Tag Archives: Arbitration

12.16.24
by

Don’t Get Jailed Because of Your Fat Friend: More Tips on Arbitration Agreements and Joint Employment

A South Korean man was sentenced to one year in prison for binge eating and getting too fat.

It isn’t always illegal to get fat in South Korea, but it is if you do it to dodge mandatory military service, which is what this guy did. His friend, who created the weight-gain plan, was sentenced to six months for aiding and abetting. Yes, really. And his defense was that he didn’t think his friend would go through with it.

One criminal eater, but two men end up in the pokey. Getting in trouble for what someone else does sounds exactly like joint employment.

One issue that often arises in litigation is whether arbitration agreements apply to all defendants in a joint employment dispute. If a plaintiff has an arbitration agreement with his main employer but sues two companies as joint employers, can the second company rely on the first company’s arbitration agreement to get the whole case moved to arbitration?

Sometimes yes, but courts are split. It’s going to depend on the relationship between the parties and how the arbitration agreement is drafted. Let’s quickly address each of those points.

1) Courts are split.

In a recent California case, a grocery store employee sued his employer and a related entity for wage and hour claims. He argued that both were joint employers. He had an arbitration agreement only with the primary employer.

The California Court of Appeal (2d district) ruled that the arbitration agreement required the claims against both parties to go to arbitration. The plaintiff was not allowed to allege that the parties were so interrelated as to be joint employers, but too distinct for both to be covered by the arbitration agreement. The outcome may have been swayed by the close corporate relationship between the defendants. The outcome could be different if the alleged joint employers were unrelated, such as in a staffing agency relationship.

A few years earlier, however, the California Court of Appeal (1st district) reached the opposite conclusion, finding that a non-signatory to an arbitration agreement could not enforce it.

2) It depends on how the agreement is drafted.

The best way to avoid this problem is to draft arbitration agreements to take the joint employment risk into account. Be thoughtful when defining the scope of covered claims and covered entities.

The agreement should apply to claims against the primary employer and related entities, as well as managers, supervisors, etc. Also consider adding third-party beneficiaries.

If employees will be providing services to another entity, such as in a staffing agency relationship, make sure those services are covered.

If your company is receiving the services and another company is the primary employer, check to see whether there’s an arbitration agreement in place, and review its scope.

If I am representing the company receiving the services, I like to require that as a condition of being allowed access to the property (or receiving confidential information, or whatever else), each individual must sign an arbitration agreement that covers claims against the company receiving the services. These can be short, one-page arbitration agreements. If drafted correctly, they do not suggest that there is any employment relationship.

Takeaways

  • Individual arbitration agreements with class waivers are a great way to avoid class action exposure and keep disputes out of public courts — but only if their scope is broad enough to cover the claims and parties.
  • If you are the company receiving services, ask the primary employer whether there are individual arbitration agreements in place and ask to see them.
  • Require anyone providing services, even if not your employee, to sign a contract agreeing to arbitrate claims, and make it a condition of being allowed to work on the property.
  • And most important of all, never help a skinny Korean get fat to avoid military service.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
01.29.24
by

The Clash: Supreme Court to Decide About Arbitration in a Misclassification Case

The 1982 release by the Clash asked, “Should I Stay or Should I Go?” The song included backing vocals in Spanish, but since none of the band members spoke Spanish, they had tape operator, Eddie, call his mother, who was Ecuadorian. Eddies’ mom translated the backing vocals into what we hear on the recording (Yo me enfrio o lo soplo).

The Supreme Court agreed last month to address the same question — should I stay or should I go? — but in a different context.

The case involves independent contractors who sued, alleging misclassification, the contractors had signed individual arbitration agreements, and the business successfully moved to compel arbitration. So far, this is all very ordinary.

But when a court sends a case to arbitration, should it stay the case or dismiss it? Different federal courts handle this differently. There’s a good ol’ fashioned circuit split, and the Supreme Court will decide whether courts have the discretion to dismiss cases instead of merely staying them.

Why does it matter? In most cases, it won’t matter. But there are varying points of view. A dismissed case can be appealed; the decision to stay a case usually cannot. A stayed case may require updates to be filed; a dismissed case does not. A stayed case may lead to a streamlined order adopting the arbitrator’s decision; a dismissed case would require a new filing.

Sometimes cases have claims that are subject to arbitration and claims that are not. In those instances, a stay is probably the only logical option. When the arbitration is done, the court will decide the remaining claims. But when all parties have agreed, by contract, that their dispute must be arbitrated, many courts see no basis for staying the case, and they dismiss it.

