“There was boxes back there”: How a flood and a healthy dose of incompetence sank a strip club’s plan to force a dancer into arbitration

Independent contractor

Nope. Not that Godfather.

Forgive me in advance if I sound condescending. And skeptical. And incredulous. But above all, I am amused.

This is the story of a strip club called the Godfather. When one of its dancers, a young lassie named Tassy, tried to sue, alleging that she had been misclassified as an independent contractor, the Godfather asked the court to send her claims to arbitration, as required under the Godfather’s dancer agreement.

But the Godfather had one small problem. It could not produce the agreement because, it claimed, the agreement was washed out in a flood caused by a rusted-out water heater in the back room. As everyone knows, the flood-prone back room with the rusted-out water heater is the best place for storing corporate legal documents. (Note to self: update template document retention guidelines.) Preferably, as the Godfather did, store them in unmarked boxes with no index or system for determining exactly what was in the boxes. But Tassy’s agreement was in there. They’re pretty sure, anyway.

So the court held an evidentiary hearing, and that’s when the rest of the wheels fell off. The Godfather produced two key witnesses, and they contradicted each other in virtually every aspect of their testimony — about the content of the agreements, the procedure for signing agreements, the procedure for signing other new dancer paperwork, the procedure for being retained, the procedure for auditioning, what other documents had been lost in the flood, who worked in the back office, who was the most talented Jonas Brother, and what were the real lyrics to Wild Thing by the Troggs.

The only things the witnesses could agree on were that there were different versions of the agreement in place at different times, that the versions “constantly changed,” that some versions had an arbitration clause and others did not, and that neither of them was sure which version Tassy signed.

The judge, in a written opinion, excoriated the club, finding none of its witnesses to be credible and expressing a general bewilderment at the supposed back room filing system, which was meticulously described by the Godfather’s key witness as follows: “There was boxes of paperwork back there.” That is an exact quote from the opinion.

The court ruled that the Godfather failed to prove that Tassy had signed an arbitration agreement. She will therefore be allowed to proceed with her claims of independent contractor misclassification in court.

I hope this one goes to trial because it would be hilarious.

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

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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

BF593720-B1EE-47D2-93A0-7B0AE09D5C33

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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Arbitration Agreements & Staffing Company Workers: Can They Take You Anywhere You Want to Go?

1956 chevy bel air Arbitration agreements staffing agency

1956 Chevy Bel Air. The Ides of March’s Vehicle was a ‘55.

I’m your vehicle baby. I can take you anywhere you want to go.

That may be true for Jim Peterik, vocalist and frontman for The Ides of March, who issued this bold proclamation in the band’s 1970 single, “Vehicle.” (It worked. See more below.)

It’s not true for arbitration agreements, though. They can’t take you anywhere you want to go unless you draft them very carefully. A recent decision by the First Circuit Court of Appeals reminds us of this lesson, although the opinion disappointingly fails to quote the Ides of March.

In Hogan v. SPAR Group Inc., we have an independent contractor named Paradise Hogan (which seems like would have been a cool name for a rock band); a staffing company called SBS; and a retail services provider called SPAR.  SPAR contracted with the staffing company to use the services of its independent contractors, including Hogan.

The staffing company and the independent contractor had an arbitration agreement in which they agreed to arbitrate any disputes “between the Parties.”

The contractor filed a lawsuit against both the staffing company and SPAR, alleging that he was misclassified and should have been a joint employee of both the staffing company and SPAR, and that they both failed to comply with various Massachusetts wage laws.

The staffing company and SPAR filed a motion to compel Hogan to arbitrate these claims. The district court (and then the Court of Appeals) ruled that the arbitration agreement required Hogan to arbitrate his claims against the staffing company but not against SPAR.

Why? Because (1) the arbitration agreement was only between the staffing company and Hogan, and (2) the agreement required arbitration only for disputes “between the Parties.”  SPAR was a customer of the staffing company but was not a party to the arbitration agreement with the contractor.

Suggestions for Improving the Arbitration Agreement

The arbitration agreement worked for the staffing company, but it didn’t take SPAR anywhere it wanted to go. A better constructed vehicle would have been needed before the court could compel Hogan to arbitrate his dispute with SPAR.

First, the section in the arbitration agreement describing the types of disputes subject to arbitration could have been written more broadly. It could have been written to cover all disputes not only “between the Parties,” but also all disputes related to the services being provided and all disputes with any customer of the staffing company.

Second, the agreement could have included a section declaring that all staffing agency customers are “intended third party beneficiaries” who can enforce the agreement.

