Posts belonging to Category Caselaw Developments

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

Postpichal v. Cricket Wireless, LLC: Under RICO, Differences in Consumers’ Experience Purchasing 4G Cell Phones and Plans Does Not Defeat Predominance

“In the early 2010’s, 4G ranked as the newest development in the cellular services industry.” Postpichal v. Cricket Wireless, LLC, No. C 19-07270 WHA (N.D. Cal. Aug. 4, 2021) (“Postpichal”) (slip op. at 1, available here). “Cellular service companies needed 4G to stay current.” Id. at 2. According to the plaintiffs in Postpichal, Cricket Wireless, LLC (“Cricket”) failed to build out its 4G capabilities. Up to 77% of individuals living in areas of Cricket’s coverage did not have access to 4G. Id. Cricket deceptively advertised and sold 4G cellular phones and service plans in those areas anyway, according to the plaintiffs’ class action complaint.  

The plaintiffs moved for class certification on a single claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Slip op. at 7. One of the defendant’s primary arguments was that the plaintiffs could not establish commonality and predominance under Federal Rule of Civil Procedure, Rule 23(b)(3). Id. at 11. The defendant argued that there were “differences in marketing materials across different regions, unscripted conversations between employees and customers,” and issues as to “whether or not customers viewed coverage maps.” Id.

Under RICO, those differences did not defeat predominance, said the district court, because RICO plaintiffs do not need to prove first-party reliance. They “need to prove proximate cause and that in most cases requires reliance by someone.”Slip op. at 11 (emphasis in original). In other words, it would suffice if the plaintiffs proved that, while not everyone relied on the defendant’s fraudulent marketing scheme, a “critical mass” of consumers did, such that the defendant’s representations as to 4G “artificially support[ed] a higher price for both phones and plans.” Id. In that case, all class members will have paid more for their phones and plans than they should have because they purchased 4G phones and plans supposedly worth more than they actually were. Id.

The defendant also attempted to defeat commonality and reliance by likening Postpichal to another RICO case, Poulos v. Caesars World, Inc., 379 F.3d 654 (9th Cir. 2004). In Poulos, a cruise ship allegedly offered patrons video poker machines programmed to show near misses of a winning jackpot more often than they would appear on a truly random machine, creating the misperception of higher-than-actual odds of winning. Insidious as that practice may seem, the Ninth Circuit held that the plaintiffs failed to show proximate cause because people have “varying reasons” for gambling. Slip op. at 13. “[I]t may be an addiction, a form of escape, a casual endeavor, a hobby, a risk-taking money venture, or scores of other things.” Id. at 13, quoting Poulos at 668.  

The district court was not persuaded by the defendant’s reliance on Poulos. “This order declines Cricket’s invitation to treat cellular service plans and phones like gambling.” Slip op. at 13. Consumers do not purchase cell phones and plans for the thrill of betting that they get the service for which they paid. Rather, although consumers buy cell phones and plans for different reasons, “most reasonable consumers don’t pay more for nothing if given options.” Id. In obfuscating the true availability of 4G in most markets, the defendant deprived consumers of the option of making “informed choices about their purchases.” Id. Thus, the plaintiffs established commonality and predominance under RICO.

Authored by:
Robert Friedl, Senior Counsel

Johnson v. Maxim Healthcare Services, Inc.: Statute of Limitations on Individual Claim No Bar to Aggrieved Employee Standing Under PAGA

In Johnson v. Maxim Healthcare Services, Inc., Cal. Ct. App. 4th Dist., No. D077599, July 21, 2021 (“Johnson”) (slip op. available here), the California Court of Appeal addressed whether an employee whose individual claim is time-barred may still pursue a representative claim under the Labor Code Private Attorneys General Act (“PAGA”) (Cal. Lab. Code § 2698, et seq.). The courtheld the fact that the individual claims of a PAGA representative may be time-barred does not nullify the alleged Labor Code violations or strip her of her standing to pursue PAGA remedies. Slip 7. Johnson illustrates that the facts necessary to confer standing under PAGA are only that a plaintiff must have suffered at least one of the Labor Code violations on which the PAGA claim is based and have been employed by the alleged violator. Cal. Lab. Code § 2699(c). Standing under PAGA does not depend on the continued viability of the plaintiff’s individual claims under the Labor Code.

While employers may cry foul based on the appearance that Johnson revives time barred claims to confer PAGA standing, it does not. Johnson necessarily follows the California Supreme Court’s decision in Kim v. Reins International California, Inc., 9 Cal.5th 73 (2020). Johnson also reflects the statutory reality that a “PAGA claim is legally and conceptually different from an employee’s own suit for damages and statutory penalties.” Slip op. at 4.

In Kim, the California Supreme Court held that an aggrieved employee who settled and dismissed his individual Labor Code claims does not lose standing to pursue a PAGA claim. Kim, 9 Cal.5th at 84. Relying on Kim, the Johnson court reflected that to be an “aggrieved employee” under PAGA a plaintiff must be a person “‘who was employed by the alleged violator’ and ‘against whom one or more of the alleged violations was committed.’” Slip op. at 6 (quoting Kim, 9 Cal.5th at 83-84). Kim held that a plaintiff who is an “aggrieved employee” does not lose standing by settling his Labor Code claims and accepting compensation for his injury. Id. Following Kim, the Johnson court found that “the fact that Johnson’s claim is time-barred places her in a similar situation as a plaintiff who settles her individual claims or dismisses her individual claims to pursue a stand-alone PAGA claim.” Id. at 7.

To be sure, Johnson differs from Kim in that the plaintiff’s individual claims in Kim were not time-barred when she initially filed her PAGA action. However, that is a difference without a distinction under the California Supreme Court’s interpretation of the PAGA. PAGA standing does not depend on maintaining an individual Labor Code claim. Slip. op. at 7. As the Court has stated, every PAGA claim is “a dispute between an employer and the state.” Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 384, 386 (2014). Furthermore, “[r]elief under PAGA is designed primarily to benefit the general public, not the party bringing the action.” Slip op. at 4 (citing Arias v. Superior Court, 46 Cal.4th 969, 986 (2009)).

Considered within the statutory framework, whether a PAGA representative’s individual claims are time-barred is irrelevant. As long as the statutory prerequisites for maintaining a PAGA action are met, the plaintiff has standing to pursue the PAGA claims as the proxy or agent of the state. Arias, 46 Cal.4th at 986. As Johnson observed, “[t]he rule from Kim is an ‘aggrieved employee’ has standing to pursue a PAGA claim, irrespective of whether that employee maintains a separate Labor Code claim.” Slip op. at 7.

Authored by:
Robert Friedl, 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