?Takeaway: Employee classification and exemptions are some of the most complex and litigious issues that employers face. They arise in many situations under federal and state laws, such as determining whether someone qualifies as an independent contractor, is exempt from overtime or is exempt from an arbitration agreement. Employers can expect the courts to continue to define and refine these areas as employees’ attorneys test exactly where the lines are drawn. Employers should work with knowledgeable HR professionals and qualified employment law attorneys when facing these issues.
?Finding that a group of couriers for an online delivery service did not fall within the interstate commerce exemption from the Federal Arbitration Act (FAA), the 1st U.S. Circuit Court of Appeals upheld a federal district court’s ruling that compelled arbitration of the couriers’ dispute. The appeal was the latest attempt by the couriers to avoid arbitration of their claim that the employer misclassified them as independent contractors instead of employees.
The employer operates an online and mobile platform that enables customers to order takeout meals from local restaurants and other goods from local grocery stores. When an order is placed, the employer arranges through its platform for a courier to deliver the order. Of note for purposes of this case, almost all orders (99.66 percent) are delivered within the state where they were placed, and the average distance travelled by a courier during a delivery is less than 4 miles.
The employer allows anyone to sign up to be a courier. When a person enrolls, the employer presents them with a fleet agreement that specifies the courier is being engaged as an independent contractor. The agreement includes a mutual arbitration provision by which the employer and courier “mutually agree to resolve any disputes between them exclusively through final and binding arbitration instead of filing a lawsuit in court.” A person can opt out of the arbitration provision, but only within 30 days of signing up as a courier.
Over the course of their employment, one plaintiff signed the fleet agreement, as well as multiple updates, without opting out of the arbitration provision.
This plaintiff and other couriers became disgruntled with their working conditions and filed a lawsuit in state court, claiming that they and a putative class of couriers in the state should have been classified as employees, not independent contractors, and were entitled to certain protections under state law, including the reimbursement of necessary business expenses, the payment of a minimum wage and paid sick leave.
The employer removed the case to federal district court and moved to compel the couriers to engage in arbitration, as required by the mutual arbitration provision. The couriers argued before the district court that they were exempt from the FAA because they engage in interstate commerce. The court disagreed and ordered the couriers to arbitrate their complaints.
The couriers then filed an appeal in which they relied on a recent 1st Circuit decision (Waithaka) finding that delivery drivers who served as the final leg, “or last mile,” in a larger interstate delivery chain are engaged in interstate commerce and thus cannot be compelled to arbitration under the FAA.
However, the 1st Circuit explained that for Waithaka to apply, the work “must be a constituent part of that movement, as opposed to a part of an independent and contingent intrastate transaction.” In this case, the court said, although the couriers transport goods, they do so as part of separate intrastate transactions that are not within interstate commerce.
“The appellants are comparing plums with pomegranates,” the 1st Circuit concluded. “Unlike the Amazon delivery drivers in Waithaka, the couriers here are not actively engaged in the interstate transport of goods and, thus, are not within a class of workers exempted from the [FAA].”
Immediato v. Postmates Inc., 1st Cir., No. 22-1015 (Nov. 29, 2022).
Robert S. Teachout, SHRM-SCP, works in the Washington, D.C., area and is a legal editor for XpertHR, a service helping HR build successful and purposeful workplaces.