The textualist argument is that a stay is the only way to go (see what I did there?). Section 3 of the Federal Arbitration Act says that a court, “shall on application of one of the parties stay the trial of the action until such arbitration has been had….”

But if there’s no dispute that the court can hear, because all parties have agreed to arbitrate disputes, then there’s nothing left for the court, and dismissal would seem proper.

We’ll continue to watch this case. The Supreme Court will likely hear the matter in late 2024.

In the meantime, This indecision’s buggin’ me (esta indecisión me molesta).

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
10.23.23
by

It’s Not Lemon Juice: Here’s the One Key Ingredient Missing from Your Staffing Agency Agreements

In 1995, a man robbed two Pittsburgh banks during the day. He wore no disguise and was easily identified by surveillance cameras and arrested. This surprised the man.

The man was surprised because he had covered himself in lemon juice, and he believed that lemon juice made him invisible to video cameras. Obviously, it doesn’t and it didn’t. Lemon juice does not prevent a person from being seen.

Now let’s talk about staffing agency temps and being seen. If your temps are integrated into your workforce, there is a high likelihood you are a joint employer.

If your staffing agency temp improperly pays your temp, and the temp files a wage and hour claim, you can’t just drench yourself in lemon juice and hope not to be seen. Chances are, you’ll be sued too.

If you are a joint employer, you are likely liable for wage and hour violations by the staffing agency, even though you had no control over the staffing agency‘s pay practices. For liability purposes, their mistake is your mistake.

One of the best ways to avoid getting drawn into a class action filed by an agency temp is to require, in your staffing agency agreements, that all temps sign an individual arbitration agreement. All temps should be required, as a condition of being placed at your company, to agree that any claims they have against your company will be resolved in arbitration, on an individual basis, not through a class action.

How do you do this? In three parts.

First, insert in your staffing agency agreement a clause requiring that all temps placed at your facility must first signed an arbitration agreement, a copy of which will be attached to the staffing agency agreement.

Second, draft the individual arbitration agreement exactly the way you want it, and attach it to the staffing agency agreement as an exhibit. Include a class waiver. Consider allowing small claims to be carved out and resolved in small claims court. Consider omitting AAA or JAMS as a designated arbitration administrator, to reduce the risk of mass arbitration filings. You can require arbitration without designating any agency to administer it. The agencies charge high fees, which creates the leverage that makes mass arbitration an effective tool of the plaintiffs’ bar. No arbitration agency = no administrative fees = probably no mass arbitration.

Third, require the agency to maintain copies of these agreements. You want the ability to audit compliance. You can also require the agency to show you a copy of each signed agreement before each temp begins an assignment.

It is frustrating to think that your business could be jointly liable for wage and hour violations by a staffing agency when you have no control over how they pay their employees. But with joint employment, that risk is a reality. You need to prepare for that possibility well in advance.

The staffing agency agreement provides you an ideal opportunity to plan ahead and protect yourself against this possibility.

Lemon juice might be a nice addition to iced tea, but it does not provide any protection against security cameras or class action lawsuits. You’ll need arbitration agreements for that.

Click here for more tips about what should be in your staffing agency agreements.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
07.10.23
by

Not 1925: Another Court Upholds Arbitration Agreement for Rideshare Driver Misclassification Disputes

In 1925, the first motel opened in San Luis Obispo, California, according to The People History. It was originally called the Milestone Mo-Tel and charged $1.25 per night. The term motel was created to shorten the phrase Motorists’ Hotel, the defining feature of which was the ability of visitors to park their vehicles directly outside their room.

Why are we focused on 1925? Because laws written in 1925 continue to directly impact legal disputes over misclassification in 2023, even though the facts being applied to those laws were so far beyond what lawmakers could have even imagined at the time. The application of outdated laws is something we deal with all the time, including with the Fair Labor Standards Act, enacted in the 1930s. The intersection of old laws with new technologies creates sticky legal problems. And today’s post is about one of these sticky situations.

In a recent decision, the Third Circuit Court of Appeals joined the First, Seventh, and Ninth in ruling that rideshare drivers with individual arbitration agreements are required to arbitrate misclassification disputes, as set forth in the Federal Arbitration Act (FAA). In other words, the FAA’s transportation exception does not apply.

I’ll explain why that’s important, and you’ll see where 1925 fits in.

For companies engaging large numbers of independent contractors, misclassification class actions pose a significant risk. Individual arbitration agreements with class action waivers provide important protections against that risk. Generally, the FAA requires the enforcement of arbitration agreements.

