From JDSupra, Richard Reibstein discusses the question whether delivery companies can compel arbitration of drivers misclassification claims or if the Federal Arbitration Act’s exclusion of interstate transportation workers applies and drivers are not able to compel arbitration. Richard writes:
We report on three case developments during July 2023 that raise the question whether last-mile, logistics, and delivery companies alleged to have misclassified drivers as independent contractors can compel arbitration of those types of claims when there is an arbitration agreement between the parties. In the first case, an Ohio federal district court judge ruled that such drivers are covered by the interstate transportation worker arbitration exemption in the Federal Arbitration Act (FAA) that excludes such workers – whether they are employees or independent contractors – from arbitration. The court acknowledged, though, that a state arbitration law may have provided an alternative basis to compel arbitration, but ruled that the language in the parties’ independent contractor agreement did not unambiguously provide for state arbitration law to govern if the FAA did not. The Ohio federal court decision is consistent with a New Jersey federal court opinion on which we commented in a blog post last year, where we noted that the failure to draft an effective arbitration agreement can doom a logistics company’s effort to compel arbitration of a class action IC misclassification suit. Any company utilizing drivers who may be covered by the interstate transportation worker arbitration exemption under the FAA should take heed. Beginning with a blog post we published nearly five years ago, we have provided readers with a number of tips as to how companies can effectively draft arbitration clauses with class action waivers in their independent contractor agreements – all as part of a process to enhance their independent contractor compliance efforts. The most important tip is to update arbitration clauses in view of this evolving area of the law.
In the Courts (3 cases)
OHIO LAST-MILE DELIVERY COMPANY LOSES BID TO ARBITRATE INDEPENDENT CONTRACTOR CLASS ACTION. An Ohio federal district court has denied a motion by a last-mile delivery company to compel arbitration of a proposed class and collective lawsuit brought under the FLSA and various state laws. Priority Dispatch, Inc. is in the business of last-mile delivery services for e-commerce and medical products as well as financial documents to locations across the Midwest. The lawsuit claimed that Priority Dispatch misclassified the drivers as independent contractors and made unlawful deductions from their pay and failed to pay them minimum wage and overtime compensation. The company moved to compel arbitration. In response, the drivers argued that they were exempt from arbitrating the claims under the FAA because they qualify for the FAA’s interstate transportation worker arbitration exemption. The court noted that “the pleadings indicate that the drivers’ personal job responsibilities largely entail transporting goods intrastate,” but found “instructive” decisions by U.S. Circuit Courts of Appeal concluding that “last-mile delivery workers who haul goods on final legs of interstate journeys are transportation workers ‘engaged in … interstate commerce,’ regardless of whether the workers themselves physically cross state lines.” The court noted that Priority Dispatch argued that Ohio state arbitration law provides an alternative basis for compelling arbitration, but it found that the language in the parties’ arbitration clause “does not reflect the parties’ unambiguously intended to displace the FAA with state rules of arbitration.” Peter v. Priority Dispatch Inc., No. 1:22-cv-00606 (S.D. Ohio July 5, 2023).
NEW JERSEY LOGISTICS COMPANY SUED BY DRIVERS IN CLASS ACTION INDEPENDENT CONTRACTOR MISCLASSIFICATION CASE. TMX Intermodal Logistics LLC has been sued by a driver in a New Jersey state court alleging that he and other similarly situated owner-operator drivers have been misclassified as independent contractors in violation of New Jersey’s Wage Payment and Wage and Hour Laws. The class action complaint asserts the company exercises significant control over the drivers by issuing required daily work assignments; determining the time the drivers had to arrive at its cargo facility; mandating that the drivers return to the facility at the end of the workday to return paperwork and empty containers; requiring the drivers use electronic logging devices; and maintaining the ability to terminate the drivers’ services at will. The complaint also alleged that the work performed by the drivers was within the usual course of the company’s business, the work was performed at the company’s places of business, the drivers did not have independently established trades, occupations, professions, or businesses, and the drivers did not have their own customers, relying exclusively upon the company for work. The proposed class action further alleges that the company required the drivers to pay substantial fees to obtain work and made improper deductions from their wages for items such as fuel, EZ Pass charges, tolls, and taxes. TMX is likely to file motion to compel arbitration. Guimaraes v. TMX Intermodal Logistics LLC, No. ESX-L-004530-23 (Super. Ct. N.J., Essex County, July 17, 2023).
MASSACHUSETTS APP-BASED DELIVERY COMPANY AND ITS GROCERY STORE CUSTOMER SUED FOR IC MISCLASSIFICATION BY DRIVERS. Grocery Runners is an app-based delivery company that contracts with drivers to deliver groceries for supermarkets. A driver has commenced a proposed class action lawsuit for independent contractor misclassification in a Massachusetts federal district court claiming he and the other drivers are employees of Grocery Runners and one of its customers, Roche Brothers supermarkets. The driver claims all drivers are entitled as employees to minimum wage and overtime compensation under the Fair Labor Standards Act and Massachusetts state wage and hour law. Grocery Runners’ website describes the company as a B2B delivery platform that offers a white-label delivery solution for retailers wanting to offer same-day delivery to customers. The other defendant, Roche Brothers, allegedly outsources its grocery delivery services to Grocery Runners and uses the drivers’ services to make deliveries to its customers in Massachusetts. The complaint alleges that drivers’ locations and routes can be tracked online by Roche Brothers, Grocery Runners, and the customer; compensation for each job is unilaterally determined by Grocery Runners; drivers often work 45 hours per week or more without receiving overtime premiums; drivers must follow Grocery Runners’ instructions regarding where to make deliveries and can be terminated for failing to provide services that satisfy company standards; and drivers must pay expenses necessary to do their jobs such as the cost for vehicles, gas, and a smart phone with a data plan – all of which sometimes allegedly cause the drivers to receive less than the state minimum wage. The plaintiff driver also asserts that he does not operate his own independently established business and that his services are essential to and fully integrated into Grocery Runners’ business of providing last-mile delivery of retail products to customers in Massachusetts. One or both defendants likely will file motions to compel arbitration if there is an arbitration clause in the drivers’ independent contractor agreements. Sears v. Cherish Productions, LLC, No. 23-cv-11629 (D. Mass. July 21, 2023).