Do Not Break Glass: Arbitration Clauses May Shatter in Agreements with Independent Contractor Delivery Drivers

largest-glass-blown-sculpture

Photo: CGTN/CFP

When your kids were little, did they ever run around in places they shouldn’t, causing you to fear what would happen if they broke something? Well you’re not alone. The world’s largest glass-blown sculpture sits in a museum in Shanghai. At least it did until recently. On May 30, two children accidentally broke it while running through the museum playing. There was a protective belt to try to prevent this sort of thing, but the kids ran right through it.

The moral of the story is that protective belts are not always good enough. The same is true when it comes to independent contractor agreements. One of the most useful protective belts we can install to protect against misclassification claims is a well-drafted arbitration clause with a class action waiver. That forces any independent contractor who claims to be an employee to fight that battle on an individual basis in front of an arbitrator. No court, no class action.

But this protective belt doesn’t always work, especially in the transportation industry.

Arbitration agreements with class action waivers work well in most industries. Under the Federal Arbitration Act (FAA), these agreements are generally enforceable, and they’ve saved many a large company from having to face gigantic misclassification class actions.

But the FAA has an exception. It doesn’t apply to transportation workers engaged in interstate commerce. There’s been lots of litigation over what that means and how broad the exception is.

A pair of decisions last week tried to address this question with respect to last-mile delivery drivers.

Both cases assumed the last-mile drivers were transportation workers engaged in interstate commerce, even though they generally did not cross state lines.  (We don’t know how the US Supreme Court would rule on that question). Since the FAA did not apply, the question then became whether the arbitration clauses and class action waivers were enforceable under state law.

Two courts, two cases, and two states resulted in two very different outcomes.

The New Jersey Supreme Court ruled that arbitration agreements with delivery drivers are enforceable under New Jersey Arbitration Act, even if not under the Federal Arbitration Act (FAA).

But a federal appeals court took the opposite view of the same issue under Massachusetts law, ruling that a class action waiver in an arbitration clause is void because it is contrary to Massachusetts public policy.

So what does this mean for companies who use independent contractors in the transportation industry?

Depending on the facts and the court, the FAA might or might not apply. If the FAA does not apply, the question of whether the arbitration clause and class action waiver can be enforced will depend on state law.

That means companies need to be very careful in drafting their choice of law provisions and their severability clauses. If parts of the arbitration clause are unenforceable because of the class action waiver, will the whole clause be cut or just the class action waiver? If a court severs only the class action waiver, could you end up in class arbitration? The contract should also anticipate that possibility, and the arbitration clause should contain language prohibiting the arbitrator from hearing a class action. The effect of that clause would be to force the class action back to federal court. Most companies, if faced with a class action, would prefer to defend class claims in court rather than in arbitration.

These two cases highlight the importance of considering these issues when drafting independent contractor agreements in the transportation industry. While different state laws may lead to different outcomes, your contract should plan for the worst and be written to protect against the least desired outcome.

And if you are put in charge of security at a museum, try a better protective belt.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Rules for Drivers? California’s ABC Test Could Change Again in 2021

Worst parking.jpg

Rebellious? Indifferent? Clueless? I’m still trying to understand how this car thought it was ok to take up FOUR parking spaces in the parking lot at a Walgreens near my house.

Any one of the spaces seems suitable for a car of ordinary proportions. I have parked in most of these four spots before, and my experiences were uniformly positive. I’d give four stars to each spot. Reliable, met expectations. Near enough to the store entrance. Picking just one of the four would be an excellent way to start your shopping experience.

When people don’t like the rules they’re expected to follow, one approach is to try to change the rules. That’s what ride share and delivery app companies are doing in California.

Late last month, these companies achieved an important milestone, reaching the 625,000 signature threshold for a November ballot initiative that, if passed, would change the test in California for determining Employee vs. Independent Contractor. The measure will now appear on California ballots, giving voters the chance to override A.B. 5 for ride share and delivery app companies.

If the initiative passes, the new ABC Test would not apply to workers in the app-based rideshare and delivery business. Instead, those workers could stay classified as independent contractors, but the app-based companies must ensure that the drivers receive a predetermined level of compensation and benefits, including:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

I wrote more about this bill here, leading the post with a harrowing flight selection option offered on my United app.

