Labor & Employment Law Daily Stay pending appeal denied in Postmates case ordering thousands of individual arbitrations over workers’ FLSA status
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Tuesday, March 10, 2020

Stay pending appeal denied in Postmates case ordering thousands of individual arbitrations over workers’ FLSA status

By Georgia D. Koutouzos, J.D.

The fact that the arbitration filing fees totaled $10 million did not constitute irreparable harm to the employer, which had drafted and compelled its workers to sign an agreement barring collective arbitration.

A food delivery company whose couriers had objected to their characterization as independent contractors was not entitled to stay a California federal court’s October 2019 decision that the parties must proceed to arbitration as specified in a mutual arbitration agreement the couriers were required to sign as a condition of employment, the court ruled. Rejecting the company’s contention that requiring it to proceed before its appeal of the decision could be heard by the Ninth Circuit would result in irreparable harm, the district court essentially held that the economic impact of the company’s arbitration mandate—some $10 million in filing fees—was a problem of the company’s own making (Adams v. Postmates, Inc., March 5, 2020, Armstrong, S.).

Mutual arbitration agreement. Over 5,000 people who worked as couriers at a company that operates a food delivery platform and mobile app were required to sign an agreement that classified them as independent contractors rather than employees. The agreement contained an arbitration provision requiring that all disputes between the couriers and the company be resolved through binding arbitration instead of litigation. Within the arbitration provision were two waivers—a class action waiver and a representative action waiver—the net effect of which was that any courier with a legal claim against the company was limited to filing an individual arbitration demand with the designated arbitrator, the American Arbitration Association (AAA). The arbitration provision also contained a delegation clause specifying that the arbitrator had the exclusive authority to determine arbitrability, except as to matters pertaining to the waivers’ enforceability.

Alleged FLSA violation. In March and April 2019, the couriers filed a total of 5,274 individual arbitration demands to AAA, alleging that they had been misclassified as independent contractors in violation of the Fair Labor Standards Act. Although the filing of those demands triggered the company’s obligation to tender its share of arbitration filing fees (approximately $10 million), it refused to do so, asserting that the arbitrations had not been properly commenced because the arbitration demands were insufficient under the terms of the agreement’s arbitration provision.

Motions to compel arbitration. In June 2019, the couriers filed a motion to compel arbitration in federal court, after which the company filed a cross-motion to compel arbitration. Each side also requested that the order include specific, additional conditions. The couriers asked that the company be directed to tender its share of the arbitration fees to the arbitrator so that the arbitrations may proceed, and the company countered that it was not yet obligated to tender its share of the filing fees on the ground that the arbitration demands were “generic” and lacked the specific information articulated in the agreement’s arbitration provision. By submitting the allegedly “generic” arbitration demands, the couriers were attempting to proceed with a de facto, class-wide arbitration in contravention of the agreement’s class action waiver, the company maintained.

Appeal and motion to stay. In October 2019, the court granted the parties’ motions to compel arbitration but denied their respective requests for the imposition of additional conditions. As to the issue of whether the couriers’ arbitration demands complied with the terms of the arbitration provision, the court ruled that the issue was for the arbitrator to decide. The company appealed the ruling and filed a motion to stay the order compelling arbitration pending the appeals court’s decision.

Likelihood of success on the merits. Under relevant case precedent, four factors must be considered in deciding whether to grant a stay pending appellate proceedings: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. In that regard, the court found that the company neither met its burden of showing that success was likely on the merits nor set forth a substantial case for relief on the merits.

Class action waiver. The company’s contention that the court erred in declining to address whether the couriers were attempting to circumvent the arbitration provision’s class action waiver was meritless because the salient question presented by the company’s cross-motion to compel arbitration simply was whether the couriers’ arbitration demands contained the information specified in the agreement (i.e., the required contents of an arbitration demand). The agreement unequivocally delegated to the arbitrator the exclusive authority to determine compliance with the agreement’s arbitration provision, including any dispute concerning the arbitrability of a claim. Thus, the court found that the question of whether the couriers were attempting to circumvent the class action waiver ultimately had no bearing on whether each arbitration demand contained the requisite information to comport with the agreement’s requirements.

Delegation clause. The company’s second argument in relation to its likelihood of success on appeal rested on the notion that the court’s construction of the delegation clause was incorrect (the October 2019 decision determined that the carve-out from the delegation clause only applied to claims that the class action waiver was unenforceable, unconscionable, void, or voidable). The company renewed its contention that the delegation clause should be read more broadly to exclude any claims relating to the class action waiver from the arbitrator’s purview; however, the mere fact that the company disagreed with the court’s analysis did not establish a serious legal question. Regardless, the court said that it was unpersuaded that the company had any chance of succeeding on its interpretation of the delegation clause.

Irreparable harm. As for the second factor, the company contended that absent a stay, it would be required to pay substantial filing fees to the AAA that it had no way of recovering even if it prevailed on appeal. That threat of unrecoverable economic loss qualified as irreparable harm, the company argued. The court disagreed, stating that mere litigation expense—even substantial and unrecoupable cost—does not constitute irreparable injury. Nor would a favorable resolution on appeal render the arbitrations unnecessary, as even if the company prevailed on appeal the couriers would have the opportunity to resubmit their demands. Unless the couriers abandon their claims, the company at some point will be required to pay its share of the filing fee for each demand submitted to the arbitrator. The company was hard-pressed to complain about the amount of filing fees due; its obligation to tender $10 million in fees as a result of the thousands of individual arbitration demands was a direct result of the agreement that the company had drafted and required each courier to sign as a condition of working. As such, it strained credulity to argue that the amount of filing fees constituted an irreparable harm when that “harm” was entirely of the company’s own making, the court remarked, declining to reach the final two factors of the stay analysis given the company’s failure to have met the first two factors.

Temporary stay. Alternatively, the company argued that if the district court denied its request for a stay pending appeal, it nevertheless should stay its order for 60 days to enable the company to seek a stay from the appellate court. However, the court reiterated that the company had failed to demonstrate how a successful appeal would relieve it of its obligation to pay its share of the arbitration fees—an obligation that emanated from an agreement that the company had drafted and compelled its couriers to sign. Therefore, the company’s alternative request for a temporary stay was denied.

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