Posts belonging to Category Arbitration

Capriole v. Uber Technologies, Inc.: Uber Drivers Must Arbitrate Misclassification Claims

Who decides whether a putative class of gig-economy workers like drivers for Uber Technologies, Inc. (“Uber”) are misclassified as independent contractors rather than employees? In Capriole v. Uber Technologies, Inc., No. 20-16030 (9th Cir. Aug. 2, 2021) (slip op. available here), the Ninth Circuit examined an exemption under the Federal Arbitration Act (“FAA”) for transportation workers and whether a court or an arbitrator would decide such a dispute for Uber drivers whose contracts with Uber contain mandatory arbitration provisions. While the plaintiffs are drivers, the Ninth Circuit held that they do not fall within the “interstate commerce” exemption to mandatory arbitration under the FAA and affirmed an order compelling arbitration. Slip op. at 7.

This case originated in Massachusetts. Uber classifies all of its Massachusetts drivers as independent contractors, not employees. Slip op. at 7. This means they are required to pay business expenses, such as the cost of maintaining their vehicles and gas, and have no guaranteed minimum wage or overtime premiums. When the plaintiffs signed up to become Uber drivers, they had agreed to its technology services agreement, which contained a mandatory arbitration agreement governed by the FAA that had a class action waiver provision. Id. at 8. They brought a putative class action in federal district court in Massachusetts and simultaneously requested a preliminary injunction prohibiting Uber from classifying its drivers in Massachusetts as independent contractors. Id. at 9.

Uber moved to compel arbitration and transfer the case to the District Court for the Northern District of California pursuant to a forum selection clause in Uber’s driver agreements. Slip op. at 11-12. The Massachusetts district court granted the motion to transfer. Meanwhile, the plaintiffs amended their complaint to add new claims, additional named plaintiffs, and the allegation that “Capriole has driven passengers across state lines while driving for Uber.” Id. at 12. The plaintiffs appealed after the district court granted Uber’s motion to compel arbitration and denied their request for a preliminary injunction. Id.

The plaintiffs argued they were exempt from mandatory arbitration under Section 1 of the FAA because they were “a ‘class of workers engaged in foreign or interstate commerce.’” Slip op. at 13. Under Section 1 of the FAA, there is an exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The Ninth Circuit noted the Supreme Court’s instruction that the last category, described as the “residual clause,” should be afforded a “narrow construction.” Slip op. at 14. The Ninth Circuit disagreed with the plaintiffs’ contentions, joining what it deemed a “growing majority of courts holding that Uber drivers as a class of workers do not fall within the ‘interstate commerce’ exemption from the FAA.” Id. at 13. When determining whether the exemption applies, “the analysis focuses on the inherent nature of the work performed and whether the nature of the work primarily implicates inter- or intrastate commerce.” Id. at 15. The Ninth Circuit assessed the relevant “class of workers,” Uber drivers, at the nationwide level rather than confining it to a limited geographic region. Id. The Ninth Circuit concluded that even though some Uber drivers “undoubtedly cross state lines in the course of their work” and rideshare companies contract with airports to permit Uber drivers to pick up arriving passengers, Uber drivers as a class are not engaged in interstate commerce because their work predominantly entails intrastate trips. Id. at 19.

Based on Capriole, the Ninth Circuit remains unpersuaded by occasional interstate trips or trips to transportation hubs, and instead focuses on whether the trips form part of a single, unbroken stream of interstate commerce that renders interstate travel a central part of a rideshare driver’s job description. Slip op. at 23. A narrow construction of the Section 1 exemption for transportation workers sets the bar high for any similar gig economy workers to fit into the FAA’s residual clause to avoid arbitration. But it is not impossible, as the Ninth Circuit recently joined the First Circuit in holding that Amazon Flex workers did fall under the interstate commerce exemption due to the interstate nature of Amazon’s business in its decision in Rittman v., Inc., 971 F.3d 904 (9th Cir. 2020). Id. at 24. This may give some comfort to other gig economy workers outside the realm of Uber drivers.  

Authored by:
Liana Carter, Senior Counsel

Winns et al. v. Postmates Inc.: Postmates Fails to Deliver PAGA Claims to Arbitration in Another Epic Challenge to Iskanian

In Winns et al. v. Postmates Inc., Cal. Ct. App. 1st Dist., No. A155717, July 20, 2021 (“Winns”) (slip op. available here), the California Court of Appeal held that Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (“Epic Systems”) does not overrule the California Supreme Court’s opinion in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) (“Iskanian”), which held that representative action waivers are unenforceable.

