As we indicated in a January 17, 2019 blog article, the New Prime v. Oliveira, 139 S. Ct. 532 (2019), opinion was likely to lead to uncertainty in the transportation industry. Some imaginative commentators even forecast that the Federal Arbitration Act (FAA) Section 1 exemption could be a tool to unravel arbitration agreements with class waivers in a broad swath of companies that transport, carry or deliver goods or commodities. We believe those commentators, however, are construing Section 1 far too broadly and out of context.
Now, we are seeing some of the arguments regarding the scope of the FAA’s Section 1 play out in Rittman v. Amazon.com, Case No. 2:16-cv-01554 (W.D. Wash.) Rittmann involves a Fair Labor Standards Act collective action alleging that Amazon did not properly compensate its delivery drivers. But, it has now focused on whether Amazon’s local delivery drivers (who may also use other means of delivery) fall within Section 1 exemption, making their arbitration agreements unenforceable after New Prime. For those who may have forgotten, Section 1 excludes from the Act’s coverage: “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.
In a Supplemental Response in Support of its Motion to Dismiss and Compel Arbitration filed on March 6, 2019, Amazon maintained that the plaintiffs’ argument conflicted with the exemption’s language, purposes and relevant decisions. The Amazon brief contrasted the narrow language of the Section 1 residual clause that focuses on whether the workers are “engaged in . . . interstate commerce” with Section 2 of the FAA the governs that threshold application of the FAA and states a “contract evidencing a transaction involving commerce.” 9 U.S.C. § 2 (emphasis added) (Responsive Brief at 7).
Citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001), the supplemental brief pointed out that the language of Section 2 “signals an intent to exercise Congress’ commerce power to the full”, while the Section 1 language “engaged in commerce [has] a more limited reach.” Moreover, Amazon’s supplemental brief also pointed out:
“Why would Congress choose different words in sequential statutory sections if they intended the words to mean the same thing? Plaintiffs’ argument collapses the distinction between Sections 1 and 2. They argue that the drivers here should be excluded because ‘their work involves interstate transportation of goods’ – regardless of whether they engage in interstate transportation. * * * But ‘involving commerce’ is not interchangeable with ‘workers engaged.’ Plaintiffs’ conflation of the two different standards explains their groundless argument that the FAA does not apply ‘at all’ (under Section 2) unless the Exemption (under Section 1) applies.” (Responsive Brief at 8).
And, Amazon explained that New Prime does not support the plaintiffs’ argument because it did not even address the meaning of “engaged in interstate commerce” since all parties agreed that Oliveira “qualifies as a worker engaged in interstate commerce.” Slip Op. at 6. Instead, New Prime decided that transportation workers, whether independent contractors or employees, are not covered by the FAA.
In response, plaintiffs disputed Amazon’s factual contention that the drivers do not cross state lines in making deliveries. Moreover, they asserted that some decisions have recognized “[d]elivery drivers may fall within the exemption for ‘transportation workers’ even if they make interstate deliveries only occasionally.” According to plaintiffs, crossing state lines wasn’t a requirement. Instead, for the transportation worker exemption they must deliver goods that are “within the frame of interstate commerce.” Circuit City, 531 U.S. at 118. (See Plaintiffs’ March 6, 2019 Response, at 5).
To the contrary, Amazon pointed out, local delivery drivers are not engaged to operate in interstate commerce. For support, it cited Hill v Rent-A-Center, 398 F.3d 1286, 1290 (11th Cir. 2005), and Magana v. DoorDash, Inc., 343 F. Supp. 3d 891, 895 (N.D. Cal. 2018). Both held that local delivery drivers were not exempt or excluded from the FAA. (See Amazon Brief at 9).
The briefing in the Amazon case illustrates some of the difficulties in applying the Section 1 exemption in contexts not involving interstate truck drivers. But, we believe Amazon’s arguments are compelling and that they should prevail.
While considering what workers were engaged to do is the most straight-forward approach, (and one that we agree with), some courts have looked to the origins of the cargo or the worker’s degree of connection with interstate commerce. For example, in an unpublished opinion, a California appellate court found even a delivery truck driver who did not cross state lines still was subject to the FAA exemption. See Nieto v. Fresno Beverage Co. Inc., Case No. FO74704, (Cal. Ct. of Appeals, Fifth Appellate District, Mar. 7, 2019).
To avoid potential litigation, companies operating delivery services should be clear as to what the workers do and do not do in any arbitration agreement. As noted above, this could be difficult when varying tests for the exemption exist. Further, to avoid the future impact of a negative court decision, companies should also consider the potential application of state contract and arbitration procedures, if the FAA is not available. However, companies must first consider if the applicable state laws permit the enforcement of class or collective action waivers.
The Amazon litigation illustrates our concern that the New Prime opinion was only the beginning not the end of disputes over the application of the Section 1 exemption.