The Massachusetts Supreme Judicial Court recently held that Uber’s notification of its “terms and conditions” during the registration process for its app did not provide “reasonable notice” to users of Uber’s terms, that there was therefore no valid contract between Uber and the users who were suing it, and that arbitration that had occurred had therefore been improper.

The Kauders sued Uber in Massachusetts Superior Court claiming, among other things, that it had unlawfully discriminated against Mr. Kauders on the basis of his disability because three Uber drivers refused to give him rides because he is blind and was accompanied by a guide dog.

Uber moved to compel arbitration under its terms and conditions. The court granted Uber’s motion and the parties arbitrated the case. The arbitrator ruled in favor of Uber.

Shortly thereafter, the First Circuit held, in a different case against Uber, that “Uber’s registration process did not create a contract because it did not provide reasonable notice to users of the terms and conditions” and there was “no enforceable contract requiring arbitration.”

In the Kauders litigation, Uber then moved to confirm the arbitration award. At the hearing on that motion, the Kauders raised the First Circuit’s decision and subsequently moved for reconsideration of the court’s decision compelling arbitration. The court granted that motion in light of the First Circuit’s decision and denied Uber’s motion to confirm. Uber appealed.

The Massachusetts Supreme Court agreed with the First Circuit and the Kauders that Uber’s registration process did not provide reasonable notice of its terms and conditions.

Uber argued that (1) the trial court lacked authority to deny its motion to confirm because the Kauders “failed to move to vacate the award within thirty days”; (2) the Kauders’ motion for reconsideration was untimely and improper “because there was no change in fact or law”; and (3) Uber’s registration process created a valid, enforceable contract requiring arbitration.

The Supreme Court rejected Uber’s argument about the Kauders’ failure to move to vacate the award, explaining that, unlike federal law, it “d[id] not consider participation in the arbitration process as requiring revisitation of the arbitrability issue within the thirty-day time period.”

Although the Supreme Court agreed with Uber’s argument that it was an abuse of discretion for the trial court to grant the Kauders’ motion for reconsideration, it declined to remand the case to require the trial court to confirm Uber’s arbitration award because “the issue of arbitrability would [still] be preserved for appeal” and the Kauders “would then undoubtedly appeal on that ground, and the case would be right back before” the Supreme Court.

Applying a “two-prong test” asking “whether there is reasonable notice of the terms and a reasonable manifestation of assent to those terms,” the court determined that Uber’s terms of service did not create a valid contract. When the Kauders created user accounts, a link to Uber’s “terms and conditions” was on the bottom of the third screen they saw during the registration process. The screen stated: “By creating an Uber account, you agree to the Terms & Conditions and Privacy Policy.” “Terms & Conditions and Privacy Policy” was “in a rectangular box and in boldface font,” while the rest of the sentence in question was in ordinary type. The court described Uber’s “terms and conditions” as “extensive” and conferring broad indemnity on Uber.

The court concluded that Uber’s registration process did not provide “reasonable notice” of Uber’s “terms and conditions” under the circumstances, finding it significant that (1) “the interface did not require the user to scroll through the conditions or even select them,” even though Uber required its drivers to review its terms and conditions for drivers before registering to drive; (2) the notification about the “terms and conditions” was “oddly displayed,” with the important language notifying users that they were agreeing to something “being displayed less prominently than” the phrases “terms and conditions” and “privacy policy”; (3) the placement of the “terms and conditions” notification was on the “third screen” without any prior reference to the terms; and (4) the “title of the screen” and “the information on” it focused on payment, not conditions.

In sum, “the design of the interface for the app … enable[d], if not encourage[d], users to ignore the terms and conditions” and “[n]othing about [the] third screen … conveyed to a user that he or she should open a link that would reveal an extensive set of terms and conditions at the bottom of the screen.” “Instead of requiring its users to review [its] terms and conditions as it appear[ed] to do with its drivers, Uber ha[d] designed an interface that allow[ed] the registration to be completed without reviewing or even acknowledging the terms and conditions.” Thus, Uber “failed to show that it provided the [Kauders] with reasonable notice.”

There was therefore “no enforceable agreement between Uber and the [Kauders], and therefore the dispute [in this case] was not arbitrable.” Accordingly, the court remanded the case.

Kauders v. Uber Technologies, Inc., No. SCJ-12883 (Jan. 4, 2021).