Lopez v. Square Payroll, Inc.

Background

Phillip Lopez brought a putative class action alleging that Square Payroll delayed and withheld wages. His claims included negligence and alleged violations of the Consumer Legal Remedies Act, California’s Unfair Competition Act, and the Electronic Funds Transfer Act. Square Payroll removed the case from Alameda County Superior Court and moved to compel arbitration.

Lopez created a Square seller account in 2020. The registration process required him to check a box stating, “I agree to Square’s Terms, Privacy Policy, and E-Sign Consent.” The linked General Terms of Service contained an individual-arbitration provision that barred class arbitrations, class actions, representative actions, and consolidation with other arbitrations. The General Terms defined covered disputes broadly to include claims relating to the services or any other aspect of the relationship with Square and related entities, including Square Payroll.

Lopez created a Square Payroll team member account in 2022 through an invitation connected to his employer. The payroll-account setup page stated that continuing meant agreeing to the terms of service and privacy notice, with the terms of service available through a hyperlink. The Square Team Terms of Service also required individual arbitration and contained a delegation provision. Because the court found that Lopez assented to the General Terms through the seller-account registration, it did not need to decide whether he also assented to the Square Team Terms. The court noted skepticism about whether the payroll-account page gave sufficiently conspicuous notice of those terms.

Court’s Analysis

Under the Federal Arbitration Act, written arbitration agreements involving interstate commerce generally must be enforced, subject to ordinary contract defenses. The court explained that arbitration disputes can involve three gateway questions: whether an agreement was formed, whether it is valid, and whether it covers the dispute. The court first had to decide whether an agreement to arbitrate was formed because the parties’ contract also delegated other arbitration questions to an arbitrator.

The court applied the rule that online contracting requires reasonably noticeable terms and an action that clearly shows assent. It characterized the seller-account registration as a clickwrap agreement because Lopez had to check a box directly next to a statement that he agreed to Square’s terms. The court found that the notice was conspicuous and that Lopez’s conduct unambiguously showed assent to the General Terms.

The court rejected Lopez’s arguments that his limited use of the seller account and lack of awareness that the arbitration terms might reach later payroll services prevented contract formation. It said those arguments concerned the enforceability or scope of the arbitration agreement, not whether an agreement was formed. The court also found no conflict between the General Terms and the Square Team Terms because both required arbitration, and it found no identified ambiguity requiring a different interpretation.

The court then enforced the delegation provision. That provision assigned the arbitrator responsibility for threshold arbitrability issues, including whether the terms were enforceable, unconscionable, or illusory and whether defenses such as waiver, delay, laches, or estoppel applied. The court found clear and unmistakable evidence that the parties agreed to delegate those questions. Because the court had already found that Lopez agreed to the General Terms, it rejected his argument that he had not agreed to delegate arbitrability questions.

Ruling

The court found that Lopez formed an agreement to arbitrate when he created the seller account and that the agreement contained an enforceable delegation provision. It left the parties’ remaining arguments about enforceability, including arguments concerning the class-action waivers, for the arbitrator to decide first.

Judge Araceli Martinez-Olguin granted Square Payroll’s motion to compel arbitration and granted its request to stay the proceedings pending arbitration. The court also ordered Square Payroll to file an arbitration status report on December 4, 2025, every 90 days afterward, and within 14 days after arbitration ends.