This article first appeared on Ogletree Deakins insights, here.
Mandatory arbitration clauses for employment disputes have received a great deal of attention in recent years. In the First Circuit, there is now more clarity regarding the factors used to determine the enforceability of online arbitration agreements.
The First Circuit Court of Appeals’ recent decision, Emmanuel v. Handy Technologies, Inc., concerns the appellant’s 2015 putative class action against Handy Technologies, Inc., which operates an online platform that allows users to hire housekeepers and other providers of home services. One of the main claims in the putative class action suit is that Handy misclassified workers as independent contractors and thus failed to pay them an appropriate minimum wage, allegedly in violation of the federal Fair Labor Standards Act (FLSA). Handy moved to dismiss the lawsuit and compel individual arbitration based on certain arbitration provisions set forth in Handy’s online agreement. The U.S. District Court for the District of Massachusetts granted Handy’s motion to dismiss, and the First Circuit Court of Appeals affirmed the decision.
Factual and Procedural Background
The appellant, Maisha Emmanuel, had a background in nanny work and housecleaning. In May 2015, she discovered Handy and completed an online application form to book jobs through the service. Through two separate uses of Handy’s online platform, during which she completed her application and was able to sign up for various jobs, she accepted Handy’s terms of agreement, part of which included a mandatory arbitration clause. After approximately 1 month of work (and having completed multiple job assignments), Emmanuel stopped using the platform to book jobs, alleging that she had not received pay for some of those jobs. Following this break in use, Emmanuel again utilized the Handy platform, and in the course of doing so, accepted Handy’s terms of agreement for a third time.
Two months later, in July 2015, Emmanuel filed a putative class action, alleging claims under the FLSA and the Massachusetts Wage Act. In moving to dismiss, Handy “argued that Massachusetts law applied and that … Emmanuel was bound” by her acceptance of Handy’s terms of agreement, which included mandatory arbitration of the claims at issue and a waiver of the ability to bring a class action lawsuit. In its motion to dismiss, Handy argued that “Emmanuel had entered into the Agreement with the company in three different instances”: when she originally completed her online application to use the service, “when she downloaded the mobile app, and when she logged in to the website to obtain her personal records.” Emmanuel opposed the motion to dismiss on a number of grounds, most significantly that she had not entered into an agreement and that the agreement was unenforceable due to the doctrine of unconscionability.
The district court sided with Handy and agreed that Emmanuel had entered into an agreement on the three previously mentioned occasions to submit the claims in question to arbitration and that she had waived her right to bring a class claim. The court also rejected Emmanuel’s unconscionability argument. Ultimately, the district court dismissed Emmanuel’s putative class claim and directed Emmanuel to “submit her individual claims to arbitration.” Emmanuel timely appealed, seeking review only of the enforcement of the arbitration provision and not challenging the enforcement of the class action waiver.
The Court of Appeals’ Analysis and Decision
In considering Emmanuel’s appeal, the First Circuit focused on Emmanuel’s selection of “Accept” on the screen containing the initial terms of the agreement when she first used Handy’s online platform to begin her application to use the service. The court found that “the ‘form’ of the Agreement … clearly point[ed] in favor of the conclusion” that she knew she was agreeing to be bound by Handy’s terms, as the language at the time stated “To continue, please accept the revised Independent Contractor Agreement” (and the screen with this language displayed a portion of the text of the agreement). The court further noted that even though only a portion of the text was visible, that portion clearly referenced additional text of the agreement that could be viewed by scrolling down. Further, the text was cut off in such a way that suggested additional text existed. The court also stated that Emmanuel could not succeed on an argument that she did not receive reasonable notice of the arbitration provision because she chose not to review it despite having had an opportunity to do so. The appeals court cited a recent Supreme Judicial Court of Massachusetts decision, which cited a state court ruling that clarified that a party may be “bound by [the] terms of [a] contract regardless of whether [the] party actually read [the] terms.”
The First Circuit also briefly addressed Emmanuel’s unconscionability argument. The court stated that under Massachusetts law, “a party invoking [the unconscionability] doctrine must establish ‘both substantive unconscionability (that the terms are oppressive to one party) and procedural unconscionability (that the circumstances surrounding the formation of the contract show that the aggrieved party had no meaningful choice and was subject to unfair surprise).’” The court determined that Emmanuel’s unconscionability argument was not directed specifically to the agreement to arbitrate, but rather was ‘“a challenge to the validity of an entire contract which contains an arbitration clause.’” (Brackets in the original.) The court determined that the unconscionability argument failed, as the arbitration clause was severable from the rest of the contract, and “‘the issue of the contract’s validity is considered by the arbitrator in the first instance.’”
Finding that “Emmanuel did have reasonable notice of the terms” of Handy’s agreement, and had no basis for her unconscionability argument, the court affirmed the lower court’s order to compel arbitration and dismiss Emmanuel’s putative class complaint.
The First Circuit’s decision in Emmanuel v. Handy Technologies, Inc. has helped to clarify the contours of online agreements and solidify the use of arbitration clauses in the employment context.
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