How to Ensure That Online Arbitration Agreements Are Enforceable
Many businesses that offer goods and services online require that consumers agree to terms and conditions that include arbitration provisions. These terms and conditions often include class-action waivers, which can serve as a hedge against costly litigation for minor technical violations of regulatory requirements.
For those provisions to be enforceable, however, the parties must form a binding contract, which requires that both parties agree to the terms. Organizations must ensure that consumers have actual or constructive notice of the terms and assent to be bound by them. Recent court cases have established guidelines that can aid in the development of enforceable online arbitration agreements.
It’s a Wrap
Courts have often struggled to determine “mutual assent” in the context of online contracts. These agreements are not negotiated — they are drafted by one party and offered on a “take it or leave it” basis. Consumers seldom read the contract terms even if they seemingly agree to their conditions. Failure to read a contract does not excuse one’s obligations. However, the consumer must have actual or constructive notice of the terms for a contract to be formed.
Courts have divided online agreements into several categories:
Scrollwrap agreements require that the consumer scroll to the bottom of the agreement before indicating assent by clicking on a button.
Clickwrap agreements require that the consumer indicate assent by clicking a button. The terms of the agreement may be on the same page or another page accessible by a readily available hyperlink.
Sign-in wrap agreements advise consumers that they agree to the contract terms by creating an account, signing in, and using the site. The terms are available on another page accessible by hyperlink.
Browsewrap agreements indicate that consumers accept the contract terms by browsing the site.
Scrollwrap and clickwrap agreements are generally enforceable because the consumer affirmatively manifests assent. The enforceability of sign-in agreements is less certain, with courts examining whether the layout of the web page provides users with sufficient notice. With browsewrap agreements, organizations must ensure that consumers are clearly put on notice.
‘Sufficiently Conspicuous’
The Federal Arbitration Act is silent as to notice, reflecting federal policy favoring arbitration agreements. However, various cases have established that the contract’s terms must be communicated to consumers before courts will compel arbitration. The agreement must be “sufficiently conspicuous” to put a reasonable person on notice. The hyperlink to the terms of use must be prominent and appear on an uncluttered page that makes it easy to spot.
In Hooper v. Jerry Insurance Agency, plaintiff Shannon Hooper alleged that Jerry violated the Telephone Consumer Protection Act by sending her unwanted text messages. Jerry sought to compel arbitration based on its website’s terms of use. The federal district court for the Northern District of California found that the hyperlink, which was in a bright pink font that contrasted with the surrounding gray font, provided sufficient notice.
However, in Cullinane v. Uber Technologies, the First Circuit reversed the lower court’s decision to enforce an arbitration clause in the company’s terms of service. The court held that the hyperlink did not “grab the user’s attention” because it was similar to links used for other terms. Similarly, in Berman v. Freedom Financial Network, the Ninth Circuit held that the small font used for the hyperlink was barely visible and that clicking a green “continue” button did not clearly manifest assent. Courts have thus been willing to scrutinize the facts of each case to determine whether there was sufficient consumer notice.
Other Criteria
In addition to the conspicuousness of the agreement, courts consider other factors when determining whether to enforce arbitration. Organizations should ensure that their agreements are “consumer friendly” with easy-to-understand terms. Ideally, the arbitration clause should have a descriptive title and should explain what arbitration is, what rules apply, and that the consumer is giving up the right to pursue claims in court. It should also state what types of claims are covered by arbitration and that the agreement applies to both parties.
Additionally, the arbitration clause should state what types of claims are not covered. Courts tend to prefer that small claims be excluded from arbitration, enabling consumers to pursue them in small claims court. Other potential exclusions include claims for injunctive relief and intellectual property disputes.
To avoid the risk that the arbitration clause is deemed unconscionable, organizations should make the process easily accessible to consumers. Consumers should not have to travel or incur undue expenses. Venue should be set in the consumer’s county of residence or hometown, with options for telephonic arbitration or written submissions. Organizations should cover all fees up to a reasonable cap and not restrict the amount a consumer can recover.
Finally, organizations should select a fair and reputable arbitration provider. The agreement should also meet American Arbitration Association and JAMS standards for consumer arbitration clauses.
Arbitration clauses and class-action waivers are popular tools for reducing litigation risk in online commerce. However, courts will scrutinize the presentation of these agreements to determine whether consumers had sufficient notice and manifested assent. By using recent court decisions as guidance, organizations can help ensure that courts will enforce the arbitration clauses in their online agreements.
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