So if you‘re reading this post from the Left Coast, get out and vote in November. You can make a meaningful change in the way that California approaches the question of Who Is My Employee? In the meantime, drive safe, wear your mask, and park within the lines.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Voters Would Reject This Flight Option, But They Could Change Independent Contractor Law in California This November

Expensive flight

A few years back, I found myself headed to the Houston airport earlier than expected after a business trip. I decided to check my phone to see whether I could get on an earlier flight back home to Cleveland.

Turns out I could — for $52,270. For coach. There was also a first class seat available. For $69,570.

I declined and decided to wait the three hours for my originally scheduled departure. But for good measure, I took this screenshot because, hey, why not.

Taking the earlier flight would not have been a good use of my money. The real subject of this post is about five app-based companies who are making much better use of their money.

With app-based companies under constant attack through independent contractor misclassification claims, and with California’s new Assembly Bill 5 making it even harder to classify people as independent contractors, the major providers are fighting back.

They’ve pledged $110 million to support a ballot initiative in California that would redraw the lines in the Employee vs. Independent Contractor debate — at least for rideshare and delivery drivers.

Under current federal and state laws, a worker is either an independent contractor or an employee. It’s binary. Employees get lots of protections. Contractors get almost none. There’s no third category that would allow rideshare and delivery drivers to operate independently while receiving a minimum level of legal protection.

This proposed initiative would change that. The law would create new rules for app-based transportation providers and drivers in California.

If the initiative passes, the new ABC Test would not apply to workers in the app-based rideshare and delivery business. Instead, those workers could stay classified as independent contractors, but the app-based companies must ensure that the drivers receive a predetermined level of compensation and benefits, including:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

The initiative needs 625,000 signatures to appear on the November 2020 ballot in California. I expect they’ll get the signatures, and then the media campaign will kick into high gear. Expect TV and radio ads, billboards, and a heavy social media push to garner support.

If the ballot measure passes, that will have been money well spent — a much wiser use of resources than for some dodo to pay $52,270 to take an earlier flight home from Houston. The proposed law would create a fairer and more predictable set of rules for drivers and companies, and it should substantially reduce the rampant misclassification lawsuits in the rideshare and delivery driver area.

I’ll be watching for similar proposed legislation in other states. And I’ll be watching airfares too, before I switch any future flights.

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Dead or Not Dead? Schreiber Lives On, But California’s New ABC Test Is Temporarily Killed for Owner-Operator Truckers

Prison dead independent contractor ABC TestWhen Benjamin Schreiber was sentenced to life in prison for clubbing a man to death with the wooden handle of a pickaxe, he probably expected to die in prison. But then fate intervened. Or did it?

In 2015, Schreiber fell severely ill in the Iowa State Penitentiary and had to be resuscitated five times. Schreiber then filed for post-conviction relief. He argued that he did, in fact, die in prison. Since he had to be resuscitated, he must have died, which means that he had successfully completed his “life sentence” — just before being resuscitated.

The argument failed. The judge ruled, “Schreiber is either alive, in which case he must remain in prison, or he is dead, in which case this appeal is moot.”

The decision did not say how many points Schreiber was awarded for creativity.

Two time zones west of Iowa, the California Truckers Association had better luck in its effort to kill California’s new ABC Test for independent contractor misclassification, at least as far the law applies to owner-operator truckers.

On December 31, a federal judge issued a preliminary injunction, preventing California from applying the new ABC Test to owner-operator truckers.  That means, for now, the question of whether an owner-operator trucker is an employee or an independent contractor must still be determined under the S.G. Borello balancing test in California, not the strict new ABC Test.

This is just a preliminary injunction, not a final ruling, so it is subject to further review even at the district court level, before the inevitable appeal.

The winning argument (for now) is that the law imposing the new ABC Test, Assembly Bill 5, is preempted by the Federal Aviation Administration Authorization Act (FAAAA).  The FAAAA preempts state law that affects the price, route, or service of any motor carrier with respect to the transportation of property.

The federal circuit courts of appeals are split on whether the FAAAA preempts state independent contractor laws as they relate to owner-operators in the transportation industry.  The 7th and 3rd Circuits have held that there is no preemption.  The 1st Circuit has held that there is preemption.

