Arbitration Agreements Save Uber From Massive Class Action

uber victory arbitration agreements 2018

Two themes are often repeated in this blog: (1) Independent contractor relationships are under attack, and (2) there are a lot of things companies can do to protect themselves, but they need to be proactive, not wait until they get sued. I’ve also tried themes relating to song titles – like here (Led Zeppelin) and here (Tom Petty) – but that’s kind of not the point I’m trying to make right now.

These two themes came together nicely this week in a major ruling by the Ninth Circuit Court of Appeals. Uber earned a big win, thanks to its arbitration agreements and a May 2018 U.S. Supreme Court decision confirming that mandatory arbitration agreements should be enforced.

Uber has been a favorite target of the plaintiffs’ bar in independent contractor misclassification lawsuits. Uber has been trying to defeat class claims by asking courts to enforce the mandatory arbitration agreements signed by most of its drivers.

That fight has been going on since 2013, when a federal court in California rejected Uber’s bid to enforce its arbitration agreements. The California judge certified a class of 160,000 drivers, then certified another subclass of drivers, creating a massive class action that Uber tried to settle for $100 million. The judge in that case rejected the settlement as too small, but Uber’s long game in court appears to have paid off.

After the judge rejected the proposed settlement, the case was to proceed; but, remember, the judge had also rejected Uber’s attempt to enforce the arbitration agreements, which would have kept the matter out of court entirely. If the arbitration agreements were enforced, the drivers would have to litigate their claims individually, one-by-one, with no individual driver’s claim worth all that much money. The attractiveness of these claims for plaintiffs’ lawyers is in the massive dollars generated by consolidating tens of thousands of individual claims into class actions. Individual arbitrations do not have much lure.

In this week’s Court of Appeals decision, the arbitration agreements were upheld as valid and enforceable. Uber will not have to face this class action of 160,000+ California drivers. The jackpot settlement of $100 million is gone, and the drivers who wish to go forward will now have to pursue their claims drip-drip-drip, one-by-one, with only small amounts of money at issue in each case.

This ruling became inevitable after the U.S. Supreme Court’s Epic Systems decision in May 2018, which held that individual employee arbitration agreements are generally enforceable and do not violate workers’ rights under the National Labor Relations Act.

Based on the Supreme Court’s ruling, the Ninth Circuit Court of Appeals had no choice but to rule that Uber’s arbitration agreements were indeed enforceable, overturning the district court judge’s 2013 decision that said they were not.

The plaintiffs tried to argue that since one of the lead plaintiffs opted out of arbitration, the entire potential class should be viewed as if everyone opted out of arbitration. But the Court was having none of that. A single class representative plaintiff doesn’t have the authority to cancel thousands of other contracts that he wasn’t a part of.

The lesson here is that arbitration agreements work. They are a potent weapon in defending against and preventing massive class action risks, especially for companies that rely heavily on independent contractors for their business model.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Arbitration Agreements Can Prevent Discovery of Other Class Members

McGrew independent contractor collective action sixth circuit court of appeals

An old Canadian poem called “The Shooting of Dan McGrew” tells the tale of a Yukon Gold Rush prospector (McGrew), his sweetheart “Lou,” and a stranger who buys drinks for everyone in the saloon, plays a sad song on the piano, then shoots McGrew, who also shoots the stranger, and everyone dies except Lou, who gets McGrew’s gold. You can read a summary here.

This post is about a different McGrew, who doesn’t get any gold.

This McGrew is an exotic dancer in Kentucky. She filed a lawsuit alleging independent contractor misclassification, an issue that was mildly less prevalent during the Yukon Gold Rush. Melissa McGrew had an arbitration agreement but filed a lawsuit anyway, trying at least to get the court to grant conditional certification and require all potential class members to be notified of the lawsuit and their opportunity to bring claims.

No way, said the district court; and no way said the Sixth Circuit Court of Appeals.

The Court of Appeals, guided by the Supreme Court’s recent decision in the Epic Systems case, ruled that because arbitration agreements are enforceable, a plaintiff can’t first try to take advantage of collective action notice procedures in court. Arbitration means no court, which means no collective action notice procedures.

This is not a surprising ruling, but it’s an important reminder of another benefit to businesses of arbitration agreements with class action waivers.

