On September 7, 2016, in Mohamed v. Uber Technologies, Inc., the US Court of Appeals for the Ninth Circuit held that the district court erred in finding the Uber arbitration agreements procedurally and substantively unconscionable ( (9th Cir. Sept. 7, 2016)).

Plaintiffs-Appellees Abdul Mohamed and Ronald Gillette were former Uber drivers who brought putative class action claims against Uber Technologies, Inc., alleging violations of the Fair Credit Reporting Act (FCRA) and various state statutes. Gillette also brought a claim under California's Private Attorney General Act (PAGA) alleging he was misclassified as an independent contractor rather than an employee.

In the US District Court for the Northern District of California, Uber filed a motion to compel all of Gillette and Mohamed's claims to individual arbitration under the terms of its 2013 and 2014 contracts, respectively. The district court denied the motion to compel arbitration (see Legal Update, Uber Arbitration and Delegation Clauses Held Unconscionable: Northern District of California). Uber appealed, arguing that the district court erroneously considered whether the arbitration provisions were enforceable when that question was clearly delegated to the arbitrator. It also argued that even if the district court had the authority to consider arbitrability, it erred in concluding the arbitration provisions were invalid.

The Ninth Circuit affirmed and reversed in part, finding that the district court erroneously assumed authority to decide whether the arbitration agreements were enforceable. The court disagreed with the district court's finding that the delegation clauses in the 2013 and 2014 Agreements were ineffective because they were not clear and unmistakable. Rather, the Ninth Circuit held that both agreements clearly and unmistakably delegated the question of arbitrability to the arbitrator.

Therefore, all of the plaintiffs' challenges to the enforceability of the arbitration agreement (except for Gillette's challenge to the enforceability of the PAGA waiver) should have been decided by the arbitrator and not the court. Only Gillette's PAGA claims could be severed from the arbitration agreement and proceed in court on a representative basis because the 2013 Agreement specifically carved out challenges to the enforceability of PAGA waivers.

The Ninth Circuit also held that the delegation clauses in the arbitration agreements were not procedurally and substantively unconscionable. It pointed to Ninth Circuit precedent that stated that the opportunity to opt out of arbitration, which the 2013 and 2014 Agreements provided, rendered these clauses conscionable.

The court also affirmed the district court's order denying a motion to compel arbitration filed by Hirease, LLC, an independent background-check company that Mohamed named in his complaint alongside Uber because there was no agency relationship between Hirease and Uber.