Immediately following the issuance of the U.S. Supreme Court’s decision in New Prime v. Oliveira on January 15, 2019, we stated in a blog post that “even if an individual or group of workers is excluded [from arbitration] under the federal arbitration law, state arbitration laws may cover them and provide a statutory basis for compelling arbitration.” Soon thereafter, in a Law 360 article discussing a Washington State federal district court ruling that independent contractor drivers providing services to Amazon could not be compelled to arbitrate their IC misclassification claims, the reporter Linda Chiem quoted the publisher of this blog: “There’s a ‘hidden lesson’ from the Amazon decision. Companies can get around ‘arbitration-unfriendly laws’ by making sure it’s spelled out that their independent contractor agreements are governed by state laws that do not have the type of exclusions found in the Washington state arbitration law that tripped up the Amazon agreement.” As noted in the first two case developments from March 2021 as reported below, that is precisely what companies are beginning to do and the courts have agreed that state arbitration laws are all that is needed to compel arbitration.
Arbitration provisions in IC agreements are constantly being attacked by plaintiffs’ class action lawyers, who advance new and different arguments to try to avoid arbitration. It is therefore prudent to constantly review and update those agreements and the class action waivers therein, to maximize their enforceability, as we first noted in our November 14, 2018 blog post entitled “How to Effectively Draft Arbitration Clauses with Class Action Waivers in Independent Contractor Agreements.” But an effective arbitration clause is not enough: businesses should also take steps to enhance their underlying independent contractor relationships to minimize misclassification exposure. Many companies have done so using a process such as IC Diagnostics™.
In the Courts (7 cases)
FAA EXEMPTION FROM ARBITRATION DOES NOT STYMIE ARBITRATION WHERE STATE LAW SUPPORTS IT. A driver who contracted with ride-sharing company, Lyft, Inc., brought a putative class action lawsuit in a New York federal district court challenging Lyft’s practice of logging its drivers off of the Lyft app for performing too few rides. According to the complaint, plaintiff alleged that such practice violated the contract between Lyft and its drivers, which placed no limits on the drivers’ ability to access the app wherever and whenever they chose to do so. The contract also contained a clause requiring the drivers to arbitrate their disputes with Lyft on an individual basis. Lyft moved to compel arbitration under the FAA and New York state arbitration law. The court concluded that “rideshare drivers for companies like Lyft and Uber, as a nationwide class, perform sufficient numbers of interstate rides [even at 2-3% of overall rides], with sufficient regularity, to make them ‘engaged in’ interstate commerce” and, consequently, as interstate transportation workers, they are exempt from the FAA’s arbitration provisions. But despite their coverage under the FAA exemption, the court held that plaintiff and the proposed class must arbitrate their claims because New York state arbitration law provides an alternate basis to compel arbitration, and the contract’s arbitration clause can be enforced under that law alone. Islam v. Lyft, Inc., No. 1:20-cv-03004 (S.D.N.Y. Mar. 9, 2021).
DELIVERY WORKERS FOR AUTO PARTS COMPANY ARE COMPELLED TO ARBITRATE IC MISCLASSIFICATION CLAIMS PURSUANT TO PENNSYLVANIA LAW. A federal district court has compelled arbitration of a proposed IC misclassification overtime claim by an automotive supply delivery driver, who is suing Parts Distribution Xpress, Inc. on behalf of herself and other drivers under the FLSA. The company engages drivers to deliver auto parts and supplies to its customers. The company moved to compel arbitration of the claims arguing that the broker and arbitration agreements signed by the driver constituted a valid, binding agreement covering the driver’s overtime claims. The court stated at the outset that “[a]lthough the Federal Arbitration Act authorizes, and in fact requires, courts to enforce most private arbitration contracts, employment contracts for ‘transportation workers’ are exempted from the FAA’s purview.” But the court concluded that, even assuming that the driver was a transportation worker exempted from the arbitration provisions of the FAA, the arbitration agreement was still enforceable under Pennsylvania state arbitration law. Adams v. Parts Distrib. Xpress Inc., No. 2:20-cv-00697 (E.D. Pa. Mar. 22, 2021).