Labor & Employment Law Daily New Jersey Uber drivers may dodge arbitration in misclassification case
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Friday, September 13, 2019

New Jersey Uber drivers may dodge arbitration in misclassification case

By Lisa Milam, J.D.

The district court, with the benefit of discovery, must decide whether the rideshare drivers are “engaged in interstate commerce,” in which case the FAA’s Section 1 exemption applies.

A district court jumped the gun in ordering Uber drivers to arbitrate their class action wage suit alleging they were misclassified as independent contractors, the Third Circuit held. The lower court had rejected outright the notion that the Federal Arbitration Act’s residual clause, which excludes transportation workers in interstate commerce from FAA coverage, applied here. But the appeals court found no basis to support Uber’s assertion that the exclusion applies only to transportation workers who transport goods, rather than passengers. Discovery was needed before the district court could decide, in the first instance, whether the FAA exemption applied to the rideshare drivers here (Singh v. Uber Technologies, Inc., September 11, 2019, Greenaway, J. Jr.).

Wage suit. Like so many cases brought by Uber drivers of late, this class action alleged that the rideshare drivers were wrongly classified as independent contractors when in fact they were employees and, as a result, they were denied overtime pay due, and incurred business expenses for Uber’s benefit. Uber removed their state-law case to federal court and moved to compel arbitration pursuant to the parties’ arbitration agreement.

Residual clause exclusion. The FAA does not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Are Uber drivers workers who engage in interstate commerce? The drivers argued that the residual clause—the “any other class of workers” provision—applied here (they transported passengers between New York and New Jersey, they pointed out), and thus the arbitration agreement was not enforceable under the FAA. Uber countered that the residual clause applied only to workers in interstate commerce who transported goods. Whether the drivers would have to arbitrate their misclassification claims turned in large part on this narrow issue of statutory construction.

The district court adopted Uber’s argument that drivers moving passengers (even in interstate commerce) did not fall within the ambit of the residual clause, so it ordered the drivers to arbitrate their claims, without considering the drivers’ other arguments in opposition to Uber’s motion. On appeal, the Third Circuit rejected this finding and vacated the order to compel. Whether the residual clause applied to exclude the arbitration agreement involved a two-part inquiry, it explained.

Transporting passengers counts. The first question is whether the FAA exclusion reaches transportation workers who transport passengers. As for statutory construction, the text of the FAA suggests that it does. Uber staked its claim on dicta from the Supreme Court’s 2001 opinion in Circuit City Stores, Inc. v. Adams (which “merely illustrates a circuit split,” the appeals court noted—and, the Supreme Court had found the Third Circuit was on the correct side of the split on the key point.). Nor could Uber’s resort to legislative history persuade the court, or any of its other arguments in support of the notion that drivers who transport passengers are not covered by the residual clause as a matter of law.

“Consistent with our longstanding precedent, we hold that the residual clause of §1 of the FAA may operate to exclude from FAA coverage the contracts of employment of all classes of transportation workers, so long as they are engaged in interstate commerce, or in work so closely related thereto as to be in practical effect part of it,” the appeals court wrote.

Engaged in interstate commerce? Next, the court must consider whether the Uber drivers were engaged in interstate commerce. The district court had misfired on the first question, and so it failed to address the second. And it ignored the drivers’ plea to engage in discovery on this essential fact question. The Third Circuit held that it’s up to the district court to determine, in the first instance, whether the Uber drivers were engaged in interstate commerce “or sufficiently related work.” And to that end, limited discovery must be allowed, as the amended complaints (and related documents) do not answer the question on their face.

Each party claimed at oral argument that the facts were on their side. The drivers pointed to the contract between the parties as evidence they were engaged in interstate commerce; Uber argued that, as a practical matter, the character of the work was inherently local, even if the drivers cross state lines from time to time. Neither approach satisfied the appeals court, which instructed the lower court to consider a variety of factors, including the contents of the parties’ agreement(s), the nature of the industry in which the drivers are engaged, information regarding the work they perform, and other “laws, dictionaries, and documents” discussing the parties, and their work.

Motion to dismiss, or summary judgment? The appeals court addressed in detail whether a motion to dismiss standard or summary judgment standard properly applied, noting that, under circuit precedent, motions to compel arbitration can be decided under either standard. It explained that the motion to dismiss standard applies when it’s apparent from the face of the complaint (or incorporated documents) that there is a valid agreement to arbitrate. But if it’s not clear from the complaint and supporting documents that the parties agreed to arbitrate, or if the plaintiff has presented additional facts to put the agreement in dispute, a summary judgment standard applies, and a “restricted inquiry into factual issues [is] necessary” before the court may entertain further briefing, after which the summary judgment standard will apply. (Concurring, Judge Porter disagreed “that the parties must jump right into discovery on remand,” and rejected the notion that wide-ranging discovery was called for to resolve the residual clause question. He also noted that the majority had equivocated on this issue, urging “restricted” inquiry, but one informed by “a wide variety of sources”).

Here, neither the amended complaint nor incorporated documents sufficed to show whether the Uber drivers are engaged in interstate commerce or sufficiently related work; thus, on remand, the court must permit limited discovery before further briefing and, if Uber again moves to compel arbitration following discovery, the summary judgment standard under Rule 56 will apply, and the court will decide only this element of the residual clause inquiry, “which will be dispositive as to whether the FAA applies.”

Issues not addressed. The drivers argued the arbitration agreement was invalid for other reasons, too: the agreement was unconscionable; it was an unconstitutional waiver of the right to a jury trial; and, it violated the NLRA and other labor statutes. Uber, in seeking to compel, also asserted that the agreement had a delegation clause anyway, which meant it was for the arbitrator to address this threshold issue. In the end, though, all of these arguments (save those not already resolved by the Supreme Court in the interim) are contingent on whether the FAA applies. The district court must revisit this threshold issue, following discovery. And, if the district court finds the FAA does apply, it must reserve all other questions for the arbitrator, in accordance with the delegation clause (which the lower court had deemed valid).

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