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Can you require your workers to arbitrate claims? What if they work in interstate commerce? Recently several courts have addressed the scope of the Federal Arbitration Act (FAA) and when it applies to arbitration agreements included in employment contracts. Typically, courts have held that the FAA compels employees to pursue certain disputes before a private arbitrator, instead of through the federal or state court systems. The Third Circuit recently considered two consolidated cases involving one of the narrow exceptions to the FAA’s enforcement powers.

Arbitration Enforcement

Under the FAA, if an employee has signed an arbitration agreement, courts should “rigorously enforce” those agreements according to their terms. The FAA, however, has an exception under Section 1 for “contracts of employment of seamen, railroad employee, or any other class of workers engaged in foreign or interstate commerce.”  9 U.S.C. ₴1. Employees with jobs meeting that criteria cannot be required to arbitrate their employment disputes.

Two different plaintiffs filed class actions claiming that Uber Technologies had misclassified its drivers as independent contractors, failed to pay them the minimum wage, and failed to reimburse them for business expenses.  All Uber drivers were required to agree to a “Technology Services Agreement,” which required drivers to resolve any disputes with Uber through binding arbitration.

Uber moved to dismiss the class actions and compel arbitration, pursuant to the contract. The district court agreed, and the Uber drivers appealed to the Third Circuit.

The Places You Will Go

At both the district court and circuit court level, the Uber drivers argued that they were engaged in interstate commerce and, thus, fit under the exception to FAA enforcement. The Third Circuit stated that under both case law and the statutory language itself, the interstate commerce exception has to be applied very narrowly.  The court also noted that both the Ninth and First circuits had found that the exception did not apply to Uber-like drivers. The court then turned its eye onto the actual facts about the scope of the Uber drivers’ travels.

Apparently, discovery showed that nationally, interstate rides constituted just 2% of all Uber rides. For the FAA exception to apply, interstate movement has to be a “central part” of the job description. The fact that Section 1 of the FAA specifically refers to seamen and railroad workers, both of which are “primarily devoted to movement of goods and people beyond state boundaries,” was also significant. 

The court made some helpful distinctions, based on case law, as to which classes of workers may fit under the FAA exception. Interstate truckers clearly are engaged in interstate commerce and are therefore covered. Workers whose work occurs “within the flow of interstate commerce” may also be covered – for example, airline baggage handlers who load interstate cargo or Amazon delivery workers who locally transport goods on the “last legs” of interstate journeys. The court contrasted these types of workers with workers who do not have the same relationship to the flow of interstate commerce, like local restaurant delivery drivers or Chicago taxi drivers.

Because Uber drivers “are in the business of providing local rides that sometimes—as a happenstance of geography—cross state borders,” the Third Circuit held that they do not meet the FAA exception and must arbitrate their claims.   

Where Are Your Workers Traveling?

If your employment agreements include an arbitration clause, you need to check to see if any of your class of workers are engaged in either regular interstate travel or are doing jobs within the flow of interstate commerce. The examples given by the Third Circuit are good guides to see if you have employees that may meet the FAA exception. Remember, the interstate commerce must be a “central part” of the job description. As always, regular checkups on the accuracy of your job descriptions are a good thing.