App-Based Local Delivery Couriers are not Exempt From Arbitration: November 2022 Independent Contractor Legal News Update

The most publicized legal development in the area of independent contractor law last month involved an opinion issued by a federal appellate court in a gig economy case that generated national attention.  In a decision discussed below, the United States Court of Appeals for the First Circuit held that local couriers who make deliveries to Postmates’ customers of products they pick up from retail stores are not interstate transportation workers.  As a result, the court held that the couriers do not fall into the interstate transportation exemption from arbitration under the Federal Arbitration Act.  In reaching this decision, the First Circuit distinguished the couriers from drivers making last-mile deliveries of products for Amazon, whom the court found to be interstate transportation workers under the federal arbitration law.  While this Postmates decision provides companies involved in local delivery services with additional legal authority when they seek to compel arbitration of a proposed class action, the decision is not nearly as momentous as many commentators have suggested. Why? Because companies can also compel arbitration under state arbitration laws, almost all of which do not contain an exemption for interstate transportation workers.  We pointed that out in a blog post last year involving a case holding that certain ride-sharing drivers were exempt from arbitration under the Federal Arbitration Act but were nonetheless compelled to arbitrate under a state arbitration law. Prudent companies seeking to compel arbitration of proposed class actions based on allegations of independent contractor misclassifications would be also be wise to take the steps we outlined in an earlier blog post where we offered suggestions as to how to draft effective arbitration clauses as part of a process designed to minimize misclassification liability.

In the Courts (3 cases)

POSTMATES COURIERS ARE NOT INTERSTATE TRANSPORTATION WORKERS AND THEREFORE MAY BE COMPELLED TO ARBITRATE THEIR IC MISCLASSIFICATION CLAIMS.  The U.S. Court of Appeals for the First Circuit has concluded that couriers who deliver goods from local restaurants and grocery stores to customers through the Postmates app are not engaged in interstate commerce and are not, therefore, exempted from their arbitration agreements under the interstate transportation exemption in the Federal Arbitration Act.  The couriers sought damages for allegedly unpaid minimum wage, sick leave, and expense reimbursements, claiming they have been misclassified as independent contractors instead of employees under state wage laws. In opposing the company’s motion to compel arbitration, the couriers relied on the Waithaka v. Amazon decision in the First Circuit involving Amazon’s last-mile delivery drivers.  But unlike the couriers in the Amazon case, the First Circuit found the couriers providing services to customers through the Postmates app were not engaged in the interstate transport of goods and therefore were subject to arbitration under the Federal Arbitration Act.

The First Circuit found it significant that nearly all Postmates app orders placed in Massachusetts are fulfilled within the state, and the average distance travelled by a courier during a delivery is about 3.7 miles.  In reaching its decision, the First Circuit stated, “the phrase ‘engaged in interstate commerce’ is a term of art that does not encompass the local retail of goods, even if those goods previously have been shipped interstate.” It further noted that although the couriers transport goods, “they do so as part of separate intrastate transactions that are not themselves within interstate commerce.” (Emphasis added.)  The court added:  “That the delivered items may once have travelled across state borders does not alter the equation. The interstate journey terminates when the goods arrive at the local restaurants and retailers to which they are shipped.”  The First Circuit contrasted the facts in Waithaka v. Amazon, stating:  “[U]nlike Postmates, customers bought goods directly from Amazon, which orchestrated the interstate movement of those goods and arranged, as part of the purchase, for their delivery directly to the customer. That local delivery was therefore integral to the interstate movement such that the goods remained within the flow of interstate commerce until arriving at the customer’s doorstep.”  Immediato v. Postmates, Inc., No. 22-1015 (1st Cir. Nov. 29, 2022).

DELIVERY DRIVERS SETTLE CALIFORNIA IC MISCLASSIFICATION CLASS ACTION FOR $3 MILLION.  Delivery drivers providing services to Quality Carriers Inc. have reached a proposed $3 million settlement with the company in a proposed class action alleging wage and hour violations of various California statutes due to the misclassification of the drivers as independent contractors. The drivers claimed that, among other things, Quality Carriers failed to provide them as employees with meal and rest periods, failed to pay them at least the minimum wage, and failed to provide accurate itemized wage statements required by California law. The $3 million proposed class action settlement would cover about 165 drivers with each receiving an average of $18,181.  The proposed settlement has been submitted to the court for its approval.  Salter v. QualityCarriers Inc., No. 20-cv-00479 (C.D. Cal. Nov. 23, 2022).

IN-HOME CAREGIVER CONTRACTORS PREVAIL IN THEIR RETALIATION LAWSUIT UNDER TITLE VII AFTER ESTABLISHING THEY WERE MISCLASSIFIED AS ICS.  After a bench trial, a Texas federal district court judge found in-home caregivers to be employees and not independent contractors.  The plaintiffs, two former caregivers, brought an action claiming retaliatory discharge by Helping Our Seniors, LLC pursuant to Title VII of the Civil Rights Act. The company provides in-home, non-medical care and companion services to senior citizens. The company utilized approximately 70 caregivers that it classified as independent contractors.  The plaintiffs argued that they were misclassified and should be regarded as employees. Following the trial, the court agreed and held that the caregivers were not independent contractors because the company exercised substantial control over the details and means by which the work was performed, including requiring all new caregivers to undergo orientation regarding company policies pertaining to dress code, hours of work, and scheduling; prohibited caregivers from subcontracting or assigning their work to others without prior company consent; and subjected the caregivers to possible termination if they declined too many assignments. Additionally, the court based its decision on the facts that the caregivers were low-skilled workers who were not required to have any special skills, specialized educational training, or professional licenses; were paid on an hourly basis; were reimbursed for travel and parking expenses; made no investment in the business; had no opportunity for profit or loss; did not provide their own supplies; were covered by the company’s insurance; and were integral to the company’s business. Mason v. Helping Our Seniors, No. 21-cv-00368 (W.D. Tex. Oct. 31, 2022).

Legislative Developments (2 matters)

NEW YORK CITY PAY TRANSPARENCY LAW COVERS INDEPENDENT CONTRACTORS.  On November 1, 2022, a New York City law became effective requiring companies posting ads and listings for jobs that will or can be performed by employees or independent contractors in New York City to include a minimum and maximum salaries or hourly wage ranges.  This new law applies to gig economy and other companies seeking either employees or independent contractors where the work will or can be performed in whole or in part within the city of New York and is paid on a salary or hourly basis.  As such, this law appears to apply to any company in the U.S. seeking independent contractors paid on a salary or hourly basis who would be working on a remote basis because one or more such workers may live or work in New York City. While at least three states also have pay transparency laws governing job postings and ads, only New York City’s law covers independent contractors as well as employees. The penalties for businesses that disregard this law can be costly. Nonetheless, compliance is readily attainable, even for the new hurdles imposed by this new law.

D.C. HUMAN RIGHTS LAW EXPANDED TO COVER INDEPENDENT CONTRACTORS.  The District of Columbia has expanded its employment discrimination protections to cover independent contractors. The Human Rights Enhancement Amendment Act of 2022 amends the D.C. Human Rights Act of 1977 to now include independent contractors in its definition of “employee,” thereby providing ICs with rights and remedies under the statute. Under this amendment, independent contractors now have a private right of action for workplace discrimination, including sexual harassment and retaliation, and may file complaints administratively or in court.

Written by Richard Reibstein

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