenge, that does not necessarily mean all aspects of the dispute will have to be arbitrated - there may be alternate routes allowing the plaintiff to bypass arbitration and proceed to court. The arbitration clause in question may include express exceptions allowing some claims to be litigated, such as the language in Uber's 2013 agreement providing for judicial resolution of challenges to the collective action and PAGA waivers. In addition, applicable state or federal law may invalidate aspects of the arbitration agreements; if a court or an arbitrator (under a delegation clause) can be persuaded that a statute or public policy requires claims to be resolved judicially, the plaintiff may be able to backtrack to the courthouse that way. Finally, if one of the players was not a party to the arbitration agreement, it may be possible to steer the aspects of the dispute involving that party back onto the courthouse road.