But the FAA has an exception. Under section 1 of the FAA, the Act does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Historically, this exception was created because seaman and railroad workers were subject to a different set of federal requirements for dispute resolution. Remember, the FAA was enacted in 1925. People still said “seaman” without giggling.

In 1925, Calvin Coolidge was sworn in for a full term, in the first inauguration to be be broadcast on the cutting-edge new technology of radio. The Scopes Monkey Trial captivated the nation, following the indictment of Tennessee schoolteacher John Scopes for daring to teach human evolution. In other Tennessee news, the Grand Ole Opry debuted on Nashville radio, with the less-catchy name, the “WSM Barn Dance.”

So this was a different time. No one was thinking you could order a car on your cell phone, track your route on your cell phone, then pay and rate your driver by cell phone. In 1925, we were still a year away from the first trans-Atlantic phone call.

Anyway, plaintiffs’ lawyers attempting to bring misclassification class actions frequently argue that rideshare drivers fall within the transportation exemption, and therefore the FAA does not require enforcement of the drivers’ signed arbitration agreements. In Singh v. Uber Transp., a three-judge panel in the Third Circuit held that the transportation exception does not apply (and therefore the FAA does apply) because the vast majority of rides were intrastate, not interstate. The decision was issued in April, but there was a petition asking for a rehearing by the full circuit. Earlier this month, that petition was denied, and the Third Circuit’s decision therefore will stand, assuming there is no Supreme Court review.

The takeaway for companies making widespread use of independent contractors is to continue to use arbitration agreements, even in industries that may involve transportation. The scope of the transportation exemption is constantly being tested, but so far for rideshare, the outcome of most court decisions has been that the FAA still applies and the transportation exception does not apply.

For those interested in how the opening story ends, the Milestone Mo-Tel was renamed the Motel Inn, then closed in 1991. The building is now the administrative building for the Apple Farm Inn next door. The Apple Farm Inn charges a bit more than $1.25 per night, but it promises “the excitement of creating future memories.”

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
05.09.22
by

Not Dead Yet: Arbitration Agreements May Sit Dormant, But They Can Still Save You From a Class/Collective Action

Not dead yet. @SCMPNews

This spring has been a bad time for injured civilians who prefer not to be buried alive.

In Peru last month, a funeral procession was interrupted when the 36-year old car accident victim was heard banging on the lid of her coffin, trying to get out. Days earlier the woman had been pronounced dead, in what turned out to be an unfortunate mispronunciation.

In Shanghai, a nursing home mourned the passing of an elderly resident, who was placed in a body bag and sent to the mortuary. As seen in this video taken by a bystander, the mortuary workers unzipped the bag and found the man still moving. He was transferred to a hospital, which seems to me like a more appropriate place for someone still alive.

People may go quiet, but that doesn’t mean they should be treated as dead. The same holds true for individual arbitration agreements. They may exist quietly in the background, but courts can’t just ignore them, as a recent Fifth Circuit Court of Appeals decision made clear.

A plaintiff alleged violations of the Fair Labor Standards Act (FLSA), claiming she was misclassified as an independent contractor and therefore was denied overtime pay. She asked the court to treat her lawsuit as a collective action, claiming that other contractors were also misclassified and were also denied overtime pay. In FLSA cases, plaintiffs have to opt in to join the class. The district court approved the distribution of opt-in notices to similarly situated contractors, letting them know about the lawsuit and their right to participate.

The defendant opposed the notices, pointing out that the contractors had all signed individual arbitration agreements that included class action waivers. They couldn’t opt in, the defendant argued, so they should not get the notice. When the court approved the notices anyway, the defendant filed a writ of mandamus with the Fifth Circuit Court of Appeals, asking the appeals court to intervene and stop the notices from going out.

The Fifth Circuit granted the writ and stopped the notices from going out. The Court of Appeals ruled that the arbitration agreements required all disputes to be resolved through individual arbitration, and therefore the contractors could not opt in to the lawsuit. Since they could not opt in, they could not be sent notices inviting them to opt in.

It’s unusual for a Court of Appeals to grant a writ of mandamus. But here, the Court of Appeals recognized that the arbitration agreements were very much alive, even if the contractors who signed them were silent in the background.

This case is a good reminder of the value of individual arbitration agreements with class action waivers. A well-drafted arbitration agreement will require all claims to be resolved on an individual basis and will include a waiver of the right to participate in any class or collective action. The agreement should also deprive the arbitrator of jurisdiction to preside over a class or collective action.

