This article originally appeared in Verdict on May 20, 2021.
Since the emergence of the gig economy, courts have struggled to fit workers in such businesses into the traditional framework of employment law. One common issue is whether the Federal Arbitration Act (FAA) applies to drivers who work for rideshare companies Uber and Lyft. If the FAA applies, predispute arbitration agreements covering federal and state statutory claims will be enforced; if the FAA does not apply, enforcement will be a matter of state law, and California and other states have made clear they will not enforce such pacts.
Section 1 of the FAA provides that 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 Supreme Court has interpreted this clause in two significant decisions. First, in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the Court held that the exception only applies to transportation workers “engaged in foreign or interstate commerce.” Second, and more recently, the Supreme Court in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019), held that “contracts of employment” included independent contractor agreements with interstate truckers.
Since New Prime, federal courts have decided several cases involving rideshare drivers for Uber and Lyft that have considered the scope of § 1. Their decisions have largely addressed two questions left open by New Prime that are necessary to decide if rideshare drivers are “transportation” worker “engaged in . . . interstate commerce” and, thus, not subject to the FAA.
The first question is whether the § 1 exception is limited to transportation workers who transport goods, or if it extends to rideshare drivers who transport people. This question stems from language in Circuit City that “Congress’ demonstrated concern with transportation workers and their necessary role in the free flow of goods” justified extending the § 1 exception to truckers. 532 U.S. at 121 (emphasis added). Relying on this language. Uber and Lyft have argued their drivers are not covered by the exception because they transport passengers, not goods.
The majority of courts have rejected this argument. The Third Circuit examined the history of the FAA and the understanding of the terms “seamen” and “railroad employees” at the time the FAA was enacted. The court looked to two statutes passed contemporaneously with the FAA that the Supreme Court cited in Circuit City to explain why Congress may have excluded seaman and railroad employees in § 1. Those statutes—the Transportation Act of 1920 and the Railway Labor Act of 1926—regulated railroad carriers that contained sleeping cars, which meant they transported passengers. Because railroad employees at the time would have included those who worked on passenger trains, the Third Circuit reasoned that “§ 1 is not limited to transportation workers who transport goods, but may also apply to those who transport passengers. . . .” Singh v. Uber Techs. Inc., 939 F.3d 210, 223 (3d Cir. 2019). Further, the court noted that Circuit City’s use of “goods” was “convenient shorthand to discuss interstate commerce.” Other courts have agreed. See, e.g., In re Grice, 974 F.3d 950 (9th Cir. 2020); Cunningham v. Lyft, Inc., 450 F.Supp.3d 37, 44-45 (D. Mass. 2020).
Despite Singh’s reasoning, the authority on the goods/passengers issue is not uniform. In Tyler v. Uber Technologies, Inc., a district court relied on pre-Circuit City law in the D.C. Circuit, and, constrained by that law, held § 1 “ ‘only excludes from the provisions of the Act the employment contracts of workers engaged in the transportation of goods in commerce.’ ” (quoting Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1471 (D.C. Cir. 1997)). In Osvatics v. Lyft, Inc., a different district court in the District of Columbia reached the opposite conclusion. This creates an intra-circuit split that the D.C. Circuit may need to resolve. If that court agrees with Tyler, or another circuit holds § 1 only applies to workers who transport goods, the Supreme Court would need to resolve a circuit split.
The second significant question left undecided by New Prime is what constitutes “engaged in . . . interstate commerce” and whether it applies to rideshare drivers. To qualify for the FAA exception, must a driver transport passengers across state lines? Must that be a regular activity? Or is it sufficient that they transport passengers from other states or countries—as drivers taking passengers to and from airports commonly do? On this issue, the courts are more divided.
As a general rule, courts do not decide the scope of the § 1 exception based on the tasks performed by the individual plaintiff, but on “whether the class of workers to which the complaining worker belonged engaged in interstate commerce.” See, e.g., Wallace v. Grubhub Holdings, Inc., 970 F.3d 798, 800 (7th Cir. 2020). This largely depends on the role drivers play in relation to the employer’s business and does not depend on the workers actually crossing state lines. For instance, the Ninth Circuit has held that drivers who complete “last mile” deliveries for Amazon products that routinely originate from another state “form a part of the channels of interstate commerce” even though they rarely crossed state lines. Rittmann v. Amazon.com, Inc., 971 F.3d 904, 917 (9th Cir. 2020), cert. denied, 141 S. Ct. 1374 (2021). Conversely, the Wallace court noted that drivers who deliver food from local restaurants are not engaged in interstate commerce.
Applying this test to Uber and Lyft, a good number of courts have held that rideshare drivers are not engaged in interstate commerce. In re Grice reasoned that rideshare drivers are much like cab companies, serve only a local area, and, thus, “have an ‘only casual and incidental’ relationship to interstate transit.” Other cases acknowledge that drivers may regularly transport interstate travelers, particularly to and from airports, but nonetheless find that the class of drivers do not “perform an integral role in a chain of interstate transportation.” Capriole v. Uber Techs., Inc., 460 F. Supp. 3d 919, 932 (N.D. Cal. 2020) (citing statistics that only 2.5% of Uber trips crossed state lines and only 10% of all trips began or ended at airports); Hinson v. Lyft, Inc., 2021 WL 838411, at *7 (N.D. Ga. Feb. 206, 2021) (while Lyft drivers may affect interstate commerce, they “as a whole are not in ‘the particular business of offering interstate transportation to passengers’ ”).
Other courts have reached the opposite conclusion. In Haider v. Lyft, Inc., for example, the court focused on the particular nature of Lyft operations in the New York Tri-State Area. It cited evidence that 25% of Lyft trips begin or end at air, train, or bus terminals and that Lyft has marketing partnerships with airlines and hotels. The “quantity and nature of Lyft’s connections to hubs of interstate travel lead the Court to conclude that its drivers engage in interstate commerce even when they do not personally cross state lines.” It distinguished the cases finding that rideshare drivers did not fall within the scope of the § 1 exemption as turning “on an apparent instinct that their trips across state lines must be vanishingly rare.” “That instinct may resemble reality in San Francisco, some two hundred miles from the closest land border with another state. Not so much in New York, New Jersey, Connecticut, and many other parts of the country.”
Most circuits have yet to render decisions on whether rideshare drivers fall within the scope of § 1. In re Grice appears to have resolved the question in the Ninth Circuit, but the issue remains unsettled in other circuits. Even the Third Circuit, which decided Singh, merely held that rideshare drivers may fall within the exception if they are in a class of employees engaged in interstate commerce. However, it remanded the case to the district court to decide that question. The case is likely to return to the Third Circuit which, along with the Second and Eleventh Circuits are likely to soon be faced with deciding whether Uber and Lyft drivers fall within the scope of the exception in § 1. Depending on the outcome of those cases, we may see a circuit split that will require the Supreme Court to revisit § 1 and decide whether rideshare drivers fall within the scope of the FAA.
Rex Heinke is a member of the California Appellate Law Group* and was former co-head of Akin Gump’s Supreme Court and Appellate Group.
Jessica Weisel is an experienced litigator and member of the California Appellate Law Group handling civil appeals, writs, and substantive trial court motions for businesses and individuals.
*In July 2022, the California Appellate Law Group was renamed the Complex Appellate Litigation Group.
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