Many employers require employees to sign arbitration agreements as a condition of employment. Such agreements have risen in popularity following the United States Supreme Court’s landmark decision in 2018 that employees may be required to arbitrate claims individually and waive their right to class or collective action litigation. But, as Amazon.com recently learned, arbitration agreements are not enforceable in all circumstances.
On February 22, 2021, the United States Supreme Court denied certiorari in Amazon.com, Inc. v. Rittmann, and in doing so declined to settle a circuit split regarding whether arbitration agreements can be enforced against certain “gig workers,” such as delivery drivers. The dispute hinges on an arcane-sounding exception to the Federal Arbitration Act (FAA).
The FAA is a federal law that encourages the resolution of disputes through arbitration rather than in the court system. However, 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.” Currently, a circuit split exists regarding interpretation of this exemption: some courts have concluded that this exemption applies only to workers who transport goods across state lines themselves, while others have found that drivers can qualify for the exemption even if they personally never cross state lines. In Rittmann, the U.S. Court of Appeals for the Ninth Circuit held that Amazon’s “last mile” delivery drivers fall under this exemption, meaning that these workers could move forward with a nationwide class and collective action in court, and are not bound by the arbitration agreement they signed.
The Ninth Circuit joined the First Circuit in applying a broad reading to the exemption, focusing on the business for which the workers provide services, including its size and nature, rather than the specific activities of the workers. Both courts emphasized that delivery drivers are integral to interstate commerce because of the expansive interstate delivery network of which they are a part, even though the drivers themselves do not actually cross state lines in the course of their deliveries.
In contrast, the Seventh Circuit held that food delivery drivers are not engaged in foreign and interstate commerce, but instead are bound by enforceable arbitration agreements. The Seventh Circuit’s narrower reading focused on the class of workers at issue rather than the business for which they work. It reasoned that to fall within the FAA’s exemption for workers engaged in interstate commerce, the workers must be “connected not simply to the goods, but to the act of moving those goods across state or national borders.”
By declining to take up Rittmann, the Supreme Court is abstaining from weighing in on the broad versus narrow interpretations of “engaged in foreign or interstate commerce” under the FAA, at least in the context of gig workers. Still, debate over the scope of this exemption will continue, especially in light of the increased use of delivery services during the COVID-19 pandemic. Other pending cases may provide the Supreme Court with other opportunities to resolve the issue.
These decisions are worth review by employers with arbitration agreements, especially if they have employees or work with independent contractors who are involved in transportation or moving goods. Employers should also note that arbitration agreements, while popular, are not one size fits all. Employers would be wise to consult with their legal counsel to determine whether their arbitration agreements are properly suited for their workforce.