Not only can businesses prevent class action litigation, but they can also prevent the procedures that would result in notifying all potential class members.

In this case, McGrew got no gold, and her lawyers got no list.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Beware of Classwide Arbitration: Instacart Case Might Allow It

Instacart arbitration decision allowing class actions

Did that photo make you want to eat a pumpkin right now? (Probably not.)

🍿🍩🍰🍦🍨 Do these emojis make you hungry?

Does this one 🍺 make you wish the workday was over?

Fortunately for those who like instant gratification, driving services like Instacart promise to connect you with contractors who will go grocery shopping for you and will deliver the bounty to your house. This is not an ad for Instacart, though. This is a post about arbitration.

You see, like many other delivery app companies, Instacart’s drivers are independent contractors. Also like many other delivery app companies, Instacart gets sued for independent contractor misclassification. Wisely, Instacart has all contractors sign arbitration agreements.

One of the most significant benefits of arbitration agreements for companies is the opportunity to insert a clause that waives the right to bring any class/collective action claims. All claims must be brought individually — but only if that waiver language is clearly stated in the contract.

Instacart may have had an Oops!

In a pending case alleging independent contractor misclassification, the arbitrator has ruled (preliminarily) that the driver bringing the claim may bring a class/collective action. Instacart said, Whahhh?, and asked a California court to intervene and to rule that the arbitrator was overstepping his authority.

Arbitrators, though, are pretty well insulated from court review. That’s usually a plus, but it can also be a minus. For Instacart, it’s a minus here.

The California court ruled that it has no jurisdiction to intervene. It cannot review that preliminary decision by an arbitrator. Rather, a court can only review an arbitrator’s decision under very limited circumstances, mainly only after there has been an “award.” Instacart appealed but fared no better. The California Court of Appeals agreed.

The Court of Appeals, like the court below, ruled that the arbitrator’s decision to allow class arbitration is not an “award,” and the court cannot intervene. The arbitration must continue under the jurisdiction of the arbitrator. Only when the case is done will the court take a look.

This decision should serve as a reminder of two important points:

  1. In arbitration agreements with independent contractors, it is important to include a carefully drafted clause that waives the right to file or participate in a class or collective action. The clause should also state that the arbitrator has no jurisdiction to consider a class or collective action. These clauses need to be unambiguous.
  2. When parties agree to arbitrate, the arbitrator has a lot of power, and the preliminary rulings of an arbitrator are generally not subject to court review (except in limited circumstances). When you choose arbitration, you’re all in.

The case is in its very early stages, so we’ll see what happens. But there are some early lessons to be learned here. Congratulations. You made it to the end of the post. Now you can go eat.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Epic Ruling Clears Path: Arbitration Agreements Can Save Millions in Independent Contractor Misclassification Claims

Arbitration agreements for independent contractorsToday in the Epic Systems case, the Supreme Court ruled 5-4 that in employer-employee relationships, mandatory arbitration agreements with class action waivers are lawful.

A class action waiver means that employees cannot file class actions. They must instead bring any claim individually to arbitration, one person at a time, even if there are a lot of others in the same situation.

The issue before the Supreme Court was whether the employers could require employees to sign these agreements.

  • The argument for allowing the agreements was that the Federal Arbitration Act (FAA) favors arbitration as a way to resolve disputes and says that most attempts to invalidate arbitration agreements are against the law. But there are narrow exceptions.
  • The argument against allowing the agreements was that the NLRA grants workers the right to engage in protected concerted activity, and filing class actions (they argue) is a type of protected concerted activity.

The court had to decide whether the NLRA’s right to engage in protected concerted activity created an exception to the FAA’s rule favoring arbitration. As expected, the conservative court held that mandatory employee arbitration agreements — including class action waivers — are lawfulIn other words, businesses may require their employees to sign away their right to bring class actions. Read that again slowly. It’s important.

What does this mean for independent contractor agreements?

The decision does not directly address independent contractor agreements, but the decision does say that the Supreme Court has rejected every other challenge to the FAA’s policy favoring arbitration.

It seems pretty safe, then, to assume that the Court would allow mandatory arbitration agreements, with class action waivers, in independent contractor agreements.

Should businesses include mandatory arbitration provisions in independent contractor agreements?

