Labor & Employment Law Daily Local Amazon drivers are covered by FAA’s transportation worker exemption, so arbitration not compelled
Wednesday, July 22, 2020

Local Amazon drivers are covered by FAA’s transportation worker exemption, so arbitration not compelled

By Lisa Milam, J.D.

Also, Massachusetts law governs, which means the nonseverable class waiver in the parties’ arbitration agreement, and thus the agreement itself, is unenforceable.

In a significant blow to Amazon and transportation industry employers, the First Circuit has held that (1) the Federal Arbitration Act’s transportation worker exemption applies to Amazon delivery drivers who transport packages on the final, intrastate leg of their interstate journey; and (2) the class waiver in the parties’ arbitration agreement renders the agreement unenforceable under Massachusetts contract law, which applies here, according to the panel’s choice-of-law analysis. Consequently, the appeals court affirmed the Massachusetts federal court’s decision refusing to compel arbitration of putative class and collective action claims alleging that the drivers were misclassified as independent contractors and shorted on expense reimbursements and the minimum wage (Waithaka v., Inc., July 17, 2020, Lipez, K.).

Amazon Flex. “Amazon Flex” drivers contract for local Amazon delivery assignments using the online retailer’s “AmFlex” app. Prospective drivers, when downloading the app, must sign off on the “AmFlex Independent Contractor Terms of Service.” The contract includes:

  • a mandatory arbitration provision, and class and collective action waiver that was expressly nonseverable from the arbitration provision
  • a provision that the FAA “and applicable federal law” will govern disputes between the drivers and the company
  • a clause providing that the contract is to be interpreted under the law of the state of Washington, regardless of usual conflict of laws principles, except for the dispute resolution provision, which is to be governed by the FAA “and applicable federal law”
  • a severability clause striking any unenforceable provisions in order to render the rest of the agreement enforceable.

The drivers are classified as independent contractors and are compensated by the hour for their shifts, but aren’t paid any more money if they have to work beyond their regular shift to complete their assigned deliveries. Nor are they paid for gas, car maintenance, or cell phone costs; the drivers cover their own business expenses.

Wage suit. The result, according to a Massachusetts-based AmFlex driver, is that they are denied the minimum wage, in violation of the FLSA, Massachusetts Wage Act, and Massachusetts Minimum Wage Law, and the state’s Independent Contractor Misclassification Law. He brought suit on behalf of himself and a class of Massachusetts delivery drivers whom he says have been misclassified as independent contractors, rather than statutory employees.

District court ruling. The suit was filed in state court but removed to federal court, where Amazon sought to compel arbitration pursuant to the parties’ contract. However, the district court held that the arbitration agreement was exempt under the FAA’s section 1 exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The lower court further held that Massachusetts law therefore governed the enforceability of the arbitration clause and that the provision was unenforceable based on Massachusetts public policy. (The court did, however, grant Amazon’s alternative request to transfer the case to Washington state, where similar litigation was pending.) Amazon filed an appeal.

Supreme Court precedent. The First Circuit addressed the scope of the FAA transportation worker exemption for the first time since the Supreme Court issued its 2001 decision in Circuit City Stores, Inc. v. Adams. There, the High Court held that the exemption is limited to contracts involving transportation workers, not all contracts of employment, and observed that Congress, in establishing the exemption, had a “demonstrated concern with transportation workers and their necessary role in the free flow of goods.” The appeals court also noted the Court’s 2019 New Prime Inc. v. Oliveira decision, which found that the exemption encompasses transportation workers who are independent contractors as well as those with traditional “employment” contracts.

The court also looked to the Supreme Court’s interpretation of the “interstate commerce” provision of the Federal Employers Liability Act (FELA), and noted the Court had found that movement across state lines was not dispositive for purposes of determining when injured railroad workers are covered. Rather, the statute covers those who transport either goods or passengers moving interstate, as well as those not directly involved in transport but working in positions “so closely related” to interstate transportation “as to be practically a part of it.”

Amazon sought to distinguish the interpretation of interstate commerce under FELA from that under the FAA, noting that FELA, unlike the FAA, is a remedial statute, and also that it applies to railroad carriers, not workers. The appeals court was unconvinced. “Consistent with the Supreme Court’s focus on ‘the flow of interstate commerce’ in Circuit City, these cases show that workers moving goods or people destined for, or coming from, other states—even if the workers were responsible only for an intrastate leg of that interstate journey—were understood to be ‘engaged in interstate commerce’ in 1925″ when Congress enacted the FAA. Adopting a broad interpretation of the “engaged in interstate commerce” residual clause, the appeals court rejected Amazon’s contention that the exemption only covers workers who personally carry goods across state lines.

