The U.S. Court of Appeals for the Fourth Circuit recently affirmed a district court’s decision denying a defendant’s motion to compel arbitration, underscoring the importance of clear and conspicuous notice in online arbitration agreements. Although the decision involves an arbitration provision in an online application for employment, it echoes lessons imparted by courts in cases involving consumer arbitration agreements. Read more here.
In Marshall v. Georgetown Memorial Hospital, the plaintiff, a registered nurse, who had previously been employed by the defendant from 2008 to 2010, applied for new positions with the defendant in 2016 and 2020 using their online application process. In both 2016 and 2020, the plaintiff failed a mandatory physical agility test, a test that was not required in 2008, and was denied employment. In 2021, the plaintiff filed a putative class action lawsuit alleging that the test constituted prohibited discrimination under the Americans with Disabilities Act and Title VII, among other claims.
The defendant moved to compel arbitration, arguing that the plaintiff had agreed to arbitrate disputes by submitting her online application, which included an arbitration clause. The district court found that the defendant had not demonstrated the existence of a binding arbitration agreement in 2020 and denied the motion.
The Fourth Circuit’s analysis focused on two key issues: whether the plaintiff had reasonable notice of the arbitration agreement and whether she manifested assent to it. The court emphasized that in the context of online contracts, the design and content of the relevant interface are crucial. In 2016, when the plaintiff applied for a position, she had to scroll through and explicitly accept the arbitration agreement. However, in 2020, the process was different. As a returning user, the plaintiff could submit her application without scrolling through the arbitration agreement, which was pre-populated with her 2016 acceptance. The court found that this setup did not provide reasonable notice of a new arbitration agreement. According to the Fourth Circuit, a party’s duty to read a contract “does not morph into a duty to ferret out contractual provisions when they are contained in inconspicuous hyperlinks or can be found only by scrolling through additional screens.”
The court also held that the plaintiff did not manifest assent to the arbitration agreement in 2020. Unlike in 2016, where she had to check an “I ACCEPT” box, in 2020, she only needed to click a “Submit” button. The court noted that clicking “Submit” does not ordinarily signify agreement to contract terms, and there was no clear notice indicating that doing so would constitute assent to an arbitration agreement.
The court emphasized however, that nothing in its opinion should be taken to infer that online contracts are not enforceable.
Internet contracts have routinely been upheld by courts, including in South Carolina … and nothing in this opinion should be understood to suggest any skepticism of such contracts. Indeed, the parties agree that [the plaintiff] entered into a valid web-based arbitration agreement once before: In 2016, [the plaintiff] was put on reasonable notice of the arbitration agreement on offer when she was required to scroll through it and then check a box indicating acceptance; and she manifested her assent when she checked an “I ACCEPT” box immediately adjacent to notice that checking it would constitute agreement to arbitrate. But for whatever reason — perhaps no more than oversight — [the defendant] did not adhere to the same standards in 2020, and we must agree with the district court that no arbitration agreement was formed when [the plaintiff] submitted her 2020 application.
Last month, the Fourth Circuit effectively ended the litigation by issuing an order denying the defendant’s petition for rehearing and rehearing en banc.
Our Take:
This decision highlights the necessity for all companies imposing arbitration clauses in online agreements to ensure that terms are presented in a manner that provides effective notice to applicants. The ruling serves as a reminder that the principles of contract formation apply equally in the digital realm, and failure to adhere to these principles can result in the invalidation of arbitration agreements.
