Clickwrap Employment Contract Roils California Arbitration Law

San Francisco, CA – On July 23, the California Court of Appeal heard oral arguments in Inostroza. v. Amazon, a California labor employment lawsuit. The workers’ challenge threatens to upend California law at the weird intersection of clickwrap contracts, California labor law and arbitration agreements.

This tangled tale takes some unpacking. At its heart are two very important California labor law questions:

• Where should the dispute be decided – must it go to arbitration, which tends to favor employers, or may it be resolved in court; and
• What amounts to consent in a clickwrap employment agreement?

To be frank, the plaintiffs face an uphill fight because of some difficult federal and state court precedents. Even more troubling, developing law does not really seem to reflect reality. Job applicants, independent contractors, consumers -- nobody really reads those pages and pages of small print.

Question 1 – The jurisdiction dispute

Justin Inostroza and MacKenzie Grissom began selling products on Amazon in December 2017 and January 2018. In 2020, they filed a Private Attorneys General Act (PAGA) lawsuit in Alameda County Superior Court. Their lawsuit alleges that Amazon intentionally misclassified them and other sellers as independent contractors rather than as employees to avoid paying state mandated wages, overtime and expenses and provide breaks. They sought to represent similarly situated workers in a representative action.

To become sellers on Amazon, Inostroza and Gibson completed a Business Services Agreement. The BSA included a requirement that they provide an email address and password and check a box indicating that they agreed to certain terms and conditions. Among those conditions were stipulations that they would be treated as independent contractors and a requirement that disputes be submitted to arbitration.

Neither denies that they checked the box. Amazon sought to remove the dispute from the trial court and send it to arbitration. The Alameda County Superior Court never reached the arbitration question because it held that Amazon had not shown that Inostroza and Grissom had agreed to the terms of the BSA. The court dismissed the case.

A step in and out of Viking River Cruises

When the complaint was filed, the California Supreme Court's 2014 decision in Iskanian v. CLS Transportation governed the question of whether a worker’s representative claim under PAGA could be forced into arbitration. Iskanian held that it could not. That holding was reversed by the U.S. Supreme Court in 2022 in Viking River Cruises, Inc. v. Moriana.

Amazon now argues that the appeals court should reverse the decision of the trial court because the latter never had jurisdiction in the first place. Viking River Cruises seems to support this position -- but only if plaintiffs agreed to the terms of the BSA. Inostroza and Grissom argue that they had not agreed, because they never signed it.

Question 2 - Clickwrap contracts

For a contract to be valid and enforceable, both parties must understand the terms and voluntarily consent to them. There a variety of ways of indicating consent. Depending on the circumstances, these may not require a written document, a signature or any written or spoken language at all, where subsequent actions indicate assent. A written document and a signature are useful, of course, but sometimes not necessary.

Electronic clickwrap contracts are those ubiquitous little pieces of text like – “I have read and agree to the terms of service” or “I agree to the Terms and Conditions,” often with a check-box next to them. Courts have generally found that they are enforceable when:

• users must take some affirmative action, like clicking on a checkbox, to indicate voluntary consent; and
• the terms and conditions are clear and reasonably accessible and unambiguous. The second requirement is often very fact specific. A visually confusing website or one that requires clicking on multiple links may fail the requirement of accessibility.

These are the two challenges that the Instroza plaintiffs now face. Ambiguity may be their strongest suit.

California Court of Appeal decision

In 2023, the California Court of Appeal upheld the enforceability of a clickwrap contract in Doe v. Massage Envy Franchising, LLC  where the plaintiff “expressly assented to Massage Envy's Terms of Use Agreement when she created a profile on Massage Envy's website to access its scheduling service and affirmatively indicated her acceptance of the agreement, the terms of which included an arbitration clause.” Further, it noted that Doe appeared to have accepted the terms through her subsequent actions.

As precedent, the case does not bode well for the plaintiffs.

But wait! This isn’t the way life really happens.

Nobody reads those things because there is no opportunity to negotiate. It’s a take-it-or-leave-it situation.
Somehow, the application of hoary old contract principles does not seem to meet the moment when the difference in bargaining power between employers and job applicants or consumers and monolithic service providers is huge. Solving this problem may take legislative, rather than legal action.