Déjà Vu in the Independent Contractor Misclassification Arena: August 2021 News Update

Independent Contractor Misclassification & Compliance Blog
September 14, 2021

The first three cases reported below regarding legal developments in August 2021 have four common denominators: the defendants are all large gig economy companies; plaintiffs’ class action counsel is the same; the lawsuits are all situated in New York; and all four are already on their way to arbitration or are highly likely to end up there shortly.  Lyft, Uber, and Instacart have been the subject of independent contractor misclassification lawsuits around the country by many law firms, but the law firm with the most class action cases against those companies is Lichten & Liss-Riordan. When faced with one of these types of cases, it seems as though we are in a déjà vu environment:  the company’s counsel typically argue that, where there is an arbitration clause with a class action waiver, the Federal Arbitration Act commands a court to compel arbitration of the claims on an individual basis. Then, in cases involving workers who drive vehicles, plaintiffs’ lawyers, including the law firm in the first three cases below, invariably argue that the FAA is inapplicable because Section 1 of that statute has an arbitration exemption for interstate transportation workers.  Thus, many of these cases seem to present the same threshold issue: are the plaintiff and members of the proposed class covered by the arbitration exemption for interstate transportation workers?

In the Uber case reported below, a federal judge concluded that ride-share drivers are similar to local taxicab drivers and are not interstate transportation workers. While this issue about the arbitration exemption is repeatedly contested around the country, it has generated far too much of the parties’ and courts’ time, attention, and resources than warranted. Why?  Because even when the arbitration exemption under the FAA applies, state arbitration laws typically have no such exclusion from arbitration and thereby provide an alternative basis for a court to compel arbitration. For this reason, businesses should take heed of our suggestions as to how to draft effective arbitration clauses, as we noted in a November 2018 blog post and highlighted more recently in a blog post published in January 2021.

In the Courts (6 items)

ANOTHER INDEPENDENT CONTRACTOR MISCLASSIFICATION CLASS ACTION LAWSUIT FILED AGAINST LYFT.  A driver servicing Lyft customers has filed a proposed class action lawsuit in a New York federal court against on-demand ride-sharing company, Lyft, alleging minimum wage and overtime compensation violations of state Labor Law due to Lyft’s alleged misclassification of drivers as independent contractors. According to the complaint, Lyft also unlawfully required drivers to pay business expenses, including the cost of maintaining their vehicles, gas, insurance, phone, and data expenses. In support of the misclassification claim, plaintiff alleged that the drivers: are required to “abide by a litany of policies and rules designed to control the drivers’ work performance;” may have their relationship terminated by Lyft if the driver’s behavior is inappropriate or violates a company rule or standards or based on customer ratings; are not engaged in their own transportation business when driving for Lyft; are not required to possess any special skills; have an indefinite tenure with Lyft; have their rates of pay set by Lyft; have their locations tracked by Lyft; must undergo background checks; and have their performance monitored by Lyft.  While Lyft would undoubtedly deny it misclassified drivers, it is anticipated that Lyft will make a motion to compel arbitration if the plaintiff is subject to an arbitration clause and did not opt out, as was done by Uber in the next reported case. Chandra v. Lyft, Inc., No. 1:21-cv-07113 (S.D.N.Y. Aug. 23, 2021).

UBER SUCCEEDS IN ITS MOTION TO COMPEL ARBITRATION OF INDEPENDENT CONTRACTOR CLASSIFICATION LAWSUIT. A New York federal court has ordered drivers providing services to Uber customers to arbitrate their minimum wage and overtime claims in their proposed misclassification class action.  The class action complaint alleged that Uber classifies its drivers as independent contractors and not employees, and did not afford them of benefits available to employees under the New York Labor Law, including payment of at least the minimum wage and overtime compensation. In December 2020, Uber made a motion to compel arbitration based on the provisions contained in the Uber Platform Access Agreements signed by the drivers. The drivers opposed the motion arguing that they fell within the exemption to the FAA for employment contracts of workers engaged in interstate commerce. In rejecting the drivers’ argument, the court concluded that “the drivers’ business does not inherently implicate interstate commerce; the business is more accurately described as primarily local, intrastate function.” The court then characterized Uber drivers to be tantamount to local taxi drivers for purposes of assessing their engagement in interstate commerce, and stated that, “The fact that some members of the class cross state lines is, however, neither necessary nor sufficient to render the class of workers ‘engaged in’ interstate commerce.” Additionally, the court concluded, “the fact that a meaningful portion of local trips involves transportation to an airport or train station does not alter the fundamentally local nature of those trips such that Uber drivers are part of the flow of interstate goods and persons.”  Uber had requested, in the alternative, that the court compel arbitration under New York’s arbitration law.  The court, however, had no cause to examine New York arbitration law because it found the FAA commanded arbitration. Davarci v. Uber Technologies, Inc., No. 20-cv-9224 (S.D.N.Y. Aug. 20, 2021).‎

INSTACART FACES NEW CLASS ACTION IN NEW YORK FOR INDEPENDENT CONTRACTOR MISCLASSIFICATION.  Instacart has been sued in New York in a proposed class action brought in federal court on behalf of delivery drivers and “full-service shoppers” alleging wage and hour violations of the state Labor Law due to their alleged misclassification as independent contractors. Maplebear, Inc., d/b/a Instacart, engages drivers and shoppers to provide on-demand, same day grocery shopping and delivery services to customers through the company’s app and website. The class action complaint alleges that the drivers and shoppers are employees because they allegedly perform services within Instacart’s usual course of business, which they define as a grocery delivery service; the plaintiffs are not typically engaged in their own grocery delivery business; Instacart allegedly maintains the right of control over the drivers’ and shoppers’ performance of their work and exercise detailed control over them; Instacart communicates directly with customers and handles complaints; Instacart may terminate or suspend the plaintiffs based on customer feedback; customers cannot request a specific driver or shopper; and drivers and shoppers sign up for shifts in advance and must wait in specified locations to receive deliveries. In addition to the overtime compensation and minimum wage claims, plaintiffs allege that Instacart failed to reimburse the business expenses of the drivers and shippers, such as the cost of maintaining their vehicles, gas, insurance, and phone and data expenses.  Like the Lyft case reported above, it is anticipated that Instacart will make a motion to compel arbitration shortly.  Chambers v. Maplebear, Inc., ‎No. 1:21-cv-07114 (S.D.N.Y. Aug. 23, 2021).

