Octopus vs. Bald Eagle: Postmates to Defend 5,225 Individual Arbitration Claims

Bald eagle octopus postmates

The best laid plans can sometimes take an unexpected turn for the worse. Just ask this octupus.

Earlier this month, off the coast of Vancouver Island, an octopus was settling down for a meal consisting of one whole bald eagle, freshly caught but still alive. A team of nearby salmon fishermen heard the bald eagle’s screams and, having been trained in speaking eagle, immediately recognized the distress call. The salmon fishermen sprang into action. They poked the soft-bodied mollusc with a pole until it released the bird. The eagle survived, and the fishermen got some footage that made it onto CNN’s website.

While I love octopi (delicious when grilled), I like to think that I too would have favored the eagle when interfering with a battle sponsored by mother nature.

The delivery app company Postmates is also dealing with an unexpected turn of events, but this one involves no sea creatures or birds of prey. In defending a claim of independent contractor misclassification brought by thousands of delivery drivers, Postmates prevailed in showing that the drivers were bound by arbitration agreements with class action waivers. If the drivers wanted to proceed, they would have to arbitrate their claims one-by-one, all 5,225 of them.

Guess what happened next.

The plaintiffs’ firm representing the drivers filed 5,225 individual arbitration claims with AAA.

Faced with having to pay $10 million in arbitration filing fees, Postmates has been trying to figure out how that would work. Can AAA even handle 5,225 simultaneous arbitrations? After Postmates missed an initial AAA payment deadline, the plaintiffs’ firm filed a motion to hold Postmates in contempt for not paying the AAA fees.

Postmates is now defending the contempt motion and trying to figure out, logistically, how to proceed.

Arbitration agreements can be helpful to businesses that have lots of independent contractors, mainly because the agreements can include class action waivers. But this dispute shows the potential downside of class action waivers. A sophisticated plaintiffs’ class action firm can file thousands of simultaneous arbitration demands, flooding the system and leaving the company on the hook for millions of dollars in filing fees alone — before even getting to the merits or defense of a claim.

We’ll see how this one plays out. It’s an unexpected turn of events, much like the octopus getting poked by an eagle-defending salmon fisherman at dinner time.

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

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California’s New Anti-Arbitration Law: A Hotbed of Problems

California continues to be a hotbed of activity, which got me wondering: what is a hotbed? So I looked it up.

Hotbed – noun – hot·bed |  \ ˈhät-ˌbed

/a bed of soil enclosed in glass, heated especially by fermenting manure, and used for forcing or for raising seedlings/

And now you can decide which is more useful- knowing what a hotbed is or keeping up with the latest legislation in California that makes things harder for businesses.

The latest is AB51, which bans mandatory employee arbitration agreements if they are made a condition of employment. Voluntary arbitration agreements are still permitted.

So let’s just include an opt-out provision, right? That way there’s a choice, so it’s not mandatory. That would seem to make sense. Not so fast. The law says that if you include an opt-out provision, it still counts as mandatory. Huh? That’s contrary to the meaning of opt-out.

Opt – verb \ ˈäpt

/to make a choice/

If the option to opt-in is voluntary, then the option to opt-out is voluntary. Grammarians needed in California please.

The law is also probably illegal, except maybe for jobs in the transportation industry. According to the Supreme Court, the Federal Arbitration Act (FAA) prohibits states from enacting laws that treat agreements to arbitrate differently than other agreements. If the parties agree to arbitrate, there’s an enforceable contract, and the states need to get out of the way. That’s a bit of an oversimplification, but not by much. The FAA doesn’t apply to portions of the interstate transportation industry though, so the California law might be enforceable only as to that small segment of jobs. The enforceability of this law will be tested in the courts.

The law also creates a chicken-and-egg problem for independent contractor misclassification disputes. You can still require in an independent contractor agreement that an independent contractor must arbitrate disputes. And in that arbitration agreement, you can grant the arbitrator the authority to rule on any questions about enforceability of the arbitration agreement.

But what if the dispute is over whether the independent contractor is an employee? If the California law stands, then the agreement to arbitrate the dispute is enforceable only if the arbitrator rules that the contractor is properly classified as a contractor, but the agreement to arbitrate is unenforceable if the arbitrator rules that the contractor is misclassified and should really be an employee. But if the arbitrator rules that contractor was really an employee, then under California law the agreement granting the arbitrator the right to make that decision is void. You’d have to decide the ultimate issue — independent contractor s employee — before determining who decides whether the worker is a contractor or an employee.

Is your head spinning? Good. Just in time for Halloween.

Thanks California. You give me lots to write about.

This new law applies to employee arbitration agreements entered into after January 1, 2020– unless it’s not enforceable at all. We’ll see.

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

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

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Meatloaf Lyrics Inspire Supreme Court; Arbitration Agreements Can Be Implied to Include Class Action Waivers

Meatloaf Lamps Plus Arbitration agreements independent contractorhttps://youtu.be/_wO8toxinoc

Meatloaf’s “You Took the Words Right Out of My Mouth” opens with a dialogue by Jim Steinman, who wrote the song, and actress Marcia McClain, who played Dee Stewart in the soap opera As the World Turns. He asks, “On a hot summer night, would you offer your throat to the wolf with the red roses?”

For a quick trip back to 1978-79, listen to the album version, not the shortened single, which cut out the dialogue, presumably because it distracted the roller skaters. The song is about teenage lovers and passion, and the lyrics are rich with intense imagery.

Offering a new twist on this old classic, the Supreme Court last week issued a ruling on arbitration agreements that can be paraphrased as “You took the words right out of the air because they weren’t in my arbitration agreement.” This decision will inflame passions in the pro-worker camp, but it’s a good decision for businesses. The case is called Lamps Plus v. Varela.

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“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.

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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.

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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?

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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.

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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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