The Future of the Transportation Worker Exemption to Mandatory Arbitration – Clarity for the Gig Economy?

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In 1925, the Federal Arbitration Act (“FAA”) was enacted to ensure the validity and enforcement of arbitration agreements due to a national policy favoring arbitration as a dispute resolution mechanism. Today, companies are requiring the resolution of disputes through arbitration, rather than judicial proceedings, in an increasing number of both consumer and employment agreements.[1] Section 1 of the FAA provides an exception to mandatory arbitration; the FAA does not 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.

The U.S. Supreme Court’s View on the Exception to Mandatory Arbitration

            The Supreme Court has interpreted this provision in two decisions. The Court in Circuit City Stores v. Adams narrowly interpreted the residual clause and held that the Section 1 exception only applies to transportation workers “engaged in foreign or interstate commerce.” The Court also noted that most courts define “transportation workers” to mean those engaged in the “actual movement of goods in interstate commerce.”[2] The Court in New Prime Inc. v. Oliveira resolved a circuit split regarding the Section 1 exemption of the FAA, holding that independent contractor’s agreements with interstate truckers are included under “contracts of employment.”[3] Apart from these two cases, the Supreme Court has not clearly defined the scope of the phrase, “transportation worker.” Consequently, the circuit courts of appeals and district courts have been trying to resolve the ambiguity and gaps left by the Supreme Court.

The scope of Section 1 exemption boils down to the interpretation of two key phrases: 1) “transportation workers” and, 2) “engaged in foreign or interstate commerce.” In Singh v. Uber Techs. Inc., the Third Circuit looked at the history of the FAA to determine the meaning of the terms “seamen” and “railroad employees” when the act was originally enacted.[4] At the time of the FAA’s enactment, dictionaries did not distinguish between different kinds of work or workers; it treated “employment” essentially as a synonym for “work.” The Court found that those workers that are engaged in foreign or interstate commerce in a manner that is like seamen and railroad employees are the only ones included under the residual clause of § 1. Furthermore, the Court noted that “the residual clause of § 1 is not limited to transportation workers who transport goods, but may also apply to those who transport passengers, so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it.”[5] The First Circuit also held that “the [§1] exemption encompasses the contracts of transportation workers who transport goods or people within the flow of interstate commerce, not simply those who physically cross state lines in the course of their work.”[6] But the courts are still split on this issue. Some courts have held that under the residual clause of Section 1 of the FAA, the drivers who transported passengers rather than goods, were not engaged in foreign or interstate commerce.[7]

What Actually is a “Transportation Worker?”

So, how do we decide who actually is a “transportation worker?” Many district and circuit courts have narrowed down “transportation workers” to include workers “engaged in foreign or interstate commerce” that transport people and goods in a vehicle. The Third Circuit court in Singh held that bus drivers are exempt from the FAA, noting that it had previously characterized bus line employees as being similar to railroad workers when engaged in the channels of interstate transportation. Truck drivers have also been held to be exempt from the FAA as per the Eighth Circuit.[8] But, according to the D.C. Circuit, security guards at train stations are not “transportation workers” and thus are not exempt from the FAA. This is because security guards are not actually responsible for the transportation of goods and are not involved in the flow of interstate commerce, even though trains are.[9]

The Supreme Court has also not yet definitively answered what the second phrase, “engaged in foreign or interstate commerce,” entails. The Court cautioned against interpreting “engaged in commerce” too broadly in Circuit City. Justice Kennedy did say that “engaged in commerce” does not go so far as to reach Congress’ full Commerce Power. The First, Third, and Ninth Circuits have noted that workers can be “engaged in foreign or interstate commerce” as long as the goods or passengers they are carrying are in the process of crossing state lines in Waithaka v. Amazon.com, Singh v. Uber Technologies, Inc., and Rittman v. Amazon.com, respectively.[10] The workers themselves do not necessarily have to cross state lines. Specifically, in Singh in 2019, the court sought to resolve some ambiguity in this phrase, noting that the residual clause of Section 1 of the FAA applies to transportation workers who “work so closely related [to interstate commerce] as to be in practical effect part of it.”[11]

As the economy continues to progress, questions surrounding mandatory arbitration agreements in the employment realm are becoming more prevalent. The Supreme Court has yet to take up a case regarding rideshare drivers, food delivery drivers, and package delivery drivers, such as Uber, Lyft, Grubhub, DoorDash, Instacart, Amazon, etc. But lower courts have been grappling with the issues stemming from the mandatory arbitration agreements between these classes of drivers and their employers.