There are pros and cons to arbitration, and the answer depends largely on how reliant your business is on independent contractor relationships as part of the business model. In other words, are you at risk of a class action?

If yes you are, then yes you probably should. (But please consult counsel.)

Businesses that may be at risk of a widespread finding of independent contractor misclassification can use these agreements to prevent class actions from being filed. If contractors who claim misclassification have to bring their claims individually, there is a lot less money at stake and, strategically, the incentive for plaintiffs’ lawyers to take these cases is greatly diminished. Few lawyers will take a case that may be worth a few thousand dollars (or often less). Most lawyers would love a case that may be worth a few million dollars. The difference is in the numbers. Class action waivers can greatly reduce your company’s risk of a large misclassification verdict.

Other advantages of arbitration include:

  • The results of individual arbitrations can be kept confidential, unlike court decisions. That means a finding against you will not hit the social media feeds or trade publications;
  • The parties select the arbitrator, which means you can ensure that your fact finder is a lawyer or has a background in the industry or type of dispute involved;
  • There’s no risk of a runaway jury, populated by regular folks who might have an axe to grind and no sense of the value of money;
  • The dispute gets resolved quickly, with finality, and with no right to appeal (except in very limited circumstances)

But there are potential downsides to arbitrations too:

  • Filing fees can be expensive;
  • Arbitrators can be expensive too. They get paid by the hour, unlike a judge who is not being paid by either side (we hope);
  • The barrier for employees to bring a claim is lower. They don’t need an attorney, and they can initiate a claim with ease, which could mean that more individual claims would be filed than if employees had to go to court;
  • There is no right to appeal (except in limited circumstances). This is both an advantage and a disadvantage, depending on whether you win!

Arbitration agreements have pros and cons, but for businesses that make substantial use of independent contractors, an arbitration agreement with a class action waiver can be critically important in avoiding a large claim.

One final reminder: If you use an mandatory arbitration agreement, remember to include a class action waiver. That’s one of the main benefits of these agreements.

Please consult with your employment lawyer to decide whether arbitration agreements are right for your business.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Arbitrator or Court: Who Decides Who Decides?

New prime v olioviera - who decides who decides

Who decides who decides? That’s as fun to write as it is to think about.

On TV, sometimes the parties agree that Judge Judy can decide. (Here’s how that works.) But sometimes, the parties disagree over who decides. What happens then? Who decides who decides?

That’s an issue the Supreme Court is going to consider, as it relates to arbitration agreements for independent contractors in the transportation industry.

The dispute stems from an arbitration agreement between Dominic Oliviera, an independent contractor (although he’s not so sure of that), and New Prime, Inc., a trucking company. Their arbitration agreement says that all disputes go to arbitration, including those about the scope of what gets arbitrated. In other words, the arbitrator gets to decide whether something is subject to arbitration. (That’s not an unusual clause, by the way.)

Our protagonist Mr. O tried to bring a lawsuit, claiming wage and hour violations by New Prime. In response, New Prime pointed to the contract and said the issue had to be arbitrated. Not to be outwitted, however, Mr. O then pointed to an exception in the Federal Arbitration Act (FAA). The FAA is the federal law favoring arbitration of disputes, but the FAA contains an exception. The FAA doesn’t apply to employees in the transportation industry.

I hope I haven’t bored you because here’s where it gets interesting.

If the FAA exception applies, Mr. O doesn’t have to arbitrate and he can go to court with his wage and hour claims instead.

But the exception only applies (it seems) if he is an employee. If he’s an independent contractor, the FAA should still apply, which means that New Prime can still force him into arbitration.

Now here’s where it gets really weird.

The agreement says that the arbitrator gets to decide whether the matter is subject to arbitration. But Mr. O says he’s an employee and therefore he’s not bound by the arbitration agreement. If he’s not bound by the arbitration agreement, then New Prime can’t force him to go to the arbitrator to decide whether the dispute is subject to arbitration. So, who decides who decides?

Still with me? Here’s the bottom line. There are two important questions that the Supreme Court has agreed to consider in this case:

(1) Whether a dispute over applicability of the Federal Arbitration Act’s Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and
(2) whether the FAA’s Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements.

For businesses using mandatory arbitration agreements, these are important issues.

Last week, in this post, we addressed Issue #2. But Issue #1 is also pretty important for businesses with arbitration agreements in the transportation industry. If the validity of those agreements is contested, who decides whether they are valid?