Ultimately, the question is likely to be settled by the Supreme Court.

For right now, the balancing test has been resuscitated for owner-operator truckers, but only a little bit like Mr. Schreiber’s resuscitation.

Hopefully, the stay will remain in effect until the case makes its way up the appellate ladder. And hopefully, dead is dead when it comes to the ABC Test and owner-operators.

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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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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Proposed Law Would Radically Change App Driver Protections and Legal Status; Might Also Stop Zombie Ant Apocalypse (Maybe).

california driver app law ant zombiesYou’re supposed to learn something new every day, right? Here’s something that’s definitely new, unless you are a fungus aficionado — and, lucky reader, because this is a read-only post, you do not have to identify yourself if you are indeed a fungus aficionado, and if you are, TMI, and keep it to yourself.

Anyway, there’s a fungus that attacks certain kinds of ants, takes over their ant-body cells, turns them into zombies, causes them to take a final mad bite into a certain type of leaf, then causes a plant spore to sprout from their heads. Yes, really. It’s right here in this New York Times article, complete with pictures.

The Ophiocordyceps fungus is not a dinosaur, despite its suspiciously dinosaur-sounding name, but it sounds pretty ferocious and looks like it’s threatening to kill off segments of the ant population.

Another thing that is ferocious and threatening to kill something off is California’s recent Assembly Bill 5, which would convert many independent contractors into employees under state labor laws.

The latest attempt to eradicate that ferocious law comes in the form of a ballot initiative being sponsored by some of the large ride hailing and delivery app companies.

The Protect App-Based Drivers and Services Act, if passed, would preserve the independent contractor status of app-based drivers in California if the app companies provide the drivers with a number of financial considerations and benefits, along with allowing the drivers to maintain control over when and where they work. The law imposes substantial driver protections that app companies are currently hesitant to provide, out of fear that providing these benefits and protections might cause the drivers to be deemed employees.

The law would strike a much-need balance that enhances driver rights while creating certainty on drivers’ classification status.

The app companies would have to provide an earnings guarantee of at least 120% of the local minimum wage for time engaged, a 30-cents per mile stipend to cover vehicle expenses, a healthcare subsidy contribution, occupational accident insurance, and liability insurance.

App companies would be prohibited from engaging in discrimination. Companies would also be required to implement a sexual harassment policy, conduct background checks, implement safety training, and implement a zero tolerance policy prohibiting driving while impaired. Rest periods would also be required.

In exchange, the app companies would receive assurance that the drivers are properly classified as independent contractors so long as four conditions are met:

(a) The network company does not unilaterally prescribe specific dates, times of day, or a minimum number of hours during which the app-based driver must be logged into the network company’s online-enabled application or platform.

(b) The network company does not require the app-based driver to accept any specific rideshare service or delivery service request as a condition of maintaining access to the network company’s online-enabled application or platform.

(c) The network company does not restrict the app-based driver from performing rideshare services or delivery services through other network companies except during engaged time.

(d) The network company does not restrict the app-based driver from working in any other lawful occupation or business.

The proposed law is supported by multiple prominent ride share and delivery app companies. Their hope is to gather enough signatures to place the issue on the November 2020 ballot in California.

This is worth watching. You can read more about it here. If passed, this can serve as model legislation to be applied elsewhere around the country.

In the meantime, if you see fungal spores starting to grow out of app drivers’ heads, you’ll know that Assembly Bill 5 got to them first.  We can only hope.

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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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Are Independent Contractor Drivers Entitled to a Minimum Wage? NYC Changes the Rules.

New york city rise share drivers minimum wage

Normally, independent contractors are not subject to minimum wage requirements, since those laws (such as the Fair Labor Standards Act) apply only to employees. Lots of litigation focuses on whether contractor drivers should, in fact, be classified as employees and therefore subject to minimum wage and overtime rules, but if the drivers are properly classified as independent contractors, minimum wage requirements typically do not apply.

But under a new rule in New York City, ride share drivers are now entitled to a minimum wage in excess of $15 per hour, despite being independent contractors.