Are Rideshare Drivers Exempt from Mandatory Arbitration?

The Federal courts have decided several FAA Section 1 rideshare drivers’ cases for companies such as Uber and Lyft. The Courts have decided the scope of the FAA § 1 exemption based on “whether the class of workers to which the complaining worker belonged engaged in interstate commerce.”[12] When interpreting the scope of § 1 of the FAA; the courts do not look at the individual plaintiff but at the class of workers on a national scale. In each case, the critical factor is the nature of the business and how a class of workers performs their activities. For example, a truck driver for an interstate trucking company who only occasionally, or never, drives across state lines, may also be exempt from the application of an arbitration agreement by virtue of Sec. 1 of the FAA.[13]

The Ninth Circuit has held that “rideshare drivers who pick up and drop off passengers at airports do not fall within [the] arbitration exemption for workers engaged in foreign or interstate commerce.”[14] One year later, the Ninth Circuit held that Uber drivers are not a class of workers “engaged in foreign or interstate commerce” and therefore do not fall within the FAA § 1 exemption.[15] The Circuit Court reasoned that Rideshare services predominantly entail intrastate trips, not interstate and that while this activity does affect interstate commerce, it is not interstate commerce itself. In Singh, however, the Third Circuit held that Uber drivers are not bound by arbitration agreements if they cross state lines when giving rides. The Third Circuit remanded the case to the lower court to reconsider whether Uber drivers are engaged in interstate commerce.[16] But in 2020, district court in Cunningham v. Lyft steered away from the majority, holding that rideshare drivers fall within the “transportation worker” exemption in § 1 of the FAA.[17] Since then, two courts in the Southern District of New York have adopted the view in Cunningham, holding that rideshare drivers are exempt from the FAA.[18] While a growing number of district courts are holding that the FAA § 1 exemption does apply to rideshare drivers, the majority of district and circuit courts still hold that they are not exempt from the FAA.

Do Food Delivery Drivers Fall Under the Section 1 FAA Exemption?

The Federal courts have also decided a number of FAA § 1 food delivery driver cases. The District Court for the Northern District of California decided two food delivery driver cases in 2018. In Magana v. DoorDash, Inc., the Court held that the DoorDash delivery driver was not exempt from the FAA as he/she is not a transportation worker engaged in interstate commerce.[19] The Court further noted that it is more beneficial to look at whether the courier handles goods as part of an interstate shipment. Two months later, the Court decided another food delivery driver case in Lee v. Postmates, Inc., holding that Postmates couriers are not engaged in interstate commerce and therefore do not fall within the transportation worker exception to the FAA.[20] The Court found that there is no evidence that Postmates couriers are actually engaged in interstate commerce, because items purchased by local customers from local merchants are not goods involved in interstate commerce. To expand on the court’s point in Lee, it’s beneficial to look at what would occur if local couriers for any food delivery service (Postmates, Uber Eats, GrubHub) went on strike. The effect of the strike would not have a greater effect on interstate commerce than a national strike of any class of employees who are not interstate transportation workers in the food industry, such as cashiers, cooks, and waiters.

The District Courts in Massachusetts grappled with this issue in 2019 and 2021. In Austin v. DoorDash, Inc., the court concluded that a DoorDash driver is not a transportation worker under § 1 of the FAA.[21] A year and a half later, the court was confronted with the question again in Immediato v. Postmates, Inc., and held that Postmates drivers are not transportation workers under § 1 of the FAA. Plaintiffs argued that they were analogous to Amazon’s “last-mile delivery workers.” However, the court did not agree with this categorization, noting that food delivery services, such as Postmates and DoorDash, are distinguishable.[22] Furthermore, in Illinois, a federal district court held that Instacart workers are not exempt from mandatory arbitration under the FAA. Relying on the decision in Wallace v. Grubhub Holdings, Inc., the court concluded that “drivers who deliver food purchased over the internet from a grocery store differ in no material way from drivers who pick up food purchased over the web from a restaurant.”[23] For Instacart employees, the movement of goods is not centered across state lines.