The plaintiffs in Winns worked for Postmates as couriers. Their Fleet Agreement with Postmates contained a broad arbitration agreement, including a representative action waiver. The agreement contained an opt-out provision, but none of the plaintiffs submitted opt-out forms. Slip op. at 3. The plaintiffs’ operative complaint alleged individual and class claims under the Labor Code and Unfair Competition Law, including that Postmates illegally withheld wages, took gratuities given to couriers, and misclassified couriers as independent contractors. The plaintiffs also alleged representative claims under the PAGA for which they sought civil penalties. Id. at 3-4.

Postmates initially filed a typical motion to compel arbitration – seeking to arbitrate the plaintiffs’ individual claims and stay their PAGA claim pending the outcome of arbitration. Slip op. at 4. However, after the United States Supreme Court decided Epic Systems, Postmates requested that the plaintiffs also be compelled to arbitrate their PAGA claim for civil penalties. Postmates’ theory was that Epic Systems implicitly overruled the California Supreme Court’s opinion in Iskanian, to the extent Iskanian held that PAGA waivers in arbitration agreements were unenforceable. Id.

The trial court granted Postmates’ motion to compel arbitration with respect to the plaintiffs’ individual claims. However, as to the plaintiffs’ PAGA claim, the court concluded that Epic Systems did not compel the plaintiffs to arbitrate the PAGA claim because Epic Systems “addressed only the question of whether class or collective action waivers were enforceable under the FAA.” Slip op. at 5. It“did not address the enforceability of waivers of representative actions, such as those brought under PAGA.” Id. The trial court concluded that “representative action waivers remain unenforceable under Iskanian.” Id. Postmates appealed.

On appeal, the first important question was whether the opportunity to opt out of the arbitration agreement and the representative action waiver, which the plaintiffs did not exercise, affected the rule of non-waiverability in Iskanian. Slip op. at 7. Postmates argued that Iskanian did not apply to bar these waivers because they were not “a mandatory condition of a courier’s employment.” Id. Postmates relied on language in Iskanian, 59 Cal.4th at 360, stating “that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.” Id.

The Court of Appeal rejected the argument. It explained that “Iskanian’s holding that a PAGA waiver was unenforceable was premised on the public policy rationale that a PAGA waiver improperly circumvents the Legislature’s intent to empower employees to enforce the Labor Code as agency representatives and harms the state’s interest in enforcing the Labor Code.” Slip op. at 7. Moreover, “Iskanian did not turn on how the worker entered into the arbitration agreement, or the mandatory or voluntary nature of the worker’s consent to the agreement.” Id. Thus, under Winns, an employer cannot evade Iskanian’s holding that PAGA representative action waivers are unenforceable by virtue of an opt out option.

Postmates’ principal argument, however, was that Iskanian’s PAGA waiver rule cannot survive Epic Systems and its progeny. The Court of Appeal found the argument unavailing. Slip. op. at 8. This is not surprising because “California courts have uniformly rejected the argument that Epic Systems overruled Iskanian.Id. at 9-10 (citing cases).

The well-accepted reasoning behind these cases is the same. In Epic Systems, the Court did not decide whether representative actions like PAGA claims can be compelled to arbitration. Therefore, it did not “overrule” Iskanian. For a court to be bound by a decision of the United States Supreme Court, rather than the California Supreme Court, the United States Supreme Court must have decided the same question differently. Slip op. at 8 (citing Correia v. NB Baker Electric, Inc., 32 Cal.App.5th 602, 619 (2019)).

As the Winns court explained, “the U.S. Supreme Court did not decide or consider whether a worker may waive a right to bring a representative action on behalf of a state government.” Slip op. at 9. It follows, therefore, that “the Court’s reasoning in Epic Systems did not address the basis for our Supreme Court’s decision in Iskanian, namely, that a PAGA action is not an individual dispute between private parties but an action brought on behalf of the state by an aggrieved worker designated by statute to be a proper representative of the state to bring such an action.” Id. This situation – particularly including the involvement of the state, which is not party to any arbitration agreement – presents issues very different from those before Epic Systems.

