Back to cases today, with the lead being the First Circuit’s take on the on-going “interstate commerce” worker issue.

Delivery Drivers and the FAA

Section 1 of the Federal Arbitration Act provides that it does not apply to “contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce.” (Emphasis added).  Both before and since the decision of SCOTUS last Term in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022), courts have been asked to define the parameters of those so “engaged.”  On Wednesday, the First Circuit added significantly to that discussion in Immediato v. Postmates, Inc., 2022 U.S. App. LEXIS 32848 (1^st Cir. November 29, 2022).

Postmates delivers food and merchandise ordered from area restaurants and local merchants to consumers. In doing so, it employs “couriers” to make the actual deliveries. The issue, as in many of the Section 1 cases, is whether those delivery persons are independent contractors or employees subject to the protections of the Fair Labor Standards Act. Immediato and others brought a class action in U.S. District Court on behalf of a class of such “couriers.”  Postmate sought to compel arbitration under the agreement each allegedly signed at the time they began to render services. Plaintiffs argued that they were engaged in interstate commerce, and, therefore, fell within the exclusions of Section 1 of the FAA.  If they were correct, the federal court would lack authority (absent its application of any relevant state law) to compel arbitration.   The District Court found that the plaintiffs were not engaged in interstate commerce and dismissed the action in favor of arbitration.

On appeal, the First Circuit, with Judge Selya writing for himself; Lynch, J.; and McElroy, D.J., sitting by designation, affirms.  In doing so, the court distinguishes its prior decision in Waithaka v. Amazon.com, Inc., 966. F. 3d 10 (1^st. Cir. 2020), in which it held that “last mile” Amazon drivers fell within the exclusion.  Here, the court holds, unlike Amazon drivers, the couriers are not “actively engaged in the interstate transport of goods.” The court notes 96% of orders are placed in Massachusetts, are fulfilled within the Commonwealth, and involve an average delivery distance of 3.7 miles.  The crux of the decision, however, is that the work of the Postmate couriers is not a “constituent part” of the movement of goods interstate, “as opposed to a part of an independent and contingent intrastate transaction.”  That test removes from Section 1’s exclusion those whose contact with the delivery of goods that may have previously moved across state lines is “by happenstance, and not a result of any contribution of theirs to the interstate journey.”  In language that will probably provide the basis for litigation in future cases, the court distinguishes “intrastate logistics or transactions that are integral to the interstate transport of goods (and that are, therefore, “in” interstate commerce) [from] purely local economic activity that may depend on interstate commerce but is – [‘f]rom the standpoints of time and continuity’ – nonetheless ‘distinct’ and ‘separate.’” (Emphasis added). In doing so, the court cites United States v. Yellow Cab Co., 332 U.S. 2218 (1947), which distinguished between cab drivers who drove cross-country rail passengers between Chicago’s two train stations as they switched trains to continue their journey and those who merely drove passengers from areas within Chicago to the station.

It will be interesting to see whether other Circuits adopt the same test as they consider Postmate, Grubhub, and similar cases and, if not, whether SCOTUS will finally be forced to weigh in on the question. Stay tuned.

Adding an Arbitration Clause to Existing Employment Contracts

Employment is not a static relationship.  An employer who did not include an arbitration clause in its contract with workers may decide later that it wants an alternative to the litigation of disputes.  Lee v. American Express Travel Related Services Co., Inc., 2022 U.S. Dist. LEXIS 214073 (C.D. Cal. November 28, 2022), provides a road map as to how one might do so.

Lee worked for Amex from September 20, 2000, to October 2021.  In 2003, Amex adopted a policy binding employees who were hired after June 1, 2003, to arbitrate their disputes.  Because of her hire date, the policy did not cover Plaintiff.  However, in 2007, Defendant revised its policy to also cover those hired before June 1, 2003 – a group which would include Lee.  In response to Lee’s action alleging unfair employment practices and wrongful termination, Amex moved to compel arbitration under the 2007 provision. Lee claimed she was not aware of and, therefore, had not agreed to that amendment.

The court, Wilson, J., compels arbitration, finding that Amex communicated the policy in such a way that Lee had constructive notice thereof. Amex, he finds, mailed notification of the new policy by certified mail to the address which Plaintiff provided her employer; put an opt-out reminder in her pay envelope; sent a notice to her work email; and mailed a follow-up letter to those employees who had not opted out.  The lesson for employers, therefore, is simple.  If you are adding an arbitration clause (or any other new provision) to your employment contract, communicate – and communicate – and communicate.  The more times that you convey the information, the more likely a court will find inquiry notice.

International Arbitration; Panama and New York Conventions

Generally, the New Convention and the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”) overlap.  However, Wilson v. Carnival Corp., 2022 U.S. Dist. LEXIS 213770 (S.D. Fla. November 28, 2022)(Scola. J.), demonstrates an area in which the court finds a significant divergence.