“Any class of workers.” The residual clause also addresses “any class of workers,” which, in Amazon’s view, suggests that the activities of the workers themselves are the crux of the matter and the “geographic footprint and nature of the business for which they work” were not the relevant factors in determining whether the exemption applies. The appeals court rejected this notion as well, finding it improper to remove the workers’ activities from the business of the company. “The nature of the business for which a class of workers perform their activities must inform that assessment,” said the court. “After all, workers’ activities are not pursued for their own sake. Rather, they carry out the objectives of a business.” The language cited by Amazon “does not foreclose taking into account the company’s business when considering how to classify the nature and activities of the workers at issue.”

Statutory purpose. Amazon also argued to no avail that it would be inconsistent with the FAA’s pro-arbitration bent to exclude local workers and their contracts from the reach of the statute. The court conceded the statute’s purpose of countering hostility to arbitration, and agreed that the exemption must therefore be narrowly construed, but held this was not cause to “override” the original meaning of the statute. Also unavailing: Amazon’s claim that the exemption was meant as a narrow carve-out for railroad workers and seamen, for the practical reason that these workers already had entrenched alternative dispute resolution procedures in place that Congress did not wish to disturb, while no similar scheme existed for local drivers. But, were this the intent, Congress could have expressly limited the exemption to these two classes of workers, the appeals court reasoned; moreover, this wouldn’t explain why the exemption’s residual clause exists.

Amazon also cited the FAA’s statutory goal of reducing litigation over the enforceability of arbitration agreements. But the company’s proposed solution would not serve this purpose, according to the appeals court. “If crossing state lines were the touchstone of the exemption’s test,” then the dispute would turn on fact questions (and discovery) over how often a given group of workers moved between states, and litigation over “what portion of a given group of workers must cross state lines and with what frequency to qualify as a class of workers ‘engaged in . . . interstate commerce.’” In the end, the appeals court said, Circuit City empowered the lower courts to make the call as to which workers fall within the transportation worker exemption, and doing so “unavoidably requires the line-drawing that courts often do.”

Thus, the First Circuit held that the exemption covers workers who, like the AmFlex drivers, “transport goods or people within the flow of interstate commerce, not simply those who physically cross state lines in the course of their work.” Accordingly, the FAA does not govern.

Which state law applies? That left the court to decide which state law applies to the question whether arbitration may be compelled. Amazon argued that, if not the FAA, then Washington law controlled, pursuant to the choice of law provision in the parties’ arbitration agreement. It urged the court simply to strike the unenforceable provision stating that the “FAA and applicable federal law” govern, as the agreement’s severability clause instructs, thus leaving the parties’ express contractual choice of Washington law remaining. The plaintiff countered that the contract actually states that Washington law applies to all but the contract’s arbitration provision, and there is nothing in the contract laying out which law applies to the dispute resolution section in the event a court finds the FAA is inapplicable—leaving the contract devoid of any operative choice of law provision. Amazon won this round: the appeals court found that the contract’s severability clause ultimately prevails, so the provision selecting the FAA as governing law was to be scrapped, and Washington law remained the default choice of law for deciding whether the arbitration agreement, with its class waiver provision, could be enforced.

Conflict of laws analysis. Notwithstanding any contractual choice of law, though, the plaintiff cannot be deprived of “unwaivable statutory rights” which he is afforded under Massachusetts law. He contended that the right to pursue claims as a class action is one such right, and a fundamental public policy in the Commonwealth. This wouldn’t matter, of course, if the FAA governed the dispute—the U.S. Supreme Court’s 2011 ruling in AT&T Mobility LLC v. Concepcion made that clear. But the FAA did not apply, so the analysis was required.

The First Circuit found several pronouncements by the Massachusetts Supreme Judicial Court (SJC) that suggest the right to bring class actions is a fundamental policy of the state. The court also noted that Massachusetts law specifically precludes the waiver of the right to bring class claims arising under the Wage Act and Independent Contractor Misclassification Law. As such, the appeals court concluded that the SJC would recognize the right to pursue class actions as a fundamental public policy of Massachusetts, and thus would invalidate a class waiver. Assuming that Washington law, to the contrary, would hold that a class waiver provision was enforceable, Massachusetts law would “oust the contractual choice of Washington law” as discordant with the Commonwealth’s fundamental public policy.

Massachusetts law applies, and Massachusetts law prohibits class waivers. Therefore, Amazon’s arbitration agreement, with its nonseverable class waiver, was unenforceable, and the district court properly refused to compel arbitration.

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