In a suit by Uber drivers in Massachusetts regarding whether they were employees or independent contractors, the Ninth Circuit ruled that an arbitrator must decide that issue for Uber drivers whose contracts with Uber contain mandatory arbitration provisions. As an initial matter, the appeals court concluded that the Uber drivers did not fall within the so-called “interstate commerce” exemption to mandatory arbitration under the FAA. In so ruling, the court affirmed the district court’s order compelling arbitration in a putative class action requesting a preliminary injunction prohibiting Uber from classifying drivers in Massachusetts as independent contractors and an order directing Uber to classify its drivers as employees and comply with Massachusetts wage law (Capriole v. Uber Technologies, Inc., August 2, 2021, Wardlaw, K.).
Misclassification claim. In September 2019, three Uber drivers in Massachusetts filed a putative class action against the ride-share company, seeking to compel it to comply with Massachusetts law and classify its drivers as employees. According to the drivers, their misclassification as independent contractors had forced them to bear the expenses of their employment, denied them minimum wage for their hours worked in violation of Massachusetts law, deprived them of overtime pay, and denied them paid sick leave. The drivers sought a preliminary injunction to prohibit Uber from classifying drivers as independent contractors and to compel their reclassification as employees.
Motion to compel. In response, Uber filed a motion to compel arbitration. When they signed up to become Uber drivers, the plaintiffs agreed to Uber’s 2015 Technology Services Agreement. The agreement’s first page advised them of the mandatory arbitration agreement and the agreement explicitly specifies that the arbitration provision is governed by the Federal Arbitration Act (FAA). The agreement expressly permits any driver who does not wish to be subject to mandatory arbitration to opt out (by mail or email) within 30 days. The drivers each agreed to the arbitration provision.
In March 2020, the Massachusetts district court denied the drivers’ request for a preliminary injunction. Just three days later, the Massachusetts court granted Uber’s motion to transfer the action to a California district court. The California district court ultimately denied the drivers’ request for a preliminary injunction and granted Uber’s motion to compel arbitration. The drivers appealed.
FAA exemption. The digital economy has raised important questions about the relationship between gig-economy companies and their workers, observed the Ninth Circuit. The primary question on appeal was whether the drivers’ claims were subject to mandatory arbitration. According to the drivers, they were exempt from mandatory arbitration under Section 1 of the FAA because they were a “class of workers engaged in foreign or interstate commerce.” The appeals court disagreed.
Nature of work. When deciding whether the exemption applies, “the critical factor [is] not the nature of the item transported in interstate commerce (person or good) or whether the plaintiffs themselves crossed state lines, but rather ‘[t]he nature of the business for which a class of workers perform[ed] their activities.’” The analysis focuses on the inherent nature of the work performed and whether the nature of the work primarily implicates inter- or intrastate commerce.
As an initial matter, the Ninth Circuit concluded that it must assess the relevant “class of workers,” Uber drivers, at the nationwide level, rather than confine it to any limited geographic region. It noted that any alternative approach would potentially produce absurd results whereby the FAA would apply differently to neighboring states, or even neighboring cities in the same state.
Interstate commerce. Moreover, the appeals court concluded that Uber drivers, as a nationwide class of workers, are not “engaged in foreign or interstate commerce” and are therefore not exempt from arbitration under the FAA. The appeals court based its reasoning on the Supreme Court’s decision in United States v. Yellow Cab Co., 332 U.S. 218 (1947). According to the appeals court, rideshare drivers are less like the exclusive provider of “between-station transportation” described in Yellow Cab and more like a “local taxicab service.” Therefore, Uber drivers, as a class, “are not engaged in interstate commerce” because their work “predominantly entails intrastate trips.” Thus, the appeals court concluded that the Uber drivers did not fall within the so-called “interstate commerce” exemption to mandatory arbitration under the FAA.
Injunctive relief. Further, the appeals court concluded that the injunctive relief requested by the drivers, reclassification of their status from “independent contractors” to “employees,” was not public injunctive relief that may have allowed them to avoid arbitration. Because the drivers’ claims and requested injunctive relief were arbitrable by the terms of the arbitration agreement and their requested injunctive relief would have upended the status quo rather than maintained it, the appeals court concluded that the district court properly addressed the motion to compel arbitration first.
Because the drivers’ request for injunctive relief regarding their classification was properly a matter for the arbitrator, the district court did not err by declining to reach the merits of their request for a preliminary injunction Accordingly, the judgment of the district court, compelling arbitration, was affirmed.
The case is No. 20-16030.
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