Businesses that rely on independent contractors should check their agreements and consider adding robust, carefully-drafted arbitration clauses.

Arbitration agreements can sit silently in the background for years, but that doesn’t mean they are dead.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
02.07.22
by

Iguanas with Jackets: Here’s One Exhibit to Include with Every Staffing Agency Agreement

I met this little guy in Costa Rica, 2017

It happens every year.

When the temperature in Florida drops into the 30s, the iguanas freeze. Unable to regulate their body temperature, they drop out of trees, landing on sidewalks and in yards like solid rubber toy animals.

The freeze doesn’t kill them though. It just stuns them for a while, then they eventually warm up, reanimate, and go about their daily iguana business.

Getting stunned like this can’t be avoided for the iguanas. Amazon is not yet selling iguana jackets, and online delivery to lizards is notoriously complicated. (Note to self: Business opportunity?)

But unlike iguanas, businesses can reduce their chances at getting stunned — at least when it comes to avoiding lawsuits from staffing agency workers.

When staffing agency workers file wage and hour lawsuits, they often sue both the staffing agency and the business where they worked. The workers allege that both are joint employers, often bringing class claims or a collective action.

Businesses that carefully draft their staffing agency agreements will have some natural defenses against these claims. I’ve written about that here. I call this strategy The Monster with Three Eyes.

But there’s a fourth strategy too. Force individual staffing agency workers to arbitrate these claims instead of pursuing them in court, and include class action waivers with the agreement to arbitrate.

There are two ways to introduce arbitration agreements with class waivers in your staffing agency agreements.

First, you can mandate that staffing agencies sign arbitration agreements with their own employees. Some courts have found that arbitration agreements between a staffing agency and its employee protect the third party business too, even if the third party hasn’t signed the agreement.

But that approach carries risk. The agency’s arbitration agreement might be poorly written, or it might include terms that make it unenforceable. Your protection is only as good as whatever form agreement the agency presents to their workers.

There’s a second approach I like better. It goes like this:

  • Draft your own individual arbitration agreement (with class waiver) for staffing agency workers to sign, requiring them to arbitrate any claims against you. Make it mutual, of course.
  • Append it to the staffing agency agreement as an exhibit.
  • Include a clause in the staffing agency agreement requiring the agency not to assign anyone to your business unless they’ve first signed this agreement.

The agreement will be short. No more than two pages. It can also include an agreement by the agency worker to protect your confidential information and assign inventions.

If the document is properly characterized as an offer by your business, accepted by the worker, you have offer plus acceptance equals contract — even if your business doesn’t sign it. There is specific language you can include that can make that work.

So if you use staffing agency workers, don’t assume you won’t get sued as a joint employer. You particularly want to avoid class and collective actions, and this type of arbitration agreement will do the trick.

Plan for bad weather in advance. Include this layer of protection with your staffing agency agreements. Consider it your own little iguana jacket.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
01.18.22
by

More Than One Iota: Supreme Court Agrees to Decide Scope of Arbitration Law; Outcome Will Affect Independent Contractor Agreements

Last week I read that Sirhan Sirhan had been denied parole again. No surprise there. But what captured my attention was his attorney’s comment that there was not “one iota” of evidence he would be a threat to society if released.

Not even one iota? Why are there never any iotas? And what is the plural of iota anyway? And how do you even respond to that? Well, actually, we had a few iotas. Let me check my notes here. Yes, three iotas.

“Iota” means an infinitesimal amount. Synonyms include bupkus and diddly-squat. But if you search for “iota” online, no one ever has any iotas. The word is always used in the negative.

Well here are a few iotas for you. The Supreme Court has agreed to hear two cases that will affect when arbitration agreements with independent contractors can be enforced. The Supreme Court generally gets involved when there are at least a few iotas of good arguments on both sides.

Both cases address the scope of the Federal Arbitration Act (FAA), which creates a presumption that arbitration agreements should be enforced, but includes a few iotas of carveouts.

In the first case, Viking River Cruises v. Moriana, the Supreme Court will determine whether cases brought under California’s Private Attorneys General Act (PAGA) are subject to arbitration. California courts have said they are not.

In the second case, Southwest Airlines Co. v. Saxon, the Court will address the scope of the Section 1 exemption, which makes the FAA inapplicable to certain types of transportation workers in interstate commerce. The Saxon decision is likely to clear up the mass confusion (and circuit split) over whether last mile delivery drivers and local rideshare fall within the exemption.

