Top Ten Tips for Arbitration Clause Enforceability

By Michelle Cohen, Ifrah Law

In determining whether an arbitration clause (and other provisions in a website or app’s terms of service) are valid, courts look at whether the organization places a user on actual notice of the agreement or, alternatively, whether a “reasonably prudent user” would be placed on “inquiry notice.” This is a fact-intensive inquiry that often depends on the “design and content of the website and the agreement’s webpage.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1177 (9th Cir. 2014). Here is a list of ten tips for making your company’s terms of use and arbitration clause enforceable when faced with end user claims. 

  1. Use “Clickwrap” agreements – which require users to click “I agree” (or similar consenting language) after being presented with terms and conditions (including arbitration clauses) – these establish stronger cases for enforcement than “browsewrap” agreements (where terms are referenced/linked at bottom of a screen). Also, employing contrasting text colors is helpful for calling attention to the referenced terms. 
  • Requiring users to affirmatively click “I agree” or otherwise check a box to indicate consent shows an affirmative agreement – avoid pre-checked boxes.
  • Example – Play Now

Clicking “Play Now” confirms you agree to our Terms & Privacy Policy

  1. Offering, alternatively, Sign-in wrap agreements – when website/app notifies users of the existence of the terms of use and tells users they are agreeing to the terms when registering/signing up – can be an option. 
  • Use of bold typeface, italics, colored text and ALL CAPS, can help call attention to terms and is viewed favorably by courts.
  • Ensure references to terms of use are set off from other text (such as promo codes).
  1. Flag arbitration clauses (and if applicable, class action waivers) at the top of the terms – the use of bold, and all caps is also useful to demonstrate the user had actual notice or at least inquiry notice. 
  1. Reference and link to arbitration clauses from the top of the terms – so a user can click instead of scrolling down to arbitration terms further in the terms.
  • Example – All disputes arising under these Terms will be resolved by binding arbitration, and BY ACCEPTING THESE TERMS, YOU AND [COMPANY] ARE EACH WAIVING THE RIGHT TO A TRIAL BY JURY OR TO PARTICIPATE IN A CLASS ACTION. YOU AGREE TO GIVE UP YOUR RIGHT TO GO TO COURT to assert or defend your rights under this contract (except for matters that may be taken to small claims court). Your rights will be determined by a NEUTRAL ARBITRATOR and NOT a judge or jury. (See Section 14).
  1. Make repeated references to the terms of use, if possible. For instance, provide users with notice of your terms of use during “sign in” and “place order” buttons.
  • Example – “By clicking Place Oder, you agree to our Terms of Use.” “By continuing past this page, you agree to our Terms of Use.” Again, Terms of Use should contain a hyperlink to the actual terms. Courts have also noted favorably when “Terms of Use” is displayed in contrasting color font (such a blue), bolded, or otherwise made more conspicuous.
  1. Consider offering an arbitration “opt-out” provision – some courts view this favorably when considering the bargaining power between the consumer and the company.
  • Example – 30-Day Right to Opt-Out — You have the right to opt-out and not be bound by the arbitration and class action waiver provisions set forth above by sending written notice of your decision to opt-out to the following address: ABC Gameco, Inc., 123 Maple Street, Anytown USA 11122. The notice must be sent within 30 days of your first use of the Service, otherwise you shall be bound to arbitrate disputes in accordance with the terms of those paragraphs. If you opt-out of these arbitration provisions, ABC Gameco, Inc. also will not be bound by them.
  1. Ensure your arbitration clause contains broad coverage language.
  • Alternate – Specifically, all claims arising out of or relating to these Terms (including their formation, performance and breach), the parties’ relationship with each other and/or your use of the Service shall be finally settled by binding arbitration administered by JAMS in accordance with the provisions of its Streamlined Arbitration and Procedures, excluding any rules or procedures governing or permitting class or representative actions.
  1. Require the arbitrator to rule on the validity of the arbitration clause, if challenged. 
  • Example – The arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve all disputes arising out of or relating to the interpretation, applicability, enforceability or formation of these Terms, including, but not limited to any claim that all or any part of these Terms are void or voidable, whether a claim is subject to arbitration, and any dispute regarding the payment of [mediation service] administrative or arbitrator fees (including the timing of such payments and remedies for nonpayment). 
  1. Ensure your arbitration provision complies with the requirements of the mediation service you intend to use. For instance, JAMS requires the following for mandatory contractual consumer arbitration provisions: 
  • The arbitration agreement must be reciprocally binding on all parties such that (a) if a consumer is required to arbitrate his or her claims or all claims of a certain type, the company is so bound; and, (b) no party shall be precluded from seeking remedies in small claims court for disputes or claims within the scope of its jurisdiction.
  • The consumer must be given notice of the arbitration clause. Its existence, terms, conditions and implications must be clear.
  • Remedies that would otherwise be available to the consumer under applicable federal, state or local laws must remain available under the arbitration clause, unless the consumer retains the right to pursue the unavailable remedies in court.
  • The arbitrator(s) must be neutral, and the consumer must have a reasonable opportunity to participate in the process of choosing the arbitrator(s).
  • The consumer must have a right to an in-person hearing in his or her hometown area (i.e., companies cannot mandate arbitration in their home states).
  • The clause or procedures must not discourage the use of counsel.
  • With respect to the cost of the arbitration, when a consumer initiates arbitration against the company, the only fee required to be paid by the consumer is $250, which is approximately equivalent to current Court filing fees. All other costs must be borne by the company, including any remaining JAMS Case Management Fee and all professional fees for the arbitrator’s services. When the company is the claiming party initiating an arbitration against the consumer, the company will be required to pay all costs associated with the arbitration.
  • In California, the arbitration provision may not require the consumer to pay the fees and costs incurred by the opposing party if the consumer does not prevail.
  • The arbitration provision must allow for the discovery or exchange of non-privileged information relevant to the dispute.
  • AAA requires prior approval and review when a business seeks to reference and use AAA arbitration services: A business intending to incorporate these Rules or to refer to the dispute resolution services of the AAA in a consumer alternative dispute resolution (“ADR”) plan should, at least 30 days prior to the planned effective date of the program, notify the Association of its intention to do so, and provide the Association with a copy of the consumer dispute resolution plan.
  1. Maintain documentation of the terms of use in effect during user’s registration and use of the services. Users often claim certain terms were not in effect when they used the services. If your company changes its terms of service – highlight the updated terms in notices to users – on screen at log-in; consider e-mail notification.