 But the Ninth Circuit has already noted that cases involving food delivery services, such as Uber Eats, DoorDash, and Grubhub are distinguishable from Amazon’s “last-mile delivery workers.” Unlike food delivery services, Amazon shipments are held at warehouses nationally as part of a process where workers transfer the packages to different vehicles for the “last mile of the packages’ interstate journeys.” Therefore, the key point is that the workers must be connected to the act of moving the goods across state or national borders to fall within the FAA § 1 exception. It is not sufficient for the workers to just be connected to the goods, which might have crossed state lines.

This interpretation, though, has not been uniform. In Archer v. Grubhub, Inc. in 2021, the Suffolk Superior Court of Massachusetts decided that Grubhub employees, as the final participants in the moving stream of commercial transactions that deliver both food and non-food items to those who ordered them, are indeed engaged in interstate commerce. In deciding this issue, The Superior Court of Massachusetts relied on the United States Supreme Court’s decision in Walling v. Jacksonville Paper Co. in 1943.[24] The Supreme Court had unanimously ruled that workers who only deliver products intrastate, rather than interstate, are still engaged in interstate commerce. The entire movement of goods is encompassed in interstate commerce until they reach the intended customers.[25]

Meanwhile, the Seventh Circuit has held that Grubhub delivery drivers are not exempt under § 1 of the FAA. According to the court, a transportation worker is one that engaged in the actual movement of goods or persons in interstate commerce. The interstate movement of goods must be a central part of the class members’ job description.[26]

In the future, will courts hold that food delivery drivers for companies such as Grubhub, DoorDash, and Uber Eats be exempt from mandatory arbitration under the FAA? The answer likely is no. Because the nature of the work of food delivery drivers is local rather than national, the employees are not actually transportations workers engaged in interstate commerce. Looking at Amazon’s “last-mile delivery workers” provides a useful point for answering this question. Amazon is a single, national corporation. The shipments are held at warehouses nationally before they are transferred to different vehicles and couriers to complete the shipment by delivering the packages to the proper locations. This is one process. On the other hand, delivery drivers are just one part of a number of different processes with multiple companies or businesses. The drivers are not actually connected to the act of moving the goods across state borders; they are only transporting goods purchased by local customers from local merchants. This specific process is not involved in interstate commerce.

The Difference for Large Corporation Delivery Drivers

On the other hand, the federal courts have decided several FAA § 1 cases regarding delivery drivers for large corporations. The First, Third, and Ninth Circuits have held that even if workers themselves do not cross state lines, they can still be “engaged in . . . interstate commerce” so long as the goods or passengers they are carrying, have crossed states lines or are in the process of doing so. In Rittman v. Amazon, Inc., the Ninth Circuit explicitly held that Amazon drivers who are completing the “last mile” of deliveries in one state, but the delivery routinely originates in another state are still part of the channels of interstate commerce.[27] The key to this holding is that the channel of interstate commerce was intact even though the “last mile” of the delivery was conducted by a new delivery driver in a different state. The Third Circuit held that a supervisor of drivers for a package transportation and delivery company was a transportation worker engaged in interstate commerce. Even though she did not personally travel, her work was “so closely related [to interstate and foreign commerce] as to be in practical effect part of it.”[28] The First Circuit expanded on this holding in Waithaka v. Amazon.com, Inc. in 2020, noting that workers “engaged in interstate commerce” applies to three categories of workers: 1) those who themselves carry goods across state lines, 2) those who transport goods or passengers that move interstate, and 2) those who were not actually involved in the transport, but were in positions “so closely related” to interstate transportation “as to practically be a part of it.”[29]

What Happens Now?

