United States: Federal Court Dismisses Independent Contractor Misclassification Suit In Favor Of Arbitration

Michael T Maroney is Partner in Holland & Knight's Boston office

Linda Auerbach Allderdice is Partner in Holland & Knight's Los Angeles office

Jameson B Rice is Associate in Holland & Knight's Tampa office

In a prior article following the U.S. Supreme Court's decision in New Prime Inc. v. Oliveira, we noted that there is likely to be future litigation concerning who qualifies as an "interstate" transportation worker for purposes of determining the applicability of the Federal Arbitration Act (FAA) to independent contractors. (See Holland & Knight's alert, " Supreme Court: Federal Arbitration Act Doesn't Apply to Transportation Independent Contractors," Jan. 18, 2019.)

On March 28, 2019, the U.S. District Court for the Northern District of Illinois addressed this issue when it dismissed a putative class action against food delivery service provider Grubhub, holding that Grubhub's delivery drivers were not engaged in interstate commerce, and therefore were not covered by the exemption under the FAA pertaining to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."¹ In Wallace, the named plaintiffs alleged that Grubhub misclassified its delivery drivers as independent contractors and violated the wage-and-hour requirements under the Fair Labor Standards Act, the Illinois Minimum Wage Law and the California Labor Code. Grubhub moved to dismiss the case for improper venue, arguing that the plaintiffs' claims must be resolved by arbitration, pursuant to an arbitration provision in the Delivery Service Provider Agreements entered into between Grubhub and the drivers. The court agreed, compelling arbitration and dismissing the case for lack of venue.

In their bid to keep the case in federal court, the plaintiffs conceded they did not cross state lines while driving for Grubhub, but they pointed to cases involving postal workers, currency-delivery drivers and supervisors of truck drivers in interstate trucking companies who handled goods in the stream of interstate commerce as sufficient to make the case that one need not cross state lines to be engaged in interstate commerce. But the court distinguished these cases, given the fact that "[plaintiffs'] day-to-day duties do not involve handling goods that remain in the stream of interstate commerce, traveling to and from other states."² The court also rejected the plaintiffs' argument that it would be inconsistent to hold both that 1) Grubhub drivers are not "engaged in interstate commerce" under Section 1 of the FAA, and 2) the agreement between Grubhub and the drivers is covered by the FAA, since Section 2 of the FAA limits the Act's coverage to contracts "related to interstate commerce."³ To support this argument, the plaintiffs pointed to the Supreme Court's decision in New Prime, where the Court said that "§ 1 [of the FAA] helps define § 2's terms".⁴ But the district court in Wallace held that New Prime did not alter the well-established distinction between a contract "involving commerce" and workers being "engaged in interstate commerce."⁵ And the plaintiffs inability to demonstrate the latter meant that the plaintiffs were not exempt from the provisions of the FAA and must arbitrate their claims.

Shortly after the district court issued its decision, the plaintiffs filed a notice of appeal. Holland & Knight will continue to monitor any developments in this and related cases as they progress.

Footnote

19 U.S.C. § 1. See Wallace v. Grubhub Holdings, Inc., Civ. A. No. 1:18-cv-04538 (N.D. Ill.), Memorandum Opinion and Order

2Id. at 8

3Id. at 10

4Id.

5Id.

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