There have been many examples of the tension between the “gig economy” and traditional labor laws. Most of the companies like Uber or Grubhub choose to classify their drivers as independent contractors instead of employees, which eliminates obligations like overtime under the Fair Labor Standards Act. The Seventh Circuit this week dealt with such a dispute, but at a fundamental level: can an independent contractor who signs an arbitration agreement be forced to arbitrate instead of litigating in court? Because of the way the drivers chose to argue their case, in Carmen Wallace v. Grubhub, the Seventh Circuit held that they were bound by the arbitration agreement.
Who Is Outside of the Federal Arbitration Act?
The Federal Arbitration Act is used to enforce arbitration clauses in employment agreements. The act specifically exempts seamen and railroad employees from arbitration clauses. However, the law also contains an exemption for “any other class of workers engaged in foreign or interstate commerce.” At first blush, that exemption appears to be fairly broad. In the past, some workers have argued that this would cover any contracts within Congress’s commerce power — which would essentially mean ALL employment contracts. The Supreme Court, however, was not willing to let the exemption swallow the rule and instead found that because the other two exemptions were railroad workers and seamen, the meaning of the exemption was to cover workers whose job description included actually moving goods across state lines.
How Did the Grubhub Drivers Meet the Exemption?
Grubhub drivers, although considered independent contractors instead of employees, all signed a “Delivery Service Provider Agreement” that included an arbitration clause for employment disputes. Drivers in several cities filed a lawsuit claiming that Grubhub didn’t pay proper overtime. Grubhub moved to compel arbitration under the provider agreements, and the drivers objected, arguing they were exempt from the FAA’s arbitration enforcement provisions because they were engaged in interstate commerce.
The Grubhub drivers didn’t try to show that they were engaged in actually moving things across interstate lines. Instead, they argued that the food items that they moved locally, came across state lines (or maybe even international lines) before they got to the drivers. They didn’t focus on what their drivers actually did, but instead on where the goods they delivered had been.
The Seventh Circuit didn’t buy that distinction. They said that the exemption should only apply to actual transportation workers that crossed the state lines. If you applied the exemption like the drivers wanted, a dry cleaner who pressed shirts made in Taiwan could be classified as being involved in interstate commerce and meet the exemption. The Seventh Circuit noted that without a narrowing of the exemption, it would not be a controlled and defined exemption. Therefore, the Seventh Circuit found that the Grubhub drivers’ claims were subject to arbitration.
Where Does This Leave Us?
Unless you run a railroad, shipping company or interstate trucking company, it is pretty likely that you can have enforceable arbitration agreements with your workers. This decision is evidence that most federal courts strongly favor arbitration under the FAA. However, the arguments of the Grubhub drivers do show how creative employees may get to try to avoid an arbitration clause. Employers should double check their job descriptions to make sure that they accurately describe any interstate activity or lack thereof.