Certain Grubhub Inc. delivery drivers brought two putative collective and class actions asserting that they were misclassified as independent contractors, resulting in both federal and state wage and hour violations. The drivers – who worked in Chicago, Portland and New York – had signed Delivery Service Provider Agreements that required arbitration but claimed their agreements were exempt from the Federal Arbitration Act (FAA) because they were “workers engaged in foreign or interstate commerce.” The district courts disagreed and compelled arbitration under the FAA.

The Analysis

Now, in a sometimes-colorful August 4th decision, the Seventh Circuit has affirmed both judgments.  Wallace v. Grubhub Holdings, Inc., Nos. 19-1564 and 19-2156 (7th Cir. Aug. 4, 2020).  Judge Amy Barrett, who authored the decision, began her interpretation with the text of § 1 of the FAA which declares:  “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  9 U.S.C. § 1.  Most relevant to the decision was the residual category “any other class of workers engaged in foreign or interstate commerce” and its “membership”.  Perhaps the most meaningful portion of the decision was that the “operative unit” was a “class of workers” not simply individual workers who claim to have worked in commerce.  So, a worker “whose occupation is not defined by . . . engagement in interstate commerce does not qualify for the exemption . . . .”  And, merely because a worker “occasionally” performs that class of work, is not enough.  Hill v. Rent-A-Center, 398 F. 3d 1286, 1289-90 (11th Cir. 2005).

That conclusion prompted the next question for the court – how to determine the meaning of a class of workers engaged in interstate commerce. Not unexpectedly, Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001), provided analytical insight. In Circuit City, the Supreme Court rejected the notion that the Section 1 exemption was co-extensive with the commerce clause itself. Instead, the court held that the residual clause “applies only to employment contracts of workers engaged in the movement of goods in interstate commerce.” (Emphasis added.) Indeed, “active employment” in interstate commerce is required, as is consideration of the worker’s “active engagement in the enterprise of moving goods across interstate lines.”

But the plaintiffs “completely ignored the governing framework” and emphasized that they carry goods that have themselves “moved across state and even national lines.” Yet that didn’t suffice:

A package of potato chips, for instance, may travel across several states before landing in a meal prepared by a local restaurant and delivered by a Grubhub driver; like-wise, a piece of dessert chocolate may have traveled all the way from Switzerland.

The applicable standard instead derives from such occupations as seamen and railroad workers and is premised on the transport of goods in interstate and foreign commerce, not where the goods themselves came from. As the panel cautioned:

By erasing the requirement from the statute, the plaintiffs’ interpretation would sweep in numerous categories of workers whose occupations have nothing to do with interstate transport – for example, dry cleaners who deliver pressed shirts manufactured in Taiwan and ice cream truck drivers selling treats made with milk from an out-of-state dairy.

The panel also disposed of the plaintiffs’ arguments centering on a uniform construction of the term “commerce” in the FAA. It found:

nothing remarkable about an employment contract failing to meet § 1’s more stringent “engaged in interstate commerce” requirement while still meeting the far broader “involving commerce” requirement of § 2.

In summary, the opinion held that to fall within the exception plaintiffs had to show that “the interstate movement of goods is a central part of the job description of the class of workers to which they belong.” These plaintiffs did not do so. Accordingly, both district courts reached the proper conclusion that they did not fit within the FAA’s § 1 exemption.

The scope of the § 1 exemption is key to the economic viability of gig companies. As we have noted in a number of prior blog articles, not all courts have used the same criteria or reached the same conclusions, which has fueled confusion in the industry. See our blog articles from April 29, 2019; September 13, 2019; April 3, 2020; and June 1, 2020 blog articles considering the potential tests to determine who might qualify as a transportation worker in interstate commerce.

Bottom Line

The Seventh Circuit found that the plaintiffs’ contract with Grubhub to function as food delivery drivers did not fall under § 1 of the FAA.