If the arbitrator gets to decide what is subject to arbitration, the realist deep inside you (he’s roommates with the pessimist) expects that the arbitrator will keep the case. In other words, the most likely ruling by the arbitrator — who is paid by the parties by the hour to conduct the arbitration — is that the matter is going to be subject to arbitration. After all, that’s what the contract says, and if the contract didn’t apply, then the arbitrator never would have gotten involved in the first place.

This case won’t be decided until next year.

For more information on independent contractor issues and other labor and employment developments to watch in 2018, join me in Cincinnati on March 28 for the 2018 BakerHostetler Master Class on Labor Relations and Employment Law: A Time for Change. Attendance is complimentary, but advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com, and list my name in your RSVP so I can be sure to look for you.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Can You Require Independent Contractor Drivers to Sign Arbitration Agreements?

Arbitration agreementstranspiortation industry drivers new prime v oliviera coin tossHow do you want your disputes decided? State court? Federal court? Arbitrator? Coin toss?

Ok, probably not coin toss, but that method is still used to break ties in local elections. (Spoiler alert: It was heads.)

Lots of businesses using independent contractors rely on arbitration agreements (with class action waivers) as a way to protect against a claim of independent contractor misclassification. Arbitration agreements with class action waivers prevent large groups of contractors from joining together in court to file class action lawsuits.

Instead, they have to bring any claims on their own. That means much less money is at stake in any individual case, and much of the incentive for hungry plaintiffs’ lawyers to file these claims is gone. (So sad.)

When bound by an arbitration clause, some plaintiffs have pointed out that there is an exception under federal arbitration law that applies to transportation workers. The Federal Arbitration Act, which is the federal law favoring arbitration, doesn’t apply to employees in the transportation industry.

Most courts have said this exception applies only to employees, not to independent contractors. In other words, employees in the transportation industry might not have to arbitrate their claims, but independent contractors do.

A recent court of appeals decision, though, may have changed that. The First Circuit Court of Appeals decided that the FAA transportation worker exception applies to employees and independent contractors. If true, the implications for the gig economy could be massive. Independent contractor drivers are all over the transportation industry. (Some might not be in interstate commerce, but that’s a technical argument for court, not for a blog.) Uber, Lyft, FedEx. They have all switched to using mandatory arbitration agreement with their independent contractor drivers.

The Supreme Court has agreed to decide this important issue in a case called New Prime Inc. v. Oliviera.

The Court just accepted the case last week, so we won’t have a ruling until next spring or summer, but this is an important case to watch for any business using independent contractors in the transportation industry. Will your arbitration agreements survive?

The issue accepted by the Supreme Court for review is:Whether the FAA’s Section 1 exemption, which applies on its face only to ‘contracts of employment,’ is inapplicable to independent contractor agreements.”

Note for Supreme Court Watchers: This is a separate issue from the Epic Systems case already heard by the Supreme Court, which should be decided by this June. In Epic Systems, the issue is whether the National Labor Relations Act prohibits businesses from requiring their employees to sign mandatory arbitration with class action waivers. The issues are somewhat related, but distinct. Epic Systems deals with employees’ arbitration agreements; New Prime deals with independent contractors and is limited to the transportation industry.

For more information on independent contractor issues and other labor and employment developments to watch in 2018, join me in Cincinnati on March 28 for the 2018 BakerHostetler Master Class on Labor Relations and Employment Law: A Time for Change. Attendance is complimentary, but advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com, and list my name in your RSVP so I can be sure to look for you.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Update: Uber’s Misclassification Cases, Arbitration, and the Supreme Court

Independent contractor vs employee Uber misclassification lawsuit arbitration agreements IMG_1111Remember the children’s game called Red Light, Green Light? One ambitious youngster is selected as the traffic cop, who randomly shouts “red light” or “green light,” requiring all the children to run and stop and start in short bursts that would cause an adult human to tear an ACL.

That’s essentially what’s happening in the big Uber misclassification case that has been pending in California since 2014. The case is called O’Connor v. Uber Technologies and is being overseen by traffic cop / federal judge Edward Chen in San Francisco. If anyone ever gets to the finish line, it will eventually be determined whether Uber drivers are properly classified as independent contractors, rather than employees.

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