To clear up the ambiguity surrounding the Section 1 of the FAA exemption, the Supreme Court may have an opportunity to define the phrase “transportation worker,” more precisely, or Congress may amend the FAA in the near future, to do so, as well. There is bound to be more discussion on mandatory arbitration in the future with the Restoring Justice for Workers Act being reintroduced as a bill on July 29, 2021. This bill states that under the FAA, mandatory agreements requiring individual employment arbitration are not enforceable. While judicial and legislative challenges to mandatory arbitration agreements will continue to crop up into the future, the courts have added some clarity on the issue. For now, rideshare drivers and food delivery drivers are likely not exempt from mandatory arbitration under Section 1 of the FAA, but package delivery drivers on a national scale, like Amazon’s workers, will usually be exempt under Section 1 of the FAA. Food delivery service companies are continually expanding the capacity of their platforms to deliver all kinds of goods, beyond food. But until the class of their work is centered around the movement of goods across state lines, they will not be exempt from mandatory arbitration.

[1] Consumer Financial Protection Bureau, Arbitration Study: Report to Congress, Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(A) 9 (2015), http://files.consumerfinance.gov/f/201503 _cfpb_arbitration-study-report-to-congress-2015.pdf.

[2] Cir. City Stores, Inc. v. Adams, 532 U.S. 105, 112, 119 (2001).

[3] New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019)

[4] Singh v. Uber Techs. Inc., 939 F.3d 2010 (3rd Cir. 2019)

[5] Id. at 223

[6] Waithaka v. Amazon.com, Inc., 966 F.3d 10, 13 (1st Cir. 2020).

[7] See Kowalewski v. Samandarov, 590 F. Supp. 2d 477, 484 (S.D.N.Y. 2008); Scaccia v. Uber Technologies, No. 3:18-cv-00418, 2019 WL 2476811, at *5 (S.D. Ohio June 13, 2019); Gray v. Uber, Inc., 2019 WL 1785094, at *1-2 (M.D. Fla. April 10, 2019).

[8] Lenz v. Yellow Transportation, Inc., 431 F.3d 348 (8th Cir. 2005).

[9] Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997).

[10] See generally Waithaka v. Amazon.com, Inc., 966 F.3d 10, 13 (1st Cir. 2020); Singh v. Uber Technologies, Inc., 939 F.3d 210 (3d Cir. Sept. 11, 2019); Rittman v. Amazon.com Inc., 971 F.3d 904 (9th Cir. 2020).

[11] Singh v. Uber Technologies, Inc., 939 F.3d 210 (3d Cir. Sept. 11, 2019).

[12] Wallace v. Grubhub Holidays, Inc., 970 F.3d 798, 800 (7th Cir. 2020).

[13] See International Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast, LLC, 702 F.3d 954, 958 (7th Cir. 2012).

[14] In re Grice, 974 F.3d 950, 954 (9th Cir. 2020).

[15] Capriole v. Uber Technologies, Inc., 7 F.4th 854 (9th Cir. 2021).

[16] Singh v. Uber Technologies, Inc., 939 F.3d 210 (3d Cir. Sept. 11, 2019).

[17] Cunningham v. Lyft, Inc., 450 F. Supp. 3d 37 (D. Mass 2020).

[18] See Haider v. Lyft, Inc., No. 20-CV-2997, 2021 WL 1226442 (S.D.N.Y. Mar. 31, 2021); Islam v. Lyft, No. 20-cv-3004, 2021 WL 871417 (S.D.N.Y. Mar. 9, 2021).

[19] Magna v. DoorDash, Inc. 343 F. Supp. 3d 891 (D. Cal. 2018).

[20] Lee v. Postmates Inc., 2018 WL 4961802 (D. Cal. 2018).

[21] Austin v. DoorDash, Inc., 2019 WL 4804781 (D. Mass. 2019).

[22] Immediato v. Postmates, Inc., 2021 WL 828381 (D. Mass. 2021).

[23] O’Shea v. Maplebear, Inc., 508 F. Supp. 3d 279 (D. Ill. 2020).

[24] Archer v. GrubHub, Inc., 2021 WL 832132 (Super. Ct. Mass. 2021).

[25] Walling v. Jacksonville Paper Co., 317 U.S. 564 (1943).

[26] Wallace v. Grubhub Holdings, Inc., 970 F.3d 798 (7th Cir. August 4, 2020).

[27] Rittman v. Amazon.com Inc., 971 F.3d 904 (9th Cir. 2020).

[28] Palcko v. Airborne Express, Inc., 372 F.3d 588, 593 (3rd Cir. 2004).

[29] Waithaka v. Amazon.com, Inc., 966 F.3d 10, 13 (1st Cir. 2020).