Seyfarth Synopsis: The Federal Arbitration Act (“FAA”) exempts workers engaged in interstate commerce from enforcement of mandatory arbitration agreements. Uber drivers (and other drivers working in the gig economy) have frequently argued that they fit under this “interstate transportation” exemption in order to avoid arbitration of their claim that they have been misclassified as independent contractors. A growing number of courts across the country have rejected those arguments, however, finding that Uber drivers are not interstate workers because Uber’s service is primarily local and intrastate in nature. Last week, the Ninth Circuit Court of Appeals joined those courts, affirming a ruling from the Northern District of California that sent the Uber drivers’ classification claims to arbitration.

The District Court’s Decision

In September 2019, plaintiffs filed a putative class action in the District Court for the District of Massachusetts, seeking to represent a class of Uber drivers who worked in Massachusetts. The lawsuit sought an order against Uber that would prohibit Uber from continuing to classify its drivers as independent contractors and force Uber to reclassify drivers as employees “and comply with Massachusetts wage laws.” In response, Uber sought to transfer the lawsuit from Massachusetts to the Northern District of California, and further sought to compel arbitration of the drivers’ claims based on the mandatory arbitration agreement the drivers signed, which included a class action waiver. Plaintiffs resisted Uber’s efforts to send their claims to arbitration, arguing Uber drivers are exempt from mandatory arbitration under Section 1 of the FAA because, in plaintiffs’ view, such drivers are a class of workers engaged in interstate commerce. In support of their arguments, drivers pointed to data in Massachusetts showing the relative frequency drivers crossed state lines or picked up and dropped off at airports. But the district court rejected those arguments because the nationwide data showed Uber drivers spent the vast majority of their time in a single state; unchallenged facts that did not support such a broad interpretation of the interstate commerce exemption. Plaintiffs then appealed to the Ninth Circuit after the district court compelled individual plaintiffs’ claims to mandatory arbitration.

The Ninth Circuit “Joins The Growing Majority Of Courts” Holding Uber Drivers Are Not Engaged In Interstate Commerce.

The ultimate question on appeal was whether Uber drivers are engaged in interstate commerce within the meaning of the FAA; if the drivers are engaged in interstate commerce, then they are exempt from the FAA and their claims are not subject to mandatory arbitration and they could bring their classification claims in federal court. Citing authorities from across the country, however, the Ninth Circuit panel agreed Uber drivers were not engaged in interstate commerce and thus their claims were subject to mandatory arbitration under the FAA. First, the panel found Uber drivers’ services were “primarily local and instrastate in nature.” This conclusion remains true even if the drivers sometimes (in this case, just 2.5% of all rides in the United States from 2015-2019) crossed state lines or started and ended their serve in different states. Thus, “[o]verall, interstate trips, even when combined with trips to the airport, represent a very small percentage of Uber rides, and only occasionally implicate interstate commerce.”

The panel also found that assessing the nationwide data for purpose of the exemption, rather than cherry-picking data from a limited geographic region (such as Massachusetts), was important to further the “very purpose of the FAA, by which Congress sought to create a national policy favoring arbitration.” Indeed, “[a]ny alternative approach would potentially produce absurd results whereby the FAA would apply differently to neighboring states, or even neighboring cities in the same state.” The panel thus rejected as “unpersuasive” the minority of courts’ view that a de minimis amount of time spent engaged in interstate commerce could be enough to satisfy the FAA’s exemption and avoid arbitration, finding such a view was inconsistent with the public policy encouraging arbitration.

In addition to affirming the district court’s order compelling arbitration of the Uber drivers’ claims, the Ninth Circuit agreed that the district court should address Uber’s motion to compel arbitration before addressing the drivers’ motion for relief.

What the Ruling Means for Employers

This ruling affirms a common-sense interpretation of the FAA’s interstate commerce exemption, finding that Uber drivers who spend the vast majority of their time engaged in intrastate commerce cannot avoid arbitration of their claims. This ruling is consistent with the public policy underlying the FAA, and avoids setting an unworkable precedent that even a “de minimis” amount of time spent engaged in interstate commerce is sufficient to meet the FAA’s exemption. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually one might expect that the Supreme Court will be asked to weigh in on the issues raised by the appeal.

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