FEDEX GROUND’S INDEPENDENT CONTRACTOR BUSINESS MODEL SUFFERS SETBACK.  A Pennsylvania federal court has granted a motion by FedEx Ground drivers for leave to file an amended complaint adding class actions under state laws and adding more named plaintiffs in an existing nationwide FLSA collective action where over 30,000 drivers (exclusive of drivers in Massachusetts) have already joined the lawsuit covering FedEx operations in 14 states. The drivers in this collective action claim that they were employed by FedEx through “intermediary employers” set up by FedEx Ground to perform delivery services on FedEx’s behalf. The “intermediary employers,” known as Independent Service Providers (ISPs), are companies treated by FedEx as independent businesses that contract with FedEx to provide such services on FedEx’s behalf.  ISPs were a new business model created by FedEx to try to bulletproof its exposure to class action lawsuits for independent contractor misclassification, which, we reported in a blog post, cost the company $500 million in judgments and settlements in the 2010s.  According to the complaint, FedEx, as a purported joint employer of the drivers along with the ISPs, violated the FLSA by failing to pay overtime compensation to the drivers including those that own and operate their own ISPs, as we noted in a May 2020 blog post on this site. In granting the drivers’ motion to add the state overtime compensation claims, the court concluded that the drivers had not unduly delayed bringing their motion and that any prejudice to FedEx or burden on the court was not sufficiently established. Sullivan-Blake v. FedEx Ground ‎Package Sys., No. 2:18-cv-01698 (W.D. Pa. Aug. 12, 2021).

HEALTHCARE COMPANY SUCCEEDS IN DECERTIFYING COLLECTIVE ACTION BROUGHT BY SOFTWARE CONSULTANTS WHO ALLEGED THEY WERE MISCLASSIFIED AS INDEPENDENT CONTRACTORS.  A leading health care company has succeeded in obtaining a court order decertifying a collective action brought by software consultants under the Fair Labor Standards Act and defeating the consultants’ bid for class action certification under state laws in their independent contractor misclassification lawsuit.  The consultants’ lawsuit was brought under the FLSA as well as Maine, Maryland and New York state laws for allegedly unpaid overtime.  The company engages consultants, such as plaintiff, who perform such training and support services throughout the United States. Plaintiff’s motion for conditional certification under the FLSA was initially granted by the court. After discovery, the company moved to decertify the collective action.  In response, the plaintiff cross-moved for certification of state law class actions covering the software consultants in Maine, New York, and Maryland. In granting the decertification motion, the court concluded that the consultants were not similarly situated because they worked on varied projects in different hospitals in many states resulting in significant material differences between their work experiences (such as training, length of project, wage negotiations, and job duties) that would have required the presentation of individualized evidence for each consultant to establish their worker classification status. In addition, the court noted that there was no uniform policy of classifying consultants as independent contractors; rather, the company undertook an individualized review of each consultant before making a classification decision.  Finally, the court denied the plaintiff’s motion for class certification under state laws, finding that plaintiff did not satisfy the predominance requirement, which addresses the issue of whether the proposed classes are “sufficiently cohesive to warrant adjudication by representation.” The court concluded that in this case, “significant and material disparities” exist amongst the consultants’ experiences.  Olukayode v. ‎UnitedHealth Group, No. 19-cv-1101 (D. Minn. Aug. 2, 2021). ‎

PROP 22 VICTORY IN CALIFORNIA FOR GIG ECONOMY COMPANIES FOUND TO BE UNCONSTITUTIONAL; APPEAL ON HORIZON.  California’s Proposition 22 gig worker law, which was passed by 58% of voters in California in a November 2020 ballot measure, has been found by a state court judge to be unconstitutional to the extent it restricts the state Legislature’s constitutional authority to allow workers access to workers’ compensation laws. Several drivers who provide services to app-based, on-demand companies such as DoorDash, Lyft and Uber, and the Service Employees International Union, petitioned the court to issue a writ of mandate compelling the State of California not to enforce any provisions of Proposition 22, claiming the law was unconstitutional. The key provision of Proposition 22 provides that an app-based driver is an independent contractor and not an employee if certain conditions are met. This exempts app-based drivers from the very restrictive ABC test of AB5 that would otherwise be applied to determine the drivers’ worker classification status. As a result, app-based drivers are not permitted to participate in the workers’ compensation system because it protects only employees, not independent contractors.

The court stated that Proposition 22 “limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law”, and that “if the People wish to use their initiative power to restrict or qualify a ‘plenary’ and ‘unlimited’ power granted to the Legislature [by the Constitution], they must first do so by initiative constitutional amendment, not by initiative statute.” Proposition 22, which was placed on the ballot as an initiative statute, was therefore declared an unconstitutional continuing limitation on the Legislature’s power to exercise its plenary power to determine what workers must be covered or not covered by the workers’ compensation system. An appeal to the California Court of Appeal is a given and a further appeal to the Supreme Court of California is highly likely.  Castellanos v. California, No. RG21088725 (Super. ‎Ct. Alameda County Aug. 20, 2021). ‎

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