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FAA exemption extends to ‘last mile’ delivery drivers

Ruling has implications for rest of ‘gig economy’

Despite never crossing state lines while discharging their duties, “last mile” delivery drivers are sufficiently engaged in interstate commerce to qualify for the Federal Arbitration Act’s exemption for “transportation workers,” the 1st U.S. Circuit Court of Appeals has held.

The decision means that the plaintiff in Waithaka v. Amazon.com, Inc., et al., and the class of Amazon’s fleet of last mile drivers he hopes to represent can forge ahead with their claims in federal court, rather than submit to arbitration.

feudo-christopherWaithaka seemingly throws open the courthouse doors to a broader group of workers than many companies may have anticipated, if their now-faulty notion of “interstate commerce” entailed an employee himself moving across state lines, said Christopher S. Feudo of Boston.

The 1st Circuit also ruled that the case could proceed as a class action, despite a class waiver provision in the drivers’ employment agreements.

At issue in Waithaka is the “residual clause” of Section 1 of the FAA, which exempts from the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

The court noted that it had not considered the scope of the exemption since the U.S. Supreme Court’s 2001 decision in Circuit City Stores, Inc. v. Adams, which held that the exemption is limited to employment contracts of “transportation workers.”

To pin down exactly what it means to be “engaged in” interstate commerce, the 1st Circuit looked to statutes enacted contemporaneously with the FAA, particularly the Federal Employers’ Liability Act.

For the purposes of the FELA, the phrase “engaged in interstate commerce” had been construed to include people who transported goods or passengers that were moving interstate, even if those people never crossed a border, the court noted.

The 1st Circuit rejected Amazon’s arguments that the Supreme Court in Circuit City had specifically dismissed the FELA as irrelevant to interpreting the FAA.

It found similarly unavailing Amazon’s arguments premised on the remedial purpose of the FELA, the sequence of the words in Section 1, and the structure of the residual clause, along with those grounded in the FAA’s purpose and legislative history.

“In sum, we reject Amazon’s cramped construction of Section 1’s exemption for transportation workers,” Judge Kermit V. Lipez wrote for the panel.

Instead, the court found that last mile delivery workers are transportation workers “engaged in … interstate commerce,” regardless of whether they physically cross state lines, and because the FAA did not govern the dispute, it “provides no basis for compelling the individual arbitration.”

One battle of many

For the plaintiff’s attorneys, Waithaka is just one battle in a larger war, given their similar cases on behalf of workers pending in courtrooms around the country.

But the 1st Circuit’s decision in Waithaka is still significant, said Boston class action lawyer Shannon Liss-Riordan.

Among her office’s other cases involving companies allegedly using arbitration clauses to evade enforcement against their mislabeling of employees as independent contractors, three in the federal circuit courts raise the same issue as Waithaka, Liss-Riordan noted.

Defendants in those cases include gig economy transportation companies Uber and Lyft, along with delivery service Grubhub.

Liss-Riordan said she had already filed notices of supplemental authority with the 9th and 7th circuits, alerting those courts to the Waithaka decision.

The Washington Legal Foundation, which submitted an amicus brief supporting Amazon in Waithaka, is hoping that the 7th Circuit, in Wallace v. Grubhub, will diverge from Waithaka’s analysis and create a circuit split, said Corbin K. Barthold, WLF’s senior litigation counsel.

But Liss-Riordan predicted that it would be particularly helpful that the 1st Circuit “spelled out so wholeheartedly” its rejection of the idea that transportation workers would need to cross state lines for the FAA exemption to apply.

How the 1st Circuit addressed state law is also “extremely important,” Liss-Riordan said, given how frequently defendants tend to fall back on a decade’s worth of arbitration-friendly Supreme Court jurisprudence, if plaintiffs prevail on the FAA exemption.

At least to some large degree, Waithaka “wipes away” the federal preemption aspect of those Supreme Court cases, Liss-Riordan said.

In light of Waithaka, Liss-Riordan said the “next new battleground” may be state supreme courts, which could be asked to probe whether their states’ policies against class action waivers are as robust as in Massachusetts.

Liss-Riordan said she was unsure as to whether the Rhode Island Supreme Court has had the occasion to weigh in on the propriety of class action waiver to the extent its Massachusetts counterpart has.

But the lesson for practitioners is not to presume that a class action waiver is valid, or that another state’s law should trump the public policy in a plaintiff’s home state, she said.

In that respect, Providence attorney Louise A. Herman said she believes that last-mile drivers in Rhode Island are situated similarly to the plaintiff in Waithaka.

“In short, Rhode Island too, has a strong public policy that favors the ability of workers in this state to pursue class-wide relief and that precludes the ability of employers to require workers to contractually waive the protections afforded by our state wage laws,” she said.

