Poor Planning Dooms Pet Owner; Good Planning Saves GrubHub’s Arbitration Agreement

35D2D59B-89A6-40D6-8727-7C4C7D87BC9Findependent contractor arbitration agreement GrubHub Wallace

Why did the cassowary cross the road? To get to the other side.

Careful planning and foresight are important. For example, it would have been a good idea for a Gainesville, Florida man to have read up a little more on cassowaries before choosing to own one as a pet. A cassowary is a large flightless bird that grows up to six feet tall and can weigh 130 pounds. It has a four-inch claw on each foot, used to slice open its prey. (Infomercial: It’s both a fork and a knife!) The bird has powerful legs that it can use to kill its prey with a single kick — or chase it down by running at speeds up to 30 mph. Think Big Bird meets Edward Scissorhands meets pissed-off hungry crocodile in a go-cart.

Anyway, some guy in Gainesville bought one as a pet. It promptly killed him. Poor planning. I would have recommended a labradoodle.

A better example of planning ahead is GrubHub and its independent contractor arbitration agreements.

Two drivers recently challenged the validity of those agreements, arguing that after the Supreme Court’s recent New Prime decision (see blog post here), they were “transportation workers” and therefore not covered by the Federal Arbitration Act (FAA) and therefore their arbitration agreements could not be enforced. The FAA is a federal law that favors enforcement of arbitration agreements.

The GrubHub drivers wanted to bring a federal lawsuit alleging independent contractor misclassification and failure to comply with federal and state (Illinois and California) wage and hour laws.

After the Supreme Court’s New Prime ruling — that drivers in interstate commerce were not protected by the FAA — the plaintiffs’ bar began filing lawsuits to test the bounds of what it means to be a driver in interstate commerce.

A federal court in Illinois recently ruled that GrubHub drivers are retained for local deliveries, not for the type of interstate transportation that is covered under the FAA exception. Since the GrubHub drivers’ deliveries are local, not interstate, the FAA does apply. Since the FAA applies to the GrubHub drivers and their arbitration agreements, their dispute must be referred to arbitration.

The court dismissed the case, and the drivers’ claims will have to be brought before an arbitrator.

In contrast to the court decision we blogged about on Monday, this ruling shows that a well-written arbitration agreement can and will be enforceable. Make sure your arbitration agreements are carefully written and include all procedural and substantive safeguards. You can never be too careful when drafting an arbitration agreement — or when choosing a pet bird.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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The Stones, the Dalai Lama, and Arbitration: How Not to Get What You Need in an Arbitration Agreement

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Not Mick Jagger

You can’t always get what you want, said a wise English sage in 1969. This advice still holds true. For example, Chinese Foreign Ministry spokesman Lu Kang recently declared that the reincarnation of the Dalai Lama must comply with Chinese law.  Good luck with that.

The enforcement mechanism for Lu’s edict is unclear, but the Chinese Communist Party knows what it wants. (Allow me a brief diversion. My favorite sentence in the cnn.com story: “It isn’t completely clear whether the Dalai Lama will allow himself to be reincarnated after he dies.”  You and me both, brother!)

Another example arose in a recent court case, in which a messenger service required its independent contractor messengers to sign an arbitration agreement. Like spokesman Lu, the messenger service may have demanded a bit too much. A California Court of Appeal declared the arbitration agreement invalid, ruling that it was both procedural and substantively unconscionable.

What makes an arbitration agreement so one-sided that it’s unconscionable?

Here are the terms that, taken together, the court said rendered the agreement procedurally unconscionable:

  1. The agreement was presented as a take-it-or-leave it proposition, not subject to negotiation;
  2. The contractor’s native language was Portuguese; he spoke very little English; and no one offered to translate or explain to him the meaning of the document;
  3. He was asked to sign on the spot, with no opportunity to review it, translate it, or seek legal advice;
  4. The agreement said that the rules of the American Arbitration Association (AAA) would apply, but did not specify which of the many AAA rules would govern; and
  5. He was not given a copy of the rules.

