Driver can’t be compelled to arbitrate misclassification claim; he wasn’t party to arbitration clause
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Monday, November 27, 2017

Driver can’t be compelled to arbitrate misclassification claim; he wasn’t party to arbitration clause

By Ronald Miller, J.D.

An employer could not compel a terminated delivery driver to arbitrate a claim that he and other drivers were impermissibly classified as independent contractors and that it violated state and federal wage-and-hour laws, ruled the First Circuit. The appeals court disagreed with the employer’s contention that the driver was bound to arbitrate because he was an “agent” of a contractor. Moreover, because the benefits of the arbitration clause accrued to the signatories, not the driver, a nonsignatory, the court found that the promissory estoppel doctrine did not preclude him from avoiding obligations under the arbitration provision (Ouadani v. TF Final Mile LLC fka Dynamex Operations East, LLC, November 21, 2017, Lynch, S.).

The driver worked as a delivery driver for Dynamex Operations, now known as TF Final Mile. As a condition of his employment, he was required to associate with a vendor affiliated with Dynamex—Selwyn and Birtha Shipping (SBS). SBS was owned and managed by another Dynamex delivery driver. Neither SBS nor Dynamex classified the plaintiff as an employee. However, the driver received his compensation from SBS. Unbeknownst to the driver, Dynamex and SBS had entered into an “Independent Contractor Agreement for Transportation Services.”

Delivery services. Under the agreement, SBS agreed to perform delivery services brokered by Dynamex. In turn, SBS was permitted to hire employees or subcontractors to perform some or all of the contracted services. The agreement also contained an arbitration provision. Additionally, the agreement contained a provision that required SBS’s subcontractors to comply with the terms of the agreement, and required SBS to provide Dynamex with a written agreement from any subcontractor attesting that the subcontractor had agreed to comply with the agreement. However, SBS did not have the driver execute such a written agreement.

Dynamex required the driver to wear a Dynamex-issued shirt and a Dynamex identification badge when he delivered products. He used a Dynamex-issued email address to receive communications and directions from Dynamex managers. Dynamex also provided the driver with his assigned shifts for each week and gave him specific instructions about his delivery schedules. To perform his duties, the driver used his own car and paid for his own gas without reimbursement.

Driver complaint. In August 2016, the driver complained that he lacked the independence of a contractor and that he should be paid as an employee if Dynamex continued to exert the same degree of control over his work. Shortly after receiving the driver’s complaint, Dynamex permanently removed him from the driver schedule, effectively terminating his employment.

Following his termination, the driver brought a putative class action asserting that Dynamex misclassified him and other delivery drivers as independent contractors in violation of state and federal wage-and-hour laws. He also alleged that Dynamex improperly retaliated against him in violation of Mass. Gen. L. ch. 149, § 148A. Dynamex responded by filing a motion to compel arbitration, pointing to the agreement between Dynamex and SBS that contained a mandatory arbitration clause. The district court denied Dynamex’s motion, reasoning that the driver did not sign the agreement containing the arbitration clause and had no idea that the agreement even existed.

Motion to compel arbitration. On appeal, Dynamex argued that the driver should be compelled to arbitrate under federal common law principles of contract and agency. The FAA embodies a “liberal federal policy favoring arbitration.” However, a “basic precept” underlying the FAA is that “arbitration is a matter of consent, not coercion.” As such, “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”

In this instance, it was undisputed that the driver never signed the agreement containing the arbitration clause at issue, or even knew about it. A party that seeks to compel arbitration must show (1) that a valid agreement to arbitrate exists, (2) that the movant is entitled to invoke the arbitration clause, (3) that the other party is bound by that clause, and (4) that the claim asserted comes within the clause’s scope. Here, the pertinent question concerned the third prong: whether the driver, a nonsignatory to the agreement, was bound to arbitrate his claims against Dynamex?

Agency principles. To answer this question, the First Circuit looked to federal common law including “general principles of contract and agency law.” The appeals court disagreed with the employer’s contention that the driver was bound to arbitrate because he was an “agent” of SBS. The driver was not bringing his wage-and-hour claims as an “agent acting on behalf” of SBS. Rather, he was bringing claims against Dynamex on his own behalf and on behalf of other similarly situated drivers. The alleged agency relationship between the driver and SBS was irrelevant to the “legal obligation in dispute.”

Equitable estoppel. Equitable estoppel “precludes a party from enjoying rights and benefits under a contract while at the same time avoiding its burdens and obligations.” Dynamex claimed that the driver knowingly sought and obtained benefits from the agreement because he performed the “contracted services” pursuant to the agreement for compensation. However, the court was unpersuaded by the employer’s arguments because the benefits of the arbitration clause accrued to the signatories—Dynamex and SBS—not the driver.

Third-party beneficiary. Finally, because the Dynamex failed to identify any language in the agreement that could be read to provide the driver with “specific legal rights,” that fact was fatal to its third party beneficiary claim, concluded the appeals court. The driver’s claims did not depend on the existence of a right guaranteed in the contract between Dyamex and SBS. Moreover, to the extent that the agreement evinced an intent to bind subcontractors to its terms, it contemplated a specific mechanism for doing so: SBS must obtain from the subcontractor a “written agreement” to comply with the agreement’s terms, and provide that written agreement to Dynamex. SBS’s failure to obtain a written agreement from the driver cut against its argument that he should be bound by the agreement. Accordingly, the judgment of the district court was affirmed.

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