The importance of workers being able to proceed both in a public forum and on a class-wide basis to vindicate their rights under wage-and-hour laws cannot be overstated, said San Francisco attorney Jennifer D. Bennett and Seattle attorney Toby J. Marshall, co-authors of a brief in support of the plaintiff in Waithaka.

Herman agreed, noting that the proliferation of agreements with provisions compelling arbitration and waiving class claims that large national companies are foisting on unwitting and relatively powerless employees “significantly undermines the ability to stop these kinds of wage theft practices.”

But for the ability to bring class claims, a potential plaintiff will have difficulty finding a lawyer for whom bringing an individual claim based on one person’s lost overtime will make economic sense, she added.

In one sense, the 1st Circuit’s decision is not surprising, Bennett said, in that the court looked at the words of the statute, which is “exactly what the Supreme Court said it should do” in the landmark case she successfully argued on behalf of transportation workers last year, New Prime Inc. v. Oliveira.

The possibility of being subjected to court determinations about whether their workers are independent contractors or employees presents an “existential legal issue,” which threatens to upend the business model of food delivery services and ride-sharing apps, especially in Massachusetts, which has what is considered the toughest independent contractor test in the country, said defense-side labor and employment attorney Christopher S. Feudo of Boston.

Waithaka seemingly throws open the courthouse doors to a broader group of workers than many companies may have anticipated, if their now-faulty notion of “interstate commerce” entailed an employee himself moving across state lines, Feudo said.

Amazon’s attorneys had not responded to requests for comment as of press time.

Tough ‘gig’

While Amazon has historically relied on third-party delivery providers such as FedEx, UPS and the U.S. Postal Services to get packages to its customers, in recent years it has begun retaining the services of independent contractors, who provide delivery services through the smartphone app Amazon Flex, or AmFlex.

Using the app, drivers sign up for delivery shifts and then usually use their own vehicles to make deliveries, earning an hourly rate. If the deliveries take longer than expected, they do not receive overtime. They are also not reimbursed for gas, the cost of maintaining their vehicles, or their use of cellphone data.

Once prospective drivers create an account on the app, they are presented with a “terms of service” agreement that includes a mandatory arbitration clause. In a separate section, the parties also agree that any dispute resolution proceedings “will be conducted only on an individual basis and not on a class or collective basis.”

The agreement says the bar on class actions applies “even if a court or arbitrator invalidates or modifies or declines to enforce the agreement in whole or in part.”

Plaintiff Bernard Waithaka accepted the terms of service when he “on-boarded” into the AmFlex program on Jan. 13, 2017, and then began collecting packages for delivery in Massachusetts, never crossing state lines.

He filed a putative class action suit in Massachusetts state court in August 2017, claiming that Amazon misclassified AmFlex drivers as independent contractors, not employees; violated the Massachusetts Wage Act by requiring him and other drivers to “bear business expenses necessary to perform their work”; and violated the Massachusetts Minimum Wage Law.

After removing the case to federal court, Amazon moved to compel arbitration or, in the alternative, to transfer the case to the Western District of Washington.

The motion to compel arbitration failed, and while the motion for transfer was granted, proceedings in Washington were stayed until the 1st Circuit ruled on Amazon’s appeal of the arbitration decision.

Fundamental policy

Even though it concluded that the FAA exemption for transportation workers applied, the 1st Circuit noted that state law might also compel the case to be sent to arbitration.

While the employment contract says that it should be interpreted under the law of Washington, that choice of law was unenforceable because Massachusetts would treat the contract provision waiving the right to pursue class claims as contrary to the state’s fundamental public policy, the 1st Circuit found.

The court noted that Massachusetts law not only specifically provides for class claims being brought under the three relevant state statutes, but two of them also contain specific provisions precluding the contractual waiver of certain rights. That indicated that protecting a substantive right to bring class actions was a fundamental public policy of the state, the plaintiff argued.

The 1st Circuit ultimately agreed, but not before taking a close look at the somewhat tortured path Massachusetts case law had taken on the issue.

As in Massachusetts, Rhode Island’s wage law expressly authorizes class actions.  R.I.G.L. 28-14-19.2(b) reads: “An action instituted pursuant to this section may be brought by one or more employees or former employees individually and/or on behalf of other employees similarly situated.”

Violations of the Rhode Island wage law are also misdemeanors, punishable by fine or imprisonment, which suggests similarly compelling public policy considerations.

Like the Massachusetts Wage Act, the Rhode Island Payment of Wages Act also prohibits agreements that contravene the requirements of the statute.

In Waithaka, the transportation worker exemption had taken the FAA out of the picture, so the state’s distaste for class action waivers was able to carry the day.

“Notwithstanding the Supreme Court’s view that such state policies must give way when the FAA governs a dispute, the policies remain intact where, as here, the FAA does not preempt state law,” Lipez wrote.

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