The court also ruled that the agreement was substantively unconscionable — in other words, so unfair it could not be enforced. The court focused on these defects in the agreement:

  1. The individual was barred from bringing any claims with an administrative agency (he tried to bring a claim with before the Commissioner of Labor);
  2. The agreement barred representative claims from being brought under California’s Private Attorneys General Act (PAGA);
  3. The agreement prohibited any recovery of punitive damages, statutory penalties, equitable relief, or attorneys’ fees; and
  4. The agreement required any dispute to be heard before a panel of three arbitrators, each of whom must have transportation industry experience and a legal background. (The court ruled that it would be very expensive to find and pay three people with these required credentials, which would make it prohibitively expensive for the individual to bring any claim since the agreement also required the parties to split all arbitrator fees.)

This case is a good reminder to check the terms of any arbitration agreements you have with independent contractors. The messenger service will not get what it wants (nor what it needs). The court invalidated the arbitration provision as a whole, finding it so defective that it the invalid portions could not be severed in a way that would otherwise save the agreement.

Arbitration agreements with independent contractors can be a valuable tool for resolving disputes, but only if they are enforceable. Not even the all-powerful Chinese Communist Party can impose terms that are unfair. But they get points for trying. So far, I have found no truth to the rumor that spokesman Lu has asked the Dalai Lama to sign a pledge to arbitrate any disputes over his reincarnation. Maybe Jagger, Richards, and Wood could serve as the three arbitrators.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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“Flooding” Tactic Creates New Risk for Using Mandatory Arbitration Agreements with Independent Contractors

flood arbitration independent contractorsIn the Biblical story of Noah’s Ark, a world-engulfing flood destroys everyone except Noah, his family, and his mini zoo. A similar story appears in the Quran, and a much earlier world-engulfing flood was described in the Epic of Gilgamesh, a Babylonian poem dating back to the 19th Century BC, featuring Utnapishtim as our hero, a fellow who was awarded with immortality but whose name (unfortunately, IMHO) appears much less frequently on the Social Security Administration’s list of most popular baby names than our more recent pal, Noah.

A more recent trend in flooding comes from our friends in the plaintiffs’ bar. A popular tactic by companies wishing to avoid class action misclassification lawsuits has been to require independent contractors to sign arbitration agreements with class action waivers. These agreements force misclassification clams into arbitration on an individual basis, where each individual single claim has little value. By forcing claims into individual arbitration, there’s much less incentive for plaintiffs’ lawyers to take these cases since each case is worth very little. It’s only in the class action arena that these claims are worth big money.

But according to a recent article in Bloomberg Law, some of the larger, more organized plaintiffs’ firms are fighting back by flooding companies with mass arbitration filings. Continue reading

Can You Be at Fault if Your Subcontractor Performs Shoddy Installation Work? Ask a North Dakotan.

Interstate 94 in North Dakota near Gladstone

Interstate 94 in North Dakota, near Gladstone, demonstrating why ND is the least visited of the 50 states. Photo from Wikipedia.

According to the official tourism website for North Dakota, the Peace Garden State “leads the nation in production of spring wheat, durum wheat, dry edible peas, dry edible beans, honey, flaxseed and canola.” North Dakota is also the #1 producer of honey in the U.S., a fact you can learn more about by clicking on this official North Dakota State Bee Map, on which you can locate the most active apriaries, which is a place where bees are kept and which is a word that I did not know was a word, so you see, we have all learned something today.

In addition to giving us more dry edible beans than any one of us could safely consume, North Dakota also gives us a recent case that reminds us of an important principle: If your company contracts to perform a service and subcontracts the service, your company is probably still liable under contract law to ensure that the service is properly performed.

In Bakke v. Magi-Touch Carpet, the Supreme Court of North Dakota examined a case where Magi-Touch subcontracted the installation of a shower door, which later “imploded,” according to the narrative in the opinion. I envision something less dramatic than the implosion of the Georgia Dome (cool video), but nonetheless if it were my shower door, I’d be unhappy with that sort of installation job.

The subcontractor apparently stunk it up (too many dry edible beans?), and the homeowner sued Magi-Touch for negligence, fraud, breach of contract, and bunch of other stuff that its creative attorney could come up with. The Court ruled that this was a basic breach of contract case, not a tort case and not a negligence case. Magi-Touch had an obligation to ensure the proper installation of the door, since that what it had contracted to do. Retaining a subcontractor did not relieve Magi-Touch of its contractual obligation to install the door, and Magi-Touch could be held liable under a breach of contract theory for failing to complete the installation in a workmanlike manner.