Scola, a U.S. citizen, worked on one of Carnival’s ships.  Carnival is a Panamanian entity.  The arbitrator who heard the claim found that Scola’s claims were barred by the one-year Panamanian statute of limitations. Scola brought this action to vacate the award.  The court applies the Panama Convention, since both the United States and Panama ratified the treaty.  The court holds that the Panama Convention does not include any provision authorizing a court to vacate an award and, therefore, dismisses the action. Article 5 thereof, the court opines, provides only defenses under which a court may “refuse to recognize or enforce an arbitral award.” (Emphasis in original). It does not include any provision under which “a party may affirmatively petition for vacatur. . . It follows, then, that because this is not a recognition or enforcement proceeding, the Petitioner cannot properly invoke Article 5.”  Rather, the party must go to the “State in which or according to the law of which the decision has been made.”  While the U.S., as a “secondary” State, may refuse to enforce the award under the grounds set forth in Section 5, it may not annul the award.  For arbitration nerds, the court goes into a historical discussion of the 1927 Convention on the Execution of Foreign Arbitral Awards, the predecessor of both the New York and Panama Conventions, and the concept of a “double exequatur.”  The opinion has a small audience – but those who care about international arbitration, whether they agree with the court’s conclusion, will enjoy the ride.

Waiver and Changes in the Law; Effective Vindication

Rivas v. Coverall North America, Inc., 2022 U.S. Dist. LEXIS 216362 (C.D. Cal. November 28, 2020)(Bernal, J.), discusses how a change in the law affects litigation waiver. Plaintiff brought this class action alleging misclassification as independent contractors, rather than as employees. The original action included a claim under California’s Private Attorney General Act, the oft-discussed PAGA statute. After SCOTUS’s decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), Coverall moved to compel arbitration of the individual PAGA claims; Rivas countered that Coverall’s eighteen months of litigation waived any arbitration rights. The court rejects the argument and holds that, as the prior litigation did not address the merits of the dispute, did not constitute a waiver.  Moreover, Judge Bernal holds that, until the Supreme Court decided Lamps Plus, Inc. v. Varela, 139 U.S. 1407 (2019)(an ambiguous agreement does not authorize class arbitration), Defendant might have “reasonably assumed” that a motion to compel arbitration “would have been futile.”

Under the “effective vindication principle” a court will not compel arbitration where doing so would make it impossible for the claimant to assert protected rights.  The court here sharply limits that principle by holding that it applies only to “federal statutory rights, not to state rights such as those under PAGA.”  (Emphasis in original). It also holds that the record did not establish that Rivas would be unable to participate in arbitration for financial reasons. Judge Bernal opines that the evidence is ambiguous regarding Rivas’ annual income. Nor did he seek relief under the AAA’s procedures or take advantage of Coverall’s offer to advance the costs of arbitration “if the arbitrator concludes that Plaintiff cannot bear his share of the costs. “

Quick Hits

Timely Action

“Highlights” often features cases in which courts hold that a party’s failure to object before an arbitral tribunal waives any claims.  Soler v. Fernandez, 2022 U.S. Dist. LEXIS 213923 (M.D. Pa. November 28, 2022)(Saporito, M.J.), is in that line of cases.  Despite a provision in the arbitration agreement requiring the arbitrators to issue an award within seven days of the close of the hearing, panel took 1,776 days from the hearing’s close to produce a decision. While the opinion discusses potential reasons for that delay, it holds that “the record before us does not demonstrate that the defendant objected to any delay by the panel in the rendition of its award. Nor did the defendant involve the court to address any delay in the adjudication of the issues before the panel.” Likewise, the court holds that, by failing to either object to the panel’s consideration of a new appraisal from plaintiff after the close of the hearing or to submit a new appraisal by his own expert, Fernandez waived any claims related to the post-closing evidence. The court denies Defendant’s motion to vacate the award.

Attorneys’ Fees and Interest

In Stage Directors & Choreographers Society v. Paradise Square Broadway Limited Partnership, 2022 U.S. Dist. LEXIS 213691 (S.D. N.Y. November 28, 2022)(Engelmayer, J.), the court awards attorneys’ fees to the Plaintiff on its motion to confirm.  The standard in the Second Circuit, the court holds, is that fees may be awarded where “the party challenging the award has refused to abide by an arbitrator’s decision without justification,” First National Supermarkets, Inc.. V. Retail, Wholesale & Chain Store Employees, 118 F. 3d 892 (2^nd Cir. 1997).  Since the Respondent had stipulated to the sum owed, the court finds its subsequent failure to make a payment to be unjustified and imposes attorneys’ fees in the amount of approximately $9,000. In addition, although the Petitioners did not seek post-judgment interest, the court  holds that 28 U.S.C. 1961(a) mandates the award thereof in an action to confirm an arbitration and imposes post-judgment interest at the federal rate, see 28 U.S.C. § 1961(a), until the judgment is paid.

Have a good weekend.  Let’s hope that we hear the cry of GOOOOOOOOOOOOOAL tomorrow for the U.S. World Cup team.

David A. Reif, FCIArb
Reif ADR
Dreif@reifadr.com
Reifadr.com