In the political arena, arbitration agreements have come under fire, and there is a movement among Democrats to abolish mandatory pre-dispute arbitration agreements. The Supreme Court, on the other hand, appears more likely to enforce the contracts as written, deferring to the contractual intent of the parties and interpreting any exemptions to the FAA narrowly.

There is more than one iota of evidence to support both sides of these disputes. But expect some 6-3s.

If I am pulling out my crystal ball, I expect the Supreme Court will uphold the arbitration agreements, at least in Saxon. Moriana is tougher to predict since PAGA is a state law creation in which the individual bringing the claim acts as a private attorney general, bringing the claim on behalf of the state. On one hand, the state never agreed to arbitrate. But on the other hand, the individual bringing the PAGA claim did agree to arbitrate any disputes, not to bring them in court under the guise of PAGA.

Whenever the Court rules, we’ll see arbitration agreements back in the news. More visibility on this issue will mean louder and more urgent calls from politicians to abolish pre-dispute arbitration agreements.

We can expect many iotas of news on arbitration agreements later in 2022.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
12.06.21
by

Don’t Get Stuck Naked: Tips for Enforceable Arbitration Agreements When Using Staffing Agency Workers

He was in here. Really. Source: Syracuse Fire Dept Facebook

A Syracuse man was rescued from inside the walls of a historic theater last month after spending two days trapped, naked. The man apparently had entered the building’s crawlspace (why?) and fell from the ceiling into a gap between walls in the men’s restroom. No word on why he was au naturale.

But I’m sure he was glad to be freed from this unexpected situation. He should have planned better — like by not hiding in a crawlspace or, if he had a really, really good reason to hide there, by at least wearing clothes.

You can protect your business from unexpected situations (different ones), such as by making sure your staffing agency agreements include valid arbitration clauses with the staffing agency’s workers. The goal here is to avoid being left naked and stuck, if faced with a joint employment claim.

In a recent Oklahoma case, two staffing agency workers sued the staffing agency and the company where they provided services, alleging a failure to pay overtime.

The company where they worked filed a motion to compel arbitration, arguing that the arbitration agreement the workers signed with the staffing agency should cover all claims against both defendants. The district court initially ruled that the arbitration agreement was only between the worker and the staffing agency, and so it could not be relied upon by the other company. Motion denied.

But the Tenth Circuit disagreed, finding that the non-signatory company could enforce the agreement because the plaintiffs’ claims “allege substantially interdependent and concerted misconduct” against the two defendants. The plaintiffs were therefore “estopped from avoiding their duty to arbitrate their claims arising out of their employment relationship.”

That was good news in this case, but I wouldn’t count on that result every time. This case turned on Oklahoma estoppel law. But with proper planning, you can achieve the same result.

Here’s how:

First, in your agreement with staffing agencies, require the agencies to have all individuals assigned to perform services at your company sign an individual arbitration agreement.

Second, make sure it’s not just any old arbitration agreement, but one that includes customized terms. For example:

  • Require the worker to acknowledge that signing is a condition to being placed at your company.
  • Make sure the scope of covered claims is broad enough to include claims that are not just against the staffing agency.
  • List your company as a third party beneficiary with authority to enforce the agreement.
  • Make the obligation to arbitrate bilateral and binding on your company, even though your company will not sign the agreement. In other words, if you agree to perform services at the company, the company will agree to arbitrate any claims against you.

There are a few more tricks of the trade, but these are some of the key items. Keep the agreement short, and use simple language.

With some careful advance planning, you can avoid being left naked and stuck if faced with a joint employment lawsuit filed by staffing agency workers.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
05.24.21
by

Half Man, Half Goat: Can Arbitration Agreements Bind the DOL?

The one on the left is now 6-foot-5. The one on the right? Whereabouts unknown.

When my kids were younger, we used to play a guessing game. The questioner would think of someone, real or imaginary. The object was to figure out who. We’d go around the table, and each person gets one question that could only be answered with yes or no, then they’d get one guess. Then it goes to the next person to ask one and guess one.

The best strategy was to ask broad questions first: Is the person real? Is the person alive? Then narrower: Have I ever met the person? Is it someone in our family? It usually took about 10 questions for someone to figure it out, even if the answer was obscure or fictional.

The running gag in our house, though, was that sometimes the answer would be “half-man, half-goat.” I don’t remember how that started, but it’s still a thing in our house. Is it half-man, half-goat? Yes.

This creature has many of the great powers inherent to goats (can butt heads without feeling pain, eats paper cups), but it can’t do everything a goat can do because it’s also saddled with being half-man.

