A U.S. Court of Appeals for the Ninth Circuit panel ruled that Uber Technologies drivers don’t fall within the Section 1 exemption of the Federal Arbitration Act (FAA) to mandatory arbitration because they are not a class of workers “engaged in foreign or interstate commerce.” Accordingly, the drivers were properly compelled by the district court to arbitrate their claims. Capriole v. Uber Technologies, Inc., Case No. 20-16030 (9th Cir. Aug. 2, 2021).

The plaintiffs were Massachusetts residents who, in September 2019, filed a putative class action in the District of Massachusetts seeking a preliminary injunction preventing Uber from classifying drivers in that state as independent contractors and for an order requiring Uber to reclassify its drivers as “employees” and to abide by Massachusetts wage laws. The drivers had signed Uber’s 2015 Technology Services Agreement (the Agreement), which contained both a mandatory arbitration agreement covered by the FAA and a class action waiver.

Uber moved to compel arbitration, stay the action pending arbitration and transfer the case to the Northern District of California based on a forum selection provision in the driver agreements. The Massachusetts district court ultimately granted Uber’s motion to transfer the action to the California district court, including the plaintiffs’ emergency motion for injunctive relief and the motion to compel arbitration. The California district court then denied the plaintiffs’ request for a preliminary injunction and granted the motion to compel arbitration.

The Ninth Circuit Analysis

In resolving the “primary question on appeal,” the appellate panel declared:

[W]e join the growing majority of courts holding that Uber drivers as a class of workers do not fall within the “interstate commerce” exemption from the FAA, citing Osvatics v. Lyft, Inc., No. 20-cv1426 (KBJ), 2021 WL 1601114, at *8 (D. D.C. Apr. 22, 2021).

Although Massachusetts law was the foundation for the plaintiffs’ claims, they were ultimately controlled by the FAA. Indeed, neither party disputed that the FAA governed the Agreement. Section 1 of the act specifically excludes “seamen,” “railroad employees” and “any other class of workers engaged in foreign or interstate commerce” – in what is termed the “residual clause.” In the related analysis, “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,’” citing In re Grice, 974 F.3d 950, 956 (9th Cir. 2020). We discussed the Grice opinion in our Sept. 8, 2020 blog article.

The proper focus is “on the inherent nature of the work performed and whether the nature of the work primarily implicates inter- or intrastate commerce.” And the proper class of workers had to be assessed at a national rather than a narrow geographic level. Premised on that analysis, the panel concluded that Uber drivers as a nationwide “class of workers” are not “engaged in foreign or interstate commerce” and are not exempt under FAA Section 1. While the Grice opinion was based on a deferential mandamus petition context, the panel found it “instructive and its reasoning persuasive.” Grice determined that a district court’s opinion that drivers who transport passengers to and from airports do not come within the residual category was not clearly erroneous.

Next, the Uber panel rejected the plaintiffs’ argument that the preliminary injunction motion should have been decided before Uber’s motion to compel arbitration. The plaintiffs’ claims and the injunction sought were subject to the arbitration agreement, and the injunctive relief would have disrupted rather than preserved the status quo. So the California district court was correct in considering the motion to compel first. Reclassification of all Massachusetts drivers as employees not only would “upend … the status quo *** but would fail to ‘preserve the meaningfulness of the arbitral process.’” See Toyo Tire Holdings of America, Inc. v. Continental Tire North America, Inc., 609 F.3d 975, 980 (9th Cir. 2010).

Moreover, the plaintiffs could not dodge the FAA by terming their injunctive request as being for “public injunctive relief.” The relief sought – being classified as employees – is directed at the plaintiffs and other rideshare drivers, not the general public. Consequently, the plaintiffs cannot avoid the class action waiver in the Agreement and the injunctive relief sought was for the arbitrator, not a court, to decide. The district court did not err by not reaching the merits of that issue.

While the panel opinion certainly adds needed clarity to the application of the FAA Section 1 exemption to rideshare workers, the battle over arbitration may not be over. It may ultimately be headed to Congress. As one counsel for the plaintiffs in Uber commented, the ultimate solution will come when Congress prevents compelled arbitration.

The Restoring Justice for Workers Act Reintroduced

On July 29, House Judiciary Committee Chairman Jerrold Nadler (D-N.Y.) and Education and Labor Committee Chair Robert C. “Bobby” Scott (D-Va.) reintroduced a bill that would effectively reverse the 2018 U.S. Supreme Court decision in Epic Systems v. Lewis, 138 S. Ct. 1612, which found mandatory agreements requiring individual employment arbitration were enforceable under the FAA.

The Restoring Justice for Workers Act, if enacted, also would:

• Prohibit pre-dispute arbitration agreements for workplace disputes.
• Forbid retaliation against workers for refusing to arbitrate work disputes.
• Require protections to make sure post-dispute arbitration agreements are truly voluntary and that workers give their informed consent.
• Require amendment of the National Labor Relations Act to forbid practices that interfere with employees’ right to engage in concerted activity over work disputes.

This is not the first attempt to limit or abolish mandatory employment arbitration agreements in Congress, and it is unclear whether this latest Democratic bill stands a chance of passage in the current Congress. What is clear is that challenges to employment arbitration agreements, whether judicial or legislative, will continue for the foreseeable future.

Bottom Line

The Ninth Circuit articulated useful standards to determine whether Uber drivers fall within the Section 1 “interstate commerce” exemption to the FAA. They do not. Mandatory arbitration agreements with class action waivers, however, still remain in the crosshairs of House Democrats.