Arbitration Clauses and Their Effect on Privacy Class Actions

Where the Clause Comes From

Nearly every consumer-facing digital service presents terms of service at sign-up, and most of those terms contain an arbitration provision and a class-action waiver. When a privacy claim is later filed as a putative class action, the first contested motion is usually a motion to compel arbitration, decided on contract-formation and Federal Arbitration Act grounds rather than on anything in the privacy statute being sued under. That motion is resolved before a court reaches the Rule 23 certification analysis at all.

The governing text is short. Section 2 of the Act provides that a written arbitration provision in "a contract evidencing a transaction involving commerce" is "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract or as otherwise provided in chapter 4." Section 1 states that "nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Sections 3 and 4 supply the stay and compel powers, and section 16 governs appeals.

Two decisions set the outer limits for class claims. In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the Court held California's Discover Bank rule pre-empted because it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," reasoning that "[t]he switch from bilateral to class arbitration sacrifices arbitration's informality and makes the process slower, more costly, and more likely to generate procedural morass than final judgment." In American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), the Court held that the "effective vindication" exception did not invalidate a waiver, because "the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy."

Epic Systems Corp. v. Lewis, 584 U.S. 497 (2018), read the section 2 saving clause narrowly, holding that it "recognizes only generally applicable contract defenses, such as fraud, duress, or unconscionability." And Lamps Plus, Inc. v. Varela, 587 U.S. 176 (2019), held that "an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration."

Browsewrap, Clickwrap and Assent

Before any of that applies, a contract has to exist. Courts analyse online terms under ordinary state contract law, and the outcome turns on interface design rather than on the substance of the clause.

In Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014), the court drew the standard distinction: "clickwrap" agreements, "in which website users are required to click on an 'I agree' box after being presented with a list of terms and conditions of use," and "browsewrap" agreements, "where a website's terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen." The court held that a conspicuous hyperlink alone was insufficient to give rise to constructive notice.

The Second Circuit reached the opposite result on a different interface in Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2d Cir. 2017). The registration screen was "uncluttered," the entire screen was "visible at once," the notice appeared "directly below the buttons for registration," and the hyperlinks were "in blue and underlined" — spatially and temporally coupled with the act of assent. The court contrasted an earlier screen containing "between fifteen and twenty-five links" and "text . . . in at least four font sizes and six colors."

The Ninth Circuit consolidated the test in Berman v. Freedom Financial Network, LLC, 30 F.4th 849 (9th Cir. 2022): absent actual knowledge, "an enforceable contract will be found based on an inquiry notice theory only if: (1) the website provides reasonably conspicuous notice of the terms to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms." The notice there failed because it was "printed in a tiny gray font considerably smaller than the font used in the surrounding website elements."

Delegation Clauses

Many arbitration provisions do not merely send the dispute to an arbitrator; they send the question of arbitrability there too. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), held that such a delegation provision is itself "an agreement to arbitrate" that a court must enforce under sections 3 and 4 unless it is unenforceable under section 2. Because the delegation provision "is severable from the remainder of the Agreement," a challenge aimed at the contract as a whole leaves it intact: "unless Jackson challenged the delegation provision specifically, it must be treated as valid under § 2 and enforced."

The practical consequence is a pleading rule. A party resisting arbitration who attacks the terms generally — unconscionability of the whole agreement, for instance — has not attacked the delegation clause, and the delegation clause then sends the unconscionability question to the arbitrator.

Who Decides Arbitrability

The default allocation comes from First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995): whether the arbitrator or the court decides arbitrability "turns upon whether the parties agreed to submit that question to arbitration," and courts "should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so."

Where that evidence exists, the court's role ends. In Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63 (2019), the Court held the "wholly groundless" exception "inconsistent with the Federal Arbitration Act and this Court's precedent," so that "when the parties' contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless." The Act "contains no 'wholly groundless' exception," and the Court stated it "may not engraft its own exceptions onto the statutory text."

One sequencing question survives a delegation clause. New Prime Inc. v. Oliveira, 586 U.S. 105 (2019), held that "[a] court should determine whether a § 1 exclusion applies before ordering arbitration," because "[f]or a court to invoke its statutory authority under §§ 3 and 4, it must first know if the parties' agreement is excluded from the Act's coverage by the terms of §§ 1 and 2." The Court described that sequencing as "significant" and held that neither a delegation clause nor the severability principle changed it.

Mass Arbitration and Fee Exposure

Individual arbitration is not costless to the party that drafted the clause, and the clearest record of that appears in a labor-classification dispute rather than a privacy one. In Abernathy v. DoorDash, Inc., 438 F. Supp. 3d 1062 (N.D. Cal. 2020), 5,879 couriers who had clicked through a mutual arbitration provision with a class-action waiver filed individual demands with the American Arbitration Association. Under the applicable AAA rules each claimant paid a $300 filing fee and the responding company owed $1,900 per matter.

The order records what followed: claimants "paid over $1.2 million in filing fees"; the respondent's counsel wrote that the company "is under no obligation to, and will not at this time, tender to AAA the nearly $12 million in administrative fees"; and the AAA then advised that because "[r]espondent has failed to submit the previous requested fees for the 6,250 individual matters," it had "administratively closed our files." The court granted the motion to compel as to the 5,010 petitioners who submitted declarations and denied it as to 869 who submitted only witness statements, ordering the company to "immediately commence AAA arbitration" with the former.

Some states have legislated on the non-payment point. California Code of Civil Procedure section 1281.97, quoted in the DoorDash order, provides that in an employment or consumer arbitration where the drafting party owes fees before the arbitration can proceed, "if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration." The claimant may then withdraw and proceed in court, or compel arbitration with fees and costs shifted, and the statute directs the court to impose sanctions.

Statutes That Resist Waiver

Section 2's saving clause has been read narrowly, but Congress has legislated directly. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act added chapter 4 to Title 9, and section 2 was amended in 2022 to carry the words "or as otherwise provided in chapter 4."

Section 402(a) provides that "[n]otwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable" as to a case relating to that dispute. Section 402(b) then removes the question from the arbitrator:

The applicability of this chapter to an agreement to arbitrate and the validity and enforceability of an agreement to which this chapter applies shall be determined by a court, rather than an arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement, and irrespective of whether the agreement purports to delegate such determinations to an arbitrator.

9 U.S.C. § 402(b)

That is a deliberate reversal of the Rent-A-Center severability rule for the covered category, and it is category-specific: chapter 4 reaches sexual assault and sexual harassment disputes by its own terms, not privacy claims generally. Section 1 operates differently again — it removes a class of contracts from the Act's coverage entirely rather than making an agreement unenforceable.

The Practical Effect on Privacy Filings

Taken together the authorities produce a fairly mechanical sequence in a privacy case filed as a class action. A court asks first whether the section 1 exclusion applies, per New Prime. It then asks whether a contract was formed at all, under state law and the assent cases. If a delegation clause exists and the challenge is not aimed specifically at it, Rent-A-Center and Henry Schein route the remaining questions to the arbitrator. Concepcion, Italian Colors and Epic Systems foreclose most attacks on the class waiver itself, and Lamps Plus forecloses reading class arbitration into an ambiguous clause.

The result is that in this class of cases the contested ground has moved to formation and to the narrow statutory carve-outs, rather than to the enforceability of class waivers. Whether an interface gave reasonably conspicuous notice, and whether the user did something that unambiguously manifested assent, are the questions on which many of these motions are now decided.

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