Accordingly, the Winns court found that it was bound by the doctrine of stare decisis to follow the California Supreme Court’s decision in Iskanian that PAGA waivers are invalid under state law. It affirmed the trial court’s order denying Postmates’ petition to compel arbitration of the plaintiffs’ PAGA civil penalty claim. Slip op. at 15.

Authored by:
Robert Friedl, Senior Counsel

B.F. v., Inc.: Minor Children of Amazon’s Alexa Purchasers Do Not Have to Arbitrate Claims that the Device Recorded Them Without Consent, Says 9th Cir.

When Amazon customers activate their Alexa devices and purchase products using the service, those customers enter into arbitration agreements with Amazon. There is no dispute in B.F. v., Inc., 9th Cir., No. 20-35359, memorandum 4/23/21 (“B.F.”) (unpublished mem. available here), that those arbitration agreements are valid between Amazon and the customers who purchased the devices; these individuals agreed to the arbitration agreement when they set up their Alexa devices. However, their children did not.

The plaintiffs in B.F. are 23 minor children who are suing Amazon through their respective parents as legal guardians. They allege that the Alexa devices in their homes recorded their confidential communications without their consent, in violation of the laws of eight states. The children did not buy and activate the Amazon accounts and Alexa services, and, as a result, they are non-signatories to the arbitration agreement.

Non-signatories are generally not bound by a contract’s arbitration clause because “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Mem. at 2. An exception is “equitable estoppel.” As the court explained, “when a person ‘knowingly exploits’ a contract containing an arbitration clause, the person can be compelled to arbitrate despite having never signed the agreement.” Id. at 3.

So, did the children “knowingly exploit” their parents’ contracts containing arbitration provisions simply by using Alexa? The answer is “No,” says the Ninth Circuit. A non-signatory does not “knowingly exploit” a contract when they bring claims that “do not arise from the contract.” Mem. at 3-4. Here, the children brought state statutory claims that do not depend on their parents’ contracts with Amazon. Put another way, Amazon would owe the children the same legal duties under the statutes that were allegedly violated, whether the contracts existed or not. Id. at 4.

Authored by:
Robert Friedl, Senior Counsel

Olson v. Lyft: PAGA Waivers Remain Unenforceable UnderIskanian, Says Another CA Ct. of Appeal

In Brandon Olson v. Lyft, Inc., Cal. Ct. App. 4th Dist., No. A156322, Oct. 29, 2020 (slip op. available here), Lyft appealed an order denying its motion to compel Olson’s PAGA claims to arbitration. Lyft argued that the California Supreme Court’s holding in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) (precluding enforcement of PAGA waivers) was “wrongly decided” and no longer good law in light of the United States Supreme Court’s decision in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018). Slip op. at 1.

The court disposed of the first argument in a footnote, pointing out that arguing that a California Supreme Court decision was “wrongly decided” is “not productive” in either a trial or appellate court. Slip op. at 5. The court then rejected the second argument, noting that an “identical argument” was rejected in Correia v. N.B. Baker Electric, Inc., 32 Cal.App.5th 602 (2019). Slip op. at 1. In doing so, the First District joined a growing number of courts following Correia. E.g. Collie v. The Icee Co., 52 Cal.App.5th 477, 480 (2020) (“[w]e also join Correia . . . in holding that Epic Systems . . . does not undermine the reasoning of Iskanian”); Provost v. YourMechanic, Inc., 55 Cal.App.5th 982 (2020) (“[w]e reaffirm here our analysis and decision in Correia that Epic did not overrule Iskanian”) (Provost was previously covered on the ILJ here).

Epic cannot overrule Iskanian because Epic did not address private attorney general laws like PAGA or qui tam suits. “Epic held that an employee who agrees to individualized arbitration cannot avoid this agreement by asserting claims on behalf of other employees under the FLSA or federal class action procedures.” Slip op. at 11, quoting the trial court. But, a PAGA claim is a qui tam type action, and the PAGA litigant’s status is as “the proxy or agent” of the state, acting “on behalf of state law enforcement agencies.” Id. at p. 12, discussing Iskanian, 59 Cal.4th at 238 (emphasis added). No employee can waive PAGA claims because the claims are not theirs to waive. “[A] PAGA claim is a dispute between the state on the one hand, and the employer on the other.” Slip op. at 6, citing Iskanian at pp. 385-387.  Yet another court reiterates that, since Epic did not overrule Iskanian, PAGA waivers remain unenforceable in California.

Authored by:
Robert Friedl, Senior Counsel