Arbitration agreements can be like that too, especially when included in independent contractor agreements. Arbitration clauses can require independent contractors to arbitrate all disputes, including misclassification claims. One of the great powers of an arbitration clause is the power to require claims to be resolved individually, with each party waiving the right to file class or collective actions. Another great power is to keep the proceedings mostly confidential, in contrast to a court proceeding, which is open to the public.

But one thing arbitration agreements can’t do is bind governmental agencies. A recent decision from the Ninth Circuit Court of Appeals reminds us that if the Department of Labor (DOL) claims that a business is misclassifying its independent contractors, that dispute is not subject to arbitration. The DOL can escalate the dispute to court.

The Ninth Circuit ruling reminds us that the DOL is not a party to the arbitration agreement and, therefore, cannot be bound by it. Government agencies also have different interests than private litigants. When the government files suit, it can aim to deter similar misconduct and “vindicate a public interest.” Like a bureaucratic superhero.

This outcome is no surprise. In 2002, the Supreme Court ruled that the EEOC was not bound by an arbitration agreement and could pursue relief outside of arbitration for the same reason. The same rule applies for the DOL.

The lesson here is to remember that arbitration agreements can be valuable in many ways, but they’re also a bit (just a bit) like playing with only half a goat. They can’t do it all. When drafting independent contractor agreements, arbitration clauses can be helpful, but they can’t prevent all lawsuits–especially those filed by a government agency.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.15.21
by

Use a Sea Slug’s Secret Superpower When Drafting IC Arbitration Clauses

Witness: The severed head of a sea slug. Image by Sakaya Mitoh, who performed this awesome experiment.

Did you know that sea slugs have superpowers?

According to researchers at the Nara Women’s University in Japan, if you sever the head of a certain type of slug, the slug can grow a new body, organs and all. I like that as the basis for a new Marvel character. Or maybe the slug is a distant cousin to Roland the Headless Thompson Gunner.

The moral of the story is that when a slug loses its head, all is not lost. (This is how sea slugs survived the French revolution.) The same may be true in the context of arbitration agreements for independent contractors. (Come on, that’s a really good segue, isn’t it?)

For independent contractors in the transportation industry, arbitration agreements may be unenforceable under federal law. But all is not lost. In some states, state arbitration law can save the day. That means it’s important to know your state laws and to draft choice of law clauses carefully.

Here’s what I mean:

For companies that work extensively with independent contractors, there are lots of good reasons to require that disputes are resolved in arbitration, not in court. One of the biggest advantages of arbitration is the ability to include a class action waiver, requiring any claimant to bring a case on an individual basis only. No class actions. Class claims are the sexiest of all claims to plaintiff’s lawyers. Individual claims are not nearly as lucrative. Or sexy.

The Federal Arbitration Act (FAA) embraces arbitration as an enforceable way to resolve disputes. But there’s a big exception to the FAA. It doesn’t apply to transportation workers “engaged in … interstate commerce.” The meaning of that phrase is unclear, and there are lots of lawyers fighting about its scope. Different courts have come to different conclusions, especially regarding last mile delivery drivers and rideshare. Eventually, the Supreme Court is likely to rule on exactly what this phrase means.

But in the meantime, what if your contractors are arguably “engaged in … interstate commerce”? Are you stuck with a lengthy legal battle over whether your arbitration agreement is enforceable under the FAA?

Not necessarily. Don’t forget about state law. Several states have their own laws embracing arbitration as an enforceable way to resolve disputes, and these state laws generally do not have exceptions for transportation workers.

New York is a good example. Courts in New York have upheld arbitration agreements, even when the workers were arguably transportation workers not covered by the FAA.

Choose your state law carefully, especially if your arbitration agreement might be subject to the FAA’s exception for transportation workers. It’s common to include a “choice of law” clause in contracts, but those clauses are often dropped into contracts without anyone thinking about why a certain state’s law should apply. Those clauses really do matter, and the choice of law section should be carefully considered.

When it comes to arbitration agreements, the choice of law clauses should not be viewed as a boilerplate clause to toss in without careful thought.

The ability to choose a particular state’s law is a real superpower. Use it like a sea slug!

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Sign up now for the BakerHostetler 2021 Master Class on The State of Labor Relations and Employment Law. Twelve sessions, one hour every Tuesday, 2 pm ET, all virtual, no cost. Click here for more information. List me as your BakerHostetler contact so I know you’ve registered. 

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

 
2018_Web100Badge