Those steps might still not have been enough, since SPAR was not a party to the arbitration agreement, but those steps would have given SPAR a much better argument that Hogan would need to arbitrate his claims against SPAR. The Court of Appeals focused on each of these deficiencies when denying SPAR’s motion to compel arbitration.

What to Remember

Companies using staffing agency workers often have arbitration agreements with their staffing agencies, and staffing agencies often have arbitration agreemenst with their workers; but none of that means the worker must arbitrate claims against the company that retains the staffing agency.

If you retain a staffing agency and want to be sure its workers must arbitrate any claims against your company, be sure the arbitration agreement is written broadly enough to cover such claims.

Peterik wrote the song about a girl named Karen. He had a crush on Karen and she often asked him for rides. Peterik was hoping to spark a relationship, but nothing came of it. He thought of himself as her vehicle and later wrote a song about it. After the song became a hit, Karen reached out to Peterik. They reconnected and, as of a 2016 Wall Street Journal article, had been married 43 years. In the end, he took her where he wanted to go.

But that’s music for you. A hit song really can take you anywhere you want to go.

If you’re careful and maybe a little bit lucky, a well-drafted arbitration agreement might also take you anywhere you want to go — at least from a legal perspective. It still probably won’t get you a date.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in 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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Has Ontario Gone Loony? Court Rejects Independent Contractor Arbitration Agreement

Common loon Ontario

Our northern neighbor, the common loon. Photo from Cornell Lab of Ornithology.

According to OntarioTravel.net, Ontario’s official bird is the Common Loon. The loon is a water bird, regarded as an agile swimmer and a connosseur of the fine fish that populate Ontario’s lakes.

Loon has a second, seemingly unrelated definition too, though. According to dictionary.com, synonyms for “loony” include screwball, wacky, kooky, nutty, crazed, batty, lunatic, cuckoo, nuts, silly, psycho, berserk, ape, barmy, bonkers, cracked, daffy, daft, delirious, and demented.

For fans of arbitration agreements, a recent decision by the Ontario Court of Appeals might be regarded as a bit loony (using the non-water-bird definition). Ontario has generally been considered a province friendly to arbitration agreements. In Heller v. Uber Technologies, Inc., the court found Uber’s stock arbitration agreement to be invalid Continue reading

“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

Supreme Court Ruling May Stop Enforcement of Some Contractors’ Arbitration Agreements

New Prime v Olivieri double decker bus

The year 1925 was a banner year for transportation. Walter Percy Chrysler founded the Chrysler Corporation, London introduced its first double decker bus, and Malcolm Campbell became the first person to exceed 150 mph in an aero-engined car, accomplishing the feat at Pendine Sands in Wales. (Thanks, Wikipedia!)

Meanwhile, back in the States, American courts had developed a habit of not enforcing arbitration agreements, and Congress was determined to change that. In 1925, Congress enacted the Federal Arbitration Act (FAA), which is the law that allows parties to agree to arbitrate disputes and which tells courts to respect those agreements, subject to a few limited exceptions.

Those exceptions were at issue in the Supreme Court case of New Prime v. Olivieri, decided last week in an 8-0 decision. 

The Court ruled that:

(1) If there is a question about whether the FAA applies to an arbitration agreement, a court — not an arbitrator — decides whether the FAA protects the arbitration agreement. 

(2) The FAA’s exception — which says the FAA does not cover workers in the transportation industry — applies not just to employees in the transportation industry but also independent contractors. In other words, the FAA does not protect arbitration agreements entered into by independent contractors in the transportation industry.  

For business owners who wish to use arbitration agreements with their workers, what does this ruling mean?

I.  Who decides who decides?

Sometimes an arbitrator decides whether a dispute is subject to arbitration, and sometimes a court decides. Last month in the Henry Schein case, the Supreme Court held that an arbitrator can decide, in most instances, whether a dispute is covered under an arbitration agreement.

But last week’s New Prime case draws a distinction about who decides if the issue is whether the FAA applies to the dispute.

So, to simplify: On the issue of who decides whether a dispute is subject to an arbitration agreement, what’s the rule now? 

1. If the issue is whether the FAA protects the arbitration agreement, a court decides whether the FAA applies or not. (That’s the New Prime decision.)

2. If the FAA does apply and the issue is whether a particular dispute is subject to the agreement to arbitrate, then the arbitrator decides whether a dispute is subject to the agreement to arbitrate — assuming that the arbitration agreement has delegated to the arbitrator the ability to decide. (That’s the Henry Schein decision.)