On the bright side for Magi-Touch, it could not be held liable for negligence or other tort claims. Any damages were limited to the type of damages available for a breach of contract — namely, what it could take to repair and properly install the door.

While this may seem like an obscure shower door case from a state you’ll never visit, the principles of law discussed in the case apply fairly universally. The N.D. Supreme Court decided this case based on common law principles, which generally apply no matter where in the U.S. you are located.

The important thing to remember is that subcontracting a service that your company has contractually agreed to perform does not relieve your company of the contractual obligation to perform the service. Subcontract at your own risk, and take steps to ensure the work is properly performed before paying the subcontractor.

Be sure your contracts are clear as to whose obligations are whose — both in your contracts with customers and in your contracts with subcontractors.

And if you ever find yourself planning a trip to North Dakota, aim for September in Grand Forks and prepare to witness greatness. According to the N.D. Tourism site, “The world’s largest french fry feed is held every year in Grand Forks, during Potato Bowl USA. A new record was set on September 10, 2015, when 5,220 pounds of french fries were served.” Sounds healthy but delicious.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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After Supreme Court Ruling, Be Sure Your Arbitration Agreements Contain These Two Essential Clauses!

Hyena supreme court henry schein arbitration

I never thought hyenas essential
They’re crude and unspeakably plain
But maybe they’ve a glimmer of potential
If allied to my vision and brain

– “Be Prepared,” The Lion King

The song goes on to warn that “you can’t be caught unawares.” Be prepared. The song neglects to remind companies to check their arbitration agreements for two essential clauses, but that’s why you have me.

The Supreme Court delivered its first Kavanaugh-authored opinion late last week. It was a short, punchy, and unanimous decision with no mention of cartoon hyenas or warthogs, but it clarifies an important point under federal arbitration law: If an agreement calls for disputes to be resolved by an arbitrator, a court cannot override that contractual agreement — even to decide a threshold question like whether the dispute is subject to arbitration.

This is a case of Who decides who decides.

Many arbitration agreements contain carve-outs, saying that certain types of disputes are not subject to arbitration. A common carve-out allows parties to go to court to get an injunction to prevent imminent harm.

The issue here was whether a carve-out like that could be presumed by the court (since it was not explicitly in the agreement), or whether the arbitrator had to decide what was subject to arbitration. The court ruled:

When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.

How does this apply to you?  Two important points:

First, carve-outs: Your arbitration agreements should be drafted to include carve-outs that allow parties to go to court to seek injunctive relief to prevent imminent harm. Specific types of disputes should not be subject to arbitration. If your employee or contractor is about to reveal a trade secret, you need the ability to run to court and get immediate relief. Arbitration is too slow to prevent that danger.

Second, arbitrability: If you fear that a court might invalidate the arbitration agreement or attempt to override it, include a provision like this: “Any disputes regarding whether an issue is subject to arbitration shall be resolved by the arbitrator.”

This case was decided under the Federal Arbitration Act, which is the federal law that favors enforcement of agreements to arbitrate disputes, subject to a few limited exceptions. One of those exceptions is also now before the Supreme Court in New Prime v. Olivieri, a case we discussed here. It relates to independent contractors in the transportation industry and whether the Federal Arbitration Agreement applies. A decision in New Prime will be issued sometime this term.

Arbitration agreements are an important tool that should be in your toolbox, especially if your company is concerned about class action claims, either from employees or independent contractors.

Be prepared.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Orlando on Jan. 24, Philadelphia on Feb. 26, or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Preview of 2021? New Bill Would Revoke Arbitration Agreements, Raise Stakes for Independent Contractor vs. Employee Disputes

Independent contractor misclassification epic systems congressRegardless of your politics, I think we can all agree that the best part of Election Day being over is that there will be no more political ads for a while. You know what I mean: “Candidate A hates you and your family and supports legislation to tax you into bankruptcy. I’m Candidate B and I approve this message.” Or, “Candidate B hates you and your family and supports criminals and gangs. I’m Candidate A and I approve this message.” Finally and mercifully, that’s going to end for a while.

So let’s look ahead to 2020, when another vicious round of political ads will be unleashed upon your television screen, punishing all who have not yet cut the cord.

With the Democrats taking control of the House, and with several key Republican seats expected to be in play in 2020, a Democratic presidential win in two years could mean that the Democrats enter 2021 in control of both houses of Congress and the Executive Branch.