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NYC to Cap Number of Uber, Lyft Drivers

Traffic uber lyft NYC law suspect TLC license

In the Jimi Hendrix song, Crosstown Traffic, Jimi plays a nifty little riff with a makeshift kazoo constructed from a comb and tissue paper. The lyrics compare trying to get through to his lady friend with trying to get through Manhattan’s cross-town traffic, which was already bad in 1967. (Thanks Wikipedia!)

News Alert: New York City Has Bad Traffic!

So whose fault is that?

In a gut punch to the gig economy, New York City just passed an ordinance that will place a one-year ban on granting new licenses for ride hailing vehicles.

To drive using Uber or Lyft in NYC, you need a license from the Taxi and Limousine Commission (a different kind of TLC). During this one-year suspension period, the city will conduct a study on traffic and congestion and will examine driver compensation.

According to this Wall Street Journal article and nifty graph, since the emergence of Uber and Lyft as ride-share options, the value of NYC taxi medallions has plummetted from about $1 million to roughly $200,000; and since 2015, the number of TLC-licensed drivers (cabs and ride-sharing services) has more than doubled. The City points to increased congestion as the reason to suspend the issuance of new TLC licenses for a year.

The ride-share companies argue that the cap will limit the number of available drivers in outer boroughs, increasing New Yorkers’ wait times.

Is the City’s motivation really to address traffic congestion? Or is the idea instead intended to help the struggling taxi industry? Hmmmm.

Under the new law, licenses that have already been granted are not being taken away.

In case you were interested (or even if you are not), here are the general requirements for obtaining a license from TLC if you want to drive. [Uber, Lyft]

But for the next 12 months, the application process will be “just like crosstown traffic,
So hard to get through to you.”

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

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Cartels in Seattle? Court Decision May Stop Independent Contractor Drivers from Forming Quasi-Unions

Seattle uber unions cartelUsually when “cartels” are in the news, we’re hearing about El Chapo or other organized drug trafficking operations. But the word “cartel” refers to any combination of independent enterprises joining together to fix prices. The City of Seattle is trying to create ride sharing cartels. The city wants the Teamsters to represent your independent contractor ride share drivers. Really, the Teamsters.

The U.S. Chamber of Commerce is fighting back, reminding our brothers and sisters in the Emerald City that we still have federal antitrust laws. Antitrust laws prohibit the formation of cartels to fix prices. Seattle claimed it was immune from federal antitrust laws and, at first, a federal court in Seattle agreed.

But last week, the federal Court of Appeals stepped in and confirmed that, yes, the federal antitrust laws do apply, even in the Great Northwest. Here’s the ruling.

Here’s what the stir is all about.

In late 2015, Seattle passed a law creating quasi-unions for ride share drivers. We wrote about it here. The ordinance had the city overseeing the collective bargaining processes and didn’t call these collective groups “unions.” Seattle says they’re not unions. Then Seattle picked the Teamsters Local 117 to represent the independent contractor ride share drivers. Still not a union???

The law has not yet gone into effect, and its validity is in question. If antirust laws prohibit independent contractors from colluding on pricing, how can Seattle create a process to encourage independent contractors to collude on pricing?

Last week’s decision by the Ninth Circuit Court of Appeals confirms that federal antitrust laws do apply, even to cities that claim to have good intentions and great music.

The case now goes back to a federal court in Seattle to decide whether Seattle’s ordinance violates federal antitrust laws. I’m betting it does.

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

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Can Independent Contractor Misclassification Automatically Violate Federal Labor Law? (Hint: Yes)

[NOTE 9/2019: Not anymore. The information in this post has been superseded by a later NLRB decision. In Sept. 2019, the NLRB ruled that independent contractor misclassification is not an automatic violation of the NLRA.  It still can be, but it is no longer automatically a violation. Read more here.]

Here’s the original post:

The past two weekends, we have seen NFL players link arms in solidarity. They protest mistreatment and injustice in society, not mistreatment and injustice by their employers. In fact, there have been several instances where owners and coaches have joined in.

Had the players been protesting actions by their employers — their teams — their actions likely would be considered “protected concerted activity” under the National Labor Relations Act (NLRA). The NLRA grants employees the right to act collectively to protest terms or conditions of their employment. Employees have these rights even if there is no union.

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