Read Before You Click: The Enforcement of Web-Based Restrictive Covenants and Arbitration Agreements Against Employees
When was the last time you clicked a box indicating your agreement to terms of service without actually reading, let alone understanding, the terms and conditions of service? The use of “clickwrap” whereby users of web-based applications memorialize their acceptance of legal agreements by clicking something, like a check box, is commonplace in the digital world. In the employment arena, however, the use of such web-based platforms and click-to-accept legal agreements is relatively new. Still, courts have not hesitated to apply traditional principles of contract law to these agreements and enforce them against unsuspecting and often oblivious employees, so long as the clickwrap agreements are conspicuously displayed on the web-based platform and reasonably communicate the employer’s terms to its employees.
For example, in ADP v. Lynch, the Third Circuit affirmed the District Court’s issuance of preliminary injunctive relief and enforcement of web-based “click to accept” restrictive covenants against two former employees of ADP. The former employees had agreed to the restrictive covenants when they clicked a box accepting the terms and conditions of their stock awards, which terms and conditions included noncompete and nonsolicitation agreements. While employed by ADP, the employees had on separate occasions accepted performance-based incentive stock awards offered by the company. To accept the stock awards, the employees were required to open and access a webpage containing the award documents. The webpage provided: “you must select the checkbox to indicate you have read all associated documents before you can proceed.” The webpage included a checkbox next to the statement, “I have read all the documents below.” Also next to that checkbox was a link to open a 19-page PDF document, which included the stock award plan, award agreement, and subject noncompete agreement. The award agreement specifically conditioned the award upon the employee’s acceptance of the noncompete agreement, which included a 12-month prohibition against (i) joining a competitor of ADP, and (ii) soliciting the business of any current or prospective client of ADP. The employees subsequently resigned from ADP and began working for a competitor. ADP filed suit seeking the enforcement of the noncompete agreement through preliminary injunctive relief. The District Court granted the relief (in part) and enjoined the employees from engaging in competition and soliciting the business of ADP clients and certain prospects.
On appeal, among other things, the employees argued that by checking the box, they did not expressly agree to the terms and conditions set forth therein. The employees emphasized they were never required to check a box expressly agreeing to, accepting or acknowledging the terms. Further, the employees argued they did not recall actually reading the terms and therefore should not be bound by them. Neither the United States District Court for the District of New Jersey nor the Third Circuit Court of Appeals found these arguments persuasive. The courts held that the employees checked various boxes indicating their awareness of the terms and conditions of the agreements, and then they clicked the “Accept Grant” button and entered personal passwords in order to consummate the agreement. Given the web-based clickwrap agreement incorporated a hyperlink to the 19-page PDF document, which set forth the entirety of the parties’ agreement, the courts validated the “click to accept” agreement and enforced the noncompete against the employees.
Similarly, in Singh v. Uber Techs. Inc., the United States District Court for the District of New Jersey upheld and enforced an arbitration agreement advanced by the employer, Uber, against its employee. Uber argued that Singh, its employee, was bound by an arbitration clause set forth in a web-based Raiser Software License and Online Services Agreement (the “Raiser Agreement”) Singh accepted electronically when he registered as a driver through the use of the Uber smartphone application. When the employee logged on to the Uber App, he was given the opportunity to review the Raiser Agreement by clicking a hyperlink within the software application. To advance past the screen with the hyperlink and actively use the Uber App, the plaintiff had to confirm that he had first reviewed and accepted the Raiser Agreement by clicking “YES, I AGREE.” Then, after clicking “YES, I AGREE,” he was prompted to confirm that he reviewed and accepted the agreement for a second time.
The court’s decision upholding and enforcing the web-based arbitration agreement between employer and employee rested on many key facts, including:
The employee was permitted to spend as much time as needed to review the Raiser Agreement on his smartphone before accepting it;
After confirming his acceptance for a second time through the Uber App, the Raiser Agreement was uploaded to the employee’s “driver portal,” where he could access the agreement at his leisure, either online or by printing out a hard copy;
The arbitration agreement was displayed conspicuously and prominently on the first page of the Raiser Agreement; and
The agreement encouraged the employee to consult with an attorney before agreeing to its terms and conditions.
Additionally, and importantly, the court held that the Raiser Agreement was not a contract of adhesion because, among other things, the arbitration clause set forth in the Raiser Agreement had an opt-out provision. The employee had 30 days from receipt and acceptance of the Raiser Agreement to opt-out of the arbitration provision. By virtue of this opt-out, the arbitration provision actually was not mandatory, but voluntary, and became mandatory only after the 30-day opt-out window closed.
In its enforcement of the arbitration clause, the Court, citing ADP v. Lynch among other controlling precedent, wrote:
“In the internet era, when agreements are often maintained, delivered and signed in electronic form, a separate document may be incorporated through a hyperlink . . .” But, before binding a party to the terms and conditions of a hyperlinked agreement, courts must first look “to whether users were provided with a ‘reasonably conspicuous notice of the existence of contract terms’ and whether the user registered an ‘unambiguous manifestation of assent to these terms.'” Courts must determine whether an online agreement that incorporates a hyperlinked-agreement by reference “generally provide[s] ‘reasonable notice'” such that the terms and conditions of that agreement apply. If this condition is met, a party will be bound by the hyperlinked-agreement, even if that party did not review the terms and conditions of the hyperlinked agreement before assenting to them. “[T]o hold otherwise would contravene the well settled principle that ‘[a] failure to read a contract will not excuse a party who signs it, nor will the party’s ignorance of its obligation.'”
In short, the court held that the plaintiff-employee received reasonable notice as to the existence of the terms and conditions of the hyperlinked Raiser Agreement, which the employee was required to review and “click to agree” before using the Uber App and becoming an Uber driver.
These two recent cases are exemplary in many respects. First, they signal the advent and enforcement of web-based agreements between employers and their employees. Though employees still can expect the (often painful) obligatory HR meeting their first day on the job (during which most HR forms and agreements are signed), these web-based “click and accept” agreements are becoming far more widely used in employment processes, from web-based employment job applications to the use of an employer’s web-based platform or smartphone user application. That “check and click” is not as insignificant as it seems. Employees should read and understand the fine print before checking the box.
Second, as noted above, in their review of these matters, the courts have outlined certain rules of the road employers should follow to withstand scrutiny and maximize the likelihood that their web-based agreements will be validated and enforced. For example, the terms of important agreements should not be hidden in a small scroll box or in a way that downplays or minimizes their importance to the employee. For the employee to be bound by the terms of a web-based agreement, the terms should be displayed as conspicuously and obviously as possible, with the checkbox agreement presented immediately thereafter. Employers seeking advice on best practices or the review of their web-based terms and conditions should consult with an employment attorney.