Young v. ByteDance Inc.

Background

This proposed class action was brought by Reece Young and Ashley Velez, who were hired by Telus International to moderate content for TikTok. The plaintiffs allege that the working conditions caused psychological harm. They sued TikTok and its parent company, ByteDance Inc.; the opinion refers to those defendants collectively as “TikTok.” They did not sue Telus.

Velez had signed an employment contract with Telus containing an arbitration agreement. The agreement covered nearly all claims between Velez and “the Company,” which was defined to include Telus and certain related entities, but the parties agreed that TikTok was not included. TikTok was not a signatory to the agreement and was not named as a third-party beneficiary.

Velez’s claims arise under California law and allege negligence and unfair competition. She alleges that TikTok imposed demanding quotas, accuracy tests, training requirements, and other practices that made it difficult for content moderators to take breaks or obtain mental-health services. She also alleges that TikTok directed practices that Telus carried out, including reprimands, reduced pay, unfavorable schedule changes, and denial of advancement opportunities.

Who Decides Whether Arbitration Applies

The Telus agreement included a delegation clause giving an arbitrator authority to decide disputes about the agreement’s interpretation, applicability, enforceability, or formation. TikTok argued that this clause required an arbitrator to decide whether equitable estoppel applied.

The court rejected that argument. It interpreted the agreement as a whole and concluded that it covered disputes between Velez and Telus or other entities included within “the Company,” not disputes between Velez and nonparties such as TikTok. The court relied in part on Ninth Circuit precedent holding that a nonparty manufacturer could not invoke a similarly worded delegation clause in an agreement between consumers and automobile dealerships.

The court also reasoned that TikTok was relying on equitable estoppel rather than claiming that it had agreed with Velez to arbitrate. Equitable estoppel is a doctrine that can prevent a person from avoiding an arbitration agreement in certain circumstances. Because TikTok was a nonparty seeking to enforce the agreement through that doctrine, the court—not the arbitrator—had to decide whether arbitration was required.

Equitable Estoppel

Nevada contract law governed the arbitration agreement. Under the Nevada law theory invoked by TikTok, a nonsignatory may compel arbitration when the plaintiff alleges substantially interdependent and coordinated misconduct by the nonsignatory and a party that signed the agreement.

The court concluded that this theory applied. It found that Velez’s allegations described TikTok’s direction of workplace practices together with Telus’s implementation of those practices as her employer. The court also concluded that Velez’s employment with Telus was central to her claims, even though she rarely mentioned Telus in the complaint. In the court’s view, she could have brought essentially the same allegations against Telus, in which event the arbitration agreement would have applied. Equitable estoppel therefore prevented her from avoiding arbitration by suing only TikTok.

The court rejected Velez’s argument that TikTok had to benefit directly from the arbitration agreement before invoking equitable estoppel. It distinguished the Nevada decisions on which she relied because those cases addressed when an arbitration agreement could bind a nonsignatory, while this dispute concerned whether a nonsignatory could enforce the agreement against a signatory.

Unconscionability Arguments

Velez argued that the arbitration agreement was procedurally and substantively unconscionable. Procedural unconscionability concerns how an agreement was presented; substantive unconscionability concerns whether its terms are unfair. The court rejected her procedural argument that the agreement was unconscionable merely because it was offered on a take-it-or-leave-it basis, explaining that this alone was insufficient under Nevada law.

The court found that Velez had forfeited her substantive-unconscionability argument because she quoted part of the arbitration provision, labeled it a cost-shifting and fee-splitting clause, and provided no analysis or Nevada authority. The court noted that the provision stated that TikTok would advance certain arbitration fees and that the arbitrator could later reallocate them only to the extent permitted by law. But because Velez had not developed the argument, the court did not further examine it. The court also stated that, even if the fee provision were unconscionable, it could be severed while the remainder of the arbitration agreement was enforced.

Disposition

The court granted TikTok’s motion to compel arbitration. Velez’s claims were dismissed without prejudice, and Young’s claims remained pending in the district court.