A federal appeals court decided last week that ride-share drivers engaging in interstate commerce while performing work for Uber should not be subject to the company’s arbitration agreement because of a recent Supreme Court ruling broadly interpreting a federal law exemption that applies to independent contractors. This September 11 ruling threatens to upend a pivotal tool that many businesses use to better manage workplace litigation and requires all gig businesses operating near state borders to take notice.
Great news for gig economy businesses from an Illinois federal court: a judge recently ruled that Grubhub’s delivery drivers were not operating in “interstate commerce,” and therefore were not excluded from the company’s mandatory arbitration agreement. The March 28 ruling is one of the first decisions on this subject following January’s Supreme Court ruling casting this issue into doubt. While the fight is not over, round one goes to gig economy companies.
The $100 million settlement announced Monday by a transportation company to resolve a long-running misclassification claim might be the direct result of a January Supreme Court decision, and might be a troubling harbinger of things to come for many gig economy businesses. Swift Transportation paid the massive sum to a group of drivers who claimed they were improperly classified as “owner-operator” contractors when they should have been treated as employees, but only agreed to the deal after it became clear that recent legal precedent from the SCOTUS meant that they could not resolve the dispute in arbitration. What does this settlement signal for gig economy businesses in general?
When the news broke today that Uber had agreed to pay a group of drivers $20 million to settle a long-running misclassification claim, you could be forgiven for thinking that the deal sounded like a massive blow to the gig economy giant. After all, $20 million is a substantial sum – no matter how large a company is – and in most cases would be an indication that the paying party had given in to the exorbitant demands of the claimants. But this settlement is different. It resolves a claim that Uber had originally agreed to settle for $100 million – five times the amount of the final total. How did Uber get such a bargain?
After the Supreme Court ruled a few weeks ago that independent contractors working “in interstate commerce” were exempt from arbitration pacts due to a broad interpretation of the Federal Arbitration Act (New Prime v. Oliveira), I wrote a blog post about how labor law commentator Ross Runkel wondered whether gig business ride-share drivers and others would be able to extend that ruling in their favor and escape typical arbitration agreements. National Law Journal’s Erin Mulvaney followed this thinking by writing an article recapping how gig economy plaintiffs will soon be test-driving the New Prime decision to see if it can work in their favor. As she says, “already in the weeks since the ruling was issued, there are signs plaintiffs lawyers will use the opinion to reinforce their arguments that drivers who signed arbitration agreements should nonetheless be allowed to sue their employers in court.”
My colleagues Andy Scott and Felix Digilov reported on last week’s Supreme Court decision that rejected a trucking company’s effort to force its drivers to arbitrate their wage and hour claims against the company, despite the fact they had signed otherwise enforceable arbitration agreements (New Prime Inc. v. Oliveira). The reasoning behind that ruling? The SCOTUS held that the Federal Arbitration Act’s exemption that excludes “contracts of employment of workers engaged in interstate commerce” includes not only interstate transportation workers with employment agreements, but also those interstate transportation workers with independent contractor agreements. Now, a prominent labor law commentator posits whether this same decision could cause trouble for Lyft, Uber, and other gig economy companies.
It was just a matter of time. After the Supreme Court cleared the way for businesses to use class waivers with their employees and contractors with the Epic Systems ruling this past May, many observers expected that the decision would come back to haunt a class of Uber drivers who wanted to litigate a class action misclassification case against the ride-sharing company in court. Earlier today, sure enough, the other shoe dropped.
When the Supreme Court decided this May that businesses were permitted to enter into class waiver agreements with employees and contractors, forcing them into individual arbitration proceedings over workplace disputes rather than having to be subjected to bloated and costly class action litigation, we called it a “monumental” decision that “saved employment arbitration as we know it.” For businesses in the gig world, we now have a definitive example of just how valuable the SCOTUS’s new standard can be when it comes to misclassification cases.
The 9th Circuit Court of Appeals recently placed a temporary halt on the ongoing misclassification litigation against Uber, pointing out that it would make sense to wait for a key Supreme Court decision before proceeding further. The order gives the parties a bit of breathing room and allows them to retreat to their neutral corners for a temporary reprieve from the grind of class action litigation, but it is only a temporary pause. Once the ruling comes down from the SCOTUS, the combatants will be right back at it.
With the recent confirmation of Neil Gorsuch, the Supreme Court is now back up to its full complement of nine justices. While the current Court term has largely been devoid of blockbuster workplace law decisions – which could be the product of the sitting justices not wanting to resolve significant cases with only eight members – observers are already looking forward to what many believe will be a scintillating 2017-2018 term. The Court has already agreed to rule upon whether mandatory class action waivers are valid in an employment context, and we could also see action on sexual orientation discrimination claims and a re-visitation of the crucial agency shop fee conflict beginning in October 2017.