A bill recently introduced by prominent Democrats provides a hint of what would happen to recent wins for businesses in the areas of employee arbitration agreements and class action waivers.

H.R. 7109, the Restoring Justice for Workers Act, would prohibit class action waivers in employment contracts and would prohibit agreements to arbitrate future claims. The proposed law would roll back the Supreme Court’s recent Epic Systems decision and shift the balance of workplace power back toward employees.

According to a study cited in Justice Ginsburg’s dissent in Epic Systems, about 65% of companies with more than 1,000 employees have mandatory arbitration agreements. These contracts would become void.

The bill would also increase the stakes for businesses that use independent contractors. If employee arbitration agreements and class action waivers were unenforceable, then the determination of Independent Contractor vs. Employee becomes even more important. A misclassified contractor (who is deemed to be an employee) could then bring class action claims in court, rather than being restricted by contract to seeking an individual remedy through arbitration.

The bill has no chance of passage in the current Congress, but a tsunami of pro-worker legislation may be coming after the next couple of years. 

Meanwhile, enjoy the resumption of TV ads about erectile dysfunction and drugs that you should ask your doctor about even side effects include rare incurable cancers and in some cases death. These are the ads we know and love.

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

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Notification by Telex? Time to update your forms!

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Thank you Wikipedia, You know everything, making me feel so inadequate.

I recently edited a form agreement that allowed for notification “by facsimile or telex.” I deleted “telex” because, well, does telex even exist anymore? I then sent my edits back to the lawyer on the other side.

The other lawyer put it back in!

I then suggested he provide his client’s telex exchange and I asked if we could borrow his 50 baud modem and telex equipment to facilitate communications, because, um, our local antique store was fresh out of telex equipment. (I considered pushing back and insisting that all communications be in morse code but resisted. I admit to feeling pangs of regret that I didn’t push harder for the dashes and dots.)

People, update your forms!

If your independent contractor agreements and staffing agency agreements have not been reviewed since the widespread adoption of horseless carriages, it’s time for a fresh look. The risks of joint employment and independent contractor misclassification are real, and old forms almost definitely do not contain the types of clauses your business needs to protect itself.

For contracts with suppliers of labor, is your vendor accepting sole responsibility to do all of the things that employers must do, including hiring, firing, supervising, withholding taxes, tracking hours, and about a dozen other important tasks? Under many laws, you’re jointly liable if they fail, so you need robust contractual representations to shift liability.

Does your contract include sufficient insurance requirements and specific enough indemnity provisions to protect against a joint employment or misclassification claim?

Does your independent contractor agreement have specific descriptions of the types of control your business can and cannot exert? If you are not disclaiming the right to control a list of items, you’re missing a prime opportunity to turn the contract into strong evidence in your favor, in the event of a misclassification challenge.

For those of you, like me, who wouldn’t have the first clue how to telex someone, here’s what I learned on Wikipedia:

The telex network was a public switched network of teleprinters similar to a telephone network, for the purposes of sending text-based messages. Telex was a major method of sending written messages electronically between businesses in the post World War II period. Its usage went into decline as the fax machine grew in popularity in the 1980s.

The “telex” term refers to the network, not the teleprinters; point-to-point teleprinter systems had been in use long before telex exchanges were built in the 1930s. Teleprinters evolved from telegraph systems, and, like the telegraph, they used binary signals, which means that symbols were represented by the presence or absence of a pre-defined level of electric current. This is significantly different from the analog telephone system, which used varying voltages to encode frequency information. For this reason, telex exchanges were entirely separate from the telephone system, with their own signalling standards, exchanges and system of “telex numbers” (the counterpart of telephone numbers).

Telex provided the first common medium for international record communications using standard signalling techniques and operating criteria as specified by the International Telecommunication Union. Customers on any telex exchange could deliver messages to any other, around the world. To lower line usage, telex messages were normally first encoded onto paper tape and then read into the line as quickly as possible. The system normally delivered information at 50 baud or approximately 66 words per minute, encoded using the International Telegraph Alphabet No. 2. In the last days of the telex networks, end-user equipment was often replaced by modems and phone lines, reducing the telex network to what was effectively a directory service running on the phone network.

Keep your telex handy, my friends. You never know when you might need one — by contract.

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

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