The last sentence in Point 2 is the reason companies should consider adding a clause to their arbitration agreements saying that the arbitrator decides questions of arbitrability.

II.  How does the New Prime ruling apply to arbitration agreements with independent contractors? 

For independent contractors not in the transportation industry, this ruling does not apply. Arbitration agreements with independent contractors are generally enforceable and are protected by the FAA.

But how do we know the FAA doesn’t apply to all independent contractors in interstate commerce?

To answer that question, we need to head back to the Year 2001, a year after the electronic calendar shifted away from 19xx and technically-inclined doomsday prophets foretold of planes falling out of the sky. Shortly after mankind endured this potential calendar-caused calamity, the Supreme Court issued its decision in Circuit City Stores v. Adams.

The issue in Circuit City was whether the FAA applies to arbitration agreements between employers and employees. There is a carve out provision in the FAA, saying that the law favoring arbitration does not apply to “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

The issue in Circuit City was whether the carve out for “contracts of employment” of “workers engaged in foreign or interstate commerce” was intended to be broad and apply to all employees in interstate commerce or just those in the transportation industry. What was the intended meaning of “workers engaged in … interstate commerce”?

In Circuit City, the Court ruled that:

(1) the FAA generally does apply to arbitration agreements between employers and employees, but

(2) the FAA does not apply to workers in the transportation industry.

The Court decided that the phrase “workers engaged in … interstate commerce” was intended to refer only to workers in the transportation industry, not all workers. Arbitration agreements with employees in industries other than transportation would be enforceable under the FAA.

But that decision left open an important issue: What about independent contractors in the transportation industry? Do they have “contracts of employment”? Does the FAA apply to their arbitration agreements or not?

Fast forward to last week’s New Prime case.

The Supreme Court ruled that when the FAA was written in 1925, the phrase “contracts of employment” was understood to mean all work engagements, not just employer-employee relationships. Our understanding of the word “employment” has changed over time and, if that phrase were used in a statute today, it would likely refer only to true employer-employee relationships. But in 1925, it meant all work.

The Court therefore ruled that the FAA’s carve out applies to all workers in the transportation industry, regardless of whether such workers are employees or independent contractors. This means that arbitration agreements signed by employees or independent contractors in the transportation industry are not covered by the FAA, and therefore their agreements to arbitrate disputes are not protected by the FAA. Those disputes might have to go to court.

So what happens now?

First, the ruling is narrower than it may seem. The Court ruled only that the FAA did not apply to independent contractors’ arbitration agreements in the transportation industry.  It did not rule that these arbitration agreements were automatically void.

Many states have their own statutes that protect arbitration as a means for resolving disputes. Companies with workers in the transportation industry should check whether there is a state law that can be applied to protect these arbitration agreements.  If it would be reasonable to apply that state’s law, then companies should consider choosing that state’s law in the arbitration agreement’s Choice of Law provision. The right state’s law might still be able to save the arbitration agreement. We can expect further litigation on this subject, but here’s a tip for now. Try to pick a state with a favorable arbitration statute if your workers are in the transportation industry.

Second, we can expect the next battle to be over the meaning of the phrase, “transportation industry.” Does the “transportation industry” include only workers who transport goods across state lines? Or does the “transportation industry” include independent contractor drivers who transport passengers across town (such as ride share) or who deliver your pizza?

In Circuit City, the Supreme Court looked favorably on other court decisions that had defined the “transportation industry” to mean those workers “actually engaged in the movement of goods in interstate commerce.” If that holds true, then local drivers of passengers and late-night food cravings should be considered not part of the “transportation industry.” The FAA, therefore, would still apply to those workers.

But we can expect the plaintiffs’ bar to argue for a broad interpretation of the “transportation industry.” We can now expect to see arguments that rideshare drivers and local delivery drivers are in the “transportation industry” and that their arbitration agreements are not protected by the FAA. I think that argument is incorrect, but I do expect to see it.

I would expect Courts of Appeal (and perhaps eventually the Supreme Court) to adopt a narrow view of the “transportation industry,” meaning that the FAA still applies to independent contractors who transport people or make local deliveries. I expect the courts to rule that the carve out from the FAA exempts only those workers (employees and contractors) who routinely transport goods across state lines.

For now, here’s what you need to know:

  • Arbitration agreements with independent contractors in the “transportation industry” are not protected by the FAA. It may be more difficult to enforce those arbitration agreements unless they are governed by the law of a state with its own arbitration statute.
  • Arbitration agreements with independent contractors outside of the transportation industry should remain enforceable under the FAA.

And the bottom line for me is that maybe it’s time for self-driving cars.

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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