The Federal Antitrust and Labor Law Double Bind: The Ninth Circuit Hears Oral Argument in Challenge to Seattle’s Ordinance Granting Collective Bargaining Rights to “Gig-Economy” Drivers

by Seyfarth Shaw LLP

Seyfarth Synopsis: On Monday, February 5, 2018, the U.S. Chamber of Commerce’s lawsuit challenging the City of Seattle’s ordinance allowing independent-contractor drivers to engage in collective bargaining was before the U.S. Court of Appeals for the Ninth Circuit for oral argument. The outcome of the litigation could have a far reaching impact on the growth of the “gig-economy.”

In December 2015, the City of Seattle became the first city in the United States to pass an ordinance creating collective-bargaining rights for “taxi-cab, flat-rate vehicle and transportation network company drivers,” that would allow such drivers to bargain with their respective companies concerning issues such as payment to drivers, vehicle safety, and other matters of mutual interest. Seyfarth has previously covered similar state and local proposals which sought to provide collective bargaining rights to such workers.

The Chamber’s Lawsuit: Antitrust and NLRA Preemption

Seattle’s ordinance was immediately questioned by business community groups. In March 2016, the U.S. Chamber of Commerce filed suit against the city seeking to enjoin the new law. The Chamber’s complaint rests on two key claims:

  • First, the ordinance violates the Sherman Antitrust Act because it permits independent-contractors to collude on the prices they will accept for their services and that such activities are per se illegal.
  • Second, the ordinance is preempted by the National Labor Relations Act because it grants collective bargaining rights to independent-contractors even though Congress intended them to be left entirely unregulated in their labor activity and, furthermore, because these drivers are “arguably employees,” the ordinance encroaches on uniform labor law that is properly adjudicated before the NLRB.

Ultimately, the Chamber’s case attempts to put the ordinance, and others like it, in a double-bind: if the drivers are independent-contractors, then the ordinance violates antitrust law by allowing such contractors to collude against the companies they work with, but if they are employees the ordinance is preempted by the NLRA because the city seeks to create municipal bargaining rights where the NLRB is the only agency authorized to make such determinations.

The District Court Grants the City’s Motion to Dismiss

The city moved to dismiss and, in August 2017, the District Court granted their motion. Specifically, the Court rejected the Chamber’s antitrust claim, holding instead that the ordinance was immune from federal antitrust suits. The Court reasoned that the ordinance was authorized by Washington statutes that allow for regulating “for-hire transportations services” in order to promote safe and reliable service. The Court rejected the Chamber’s argument that granting drivers rights to collectively bargain was not related to promotion of safety or reliability, but rather payment for services. The city persuaded the Court that collective bargaining rights promoted safety and reliability in for-hire transportation because, for example, “in other parts of the transportation industry  . . . collective negotiation processes have reduced accidents and improved driver and vehicle safety performance.”

The Court also dismissed the Chamber’s NLRA preemption claim on two basis. First, because the Chamber has alleged that the drivers covered by the ordinance are independent-contractors and are not subject to the NLRA, they could not argue that the drivers where “arguably protected” under the NLRA, a necessary pre-condition of preemption. Second, the Court found that because the NLRA did not explicitly exclude independent-contractors from unionization, it was left up to states and municipalities to determine if such workers could be granted collective bargaining rights. As such the Court found “that Congress was indifferent to the labor rights of independent contractors  . . . because their disputes were thought to be of insufficient magnitude to affect commerce.”

Ninth Circuit Appeal and Oral Argument

The Chamber appealed the District Court’s dismissal to the Ninth Circuit. During oral argument on February 5, 2018, the audio of which is available here, the parties mostly focused on the antitrust aspect of the case, particularly whether Washington State statutes authorized the ordinance and whether permitting bargaining over compensation was sufficiently related to safety and reliability in the transportation industry.

The panel seemed skeptical of the city’s position, with Judge Milan Smith even stating, “You can regulate [the for-hire transportation industry] in terms of the drivers having to get a lube job, they have to get the car washed, they have to stop and help people, that’s all cool. But that has nothing to do with fixing rates, that’s what I’m struggling with.”

While very little of the argument focused on NLRA preemption, when given the opportunity counsel for the Chamber took issue with the District Court’s holding that the Chamber’s own opinion on whether the drivers were, in fact, employees was determinative of preemption. Rather, he explained the issue was whether the drivers where “arguably” employees and given that the issue is currently in front of the NLRB, three District Courts in California had deemed them employees, and that the Teamsters Union are advocating on behalf of such drivers, it is difficult to state they are not “arguably” employees.

Seyfarth will be watching this case very closely and encourages employers to do the same. A decision in favor of the Chamber could provide a road-map for preventing and challenging similar ordinances in other large cities. However, if the Ninth Circuit affirms the District Court’s decision, one can except to see labor organizations push even harder to organizing rights at the municipal level.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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