The Gig Economy's Short Reach: an Analysis of the Scope of the Federal Arbitration Act's "transportation Worker" Exemption

• Publication year: 2021

The Gig Economy's Short Reach: An Analysis of the Scope of the Federal Arbitration Act's "Transportation Worker" Exemption

Emina Sadic Herzberger
University of Georgia School of Law, es78453@uga.edu

The Gig Economy's Short Reach: An Analysis of the Scope of the Federal Arbitration Act's "Transportation Worker" Exemption

Cover Page Footnote
* J.D. Candidate, 2022, University of Georgia School of Law; M.A., 2016, Sciences Po Paris; B.A., 2012, University of Houston. I would like to thank Dean Peter B. Rutledge for his mentorship and helpful insight on this Note. I would also like to thank Marc Herzberger for his constant encouragement and support.

THE GIG ECONOMY'S SHORT REACH: AN ANALYSIS OF THE SCOPE OF THE FEDERAL ARBITRATION ACT'S "TRANSPORTATION WORKER" EXEMPTION

Emina Sadic Herzberger^*

[Page 299]

The Federal Arbitration Act (FAA) governs arbitration agreements in the United States. Section 1 of the FAA provides an exemption from arbitration for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."In a 2001 decision, Circuit City Stores, Inc. v. Adams, the U.S. Supreme Court held that the residual phrase "any other class of workers engaged in foreign or interstate commerce" includes transportation workers. But, such language is ambiguous, and the Supreme Court did not expound upon what it means to be a transportation worker or to be engaged in interstate commerce for purposes of the exemption.

Since the FAA's enactment in 1925, modes of employment have evolved drastically and now include the recent platform-or mobile-based gig economy—one subsect of which includes delivery drivers working for companies like Amazon Flex, Grubhub, Lyft, and Uber. Mandatory arbitration agreements in their employment contracts compel these drivers to arbitrate, rather than litigate, disputes against these companies.

A circuit split has emerged regarding whether modern gig economy drivers fall within the "transportation worker" exemption, with courts divided primarily on whether these drivers are "engaged in interstate commerce." Without a blueprint to follow, lower courts have created their own tests and applied their own standards to these drivers, leading to inconsistent results. Some courts have held that the driver does

[Page 300]

not need to cross state lines to be exempt from arbitration; instead, these courts look to the companies that these drivers work for to determine if the company is engaged in interstate commerce. If so, they find that the company's workers are engaged in interstate commerce. Other courts emphasize that the driver must be a member of a "class of workers" that is engaged in interstate commerce, thereby requiring the driver to actually cross state lines to obtain the exemption. This circuit split highlights the difficulty of applying a near century-old statute to a modern worker context.

This Note argues that, in the absence of a Supreme Court ruling or congressional amendment on the matter, lower courts should not exempt gig economy delivery drivers from arbitrating employment disputes against their platform companies because the drivers are not transportation workers engaged in interstate commerce.

[Page 301]

Table of Contents

I. Introduction....................................................................302

II. Background: The Federal Arbitration Act..............306

A. HISTORY OF THE FAA................................................308
B. EXTENSION TO EMPLOYMENT DISPUTES...................309
C. PIVOTAL CASES: CIRCUIT CITY AND NEW PRIME........313

III. Current Circuit Split..................................................317

A. BROAD APPROACH.....................................................318

1. Contemporaneous Caselaw and Statutes........319
2. Textual Reading................................................320

B. NARROW APPROACH..................................................321

IV. Analysis: Gig Economy Delivery Drivers Should Not Receive the Section 1 Arbitration Exemption........324

A. LEGAL ANALYSIS.......................................................324

1. Misapplication of Contemporaneous Statutes . 325
2. Statutory Language and Structure .................. 327
3. Legislative History and Context.......................331

B. PRACTICAL ANALYSIS................................................332
C. A DEFENSE OF ARBITRATION.....................................334

V. Conclusion......................................................................338

[Page 302]

I. Introduction

The gig economy is a lucrative industry in the United States: in 2017, approximately 57 million people—or a third of the entire workforce—engaged in some form of gig work.¹ By 2021, estimates project that the gig economy will contribute over $1 trillion to the U.S. economy.² Referred to by various names, including the "sharing" or "1099 economy,"³ the gig economy often involves "economic transactions that are facilitated by online platforms that match customers with providers."⁴ The transportation services sector represents one major component of the gig economy that employs this online platform system.⁵ Within the transportation services sector, last-mile delivery drivers form one subsect of gig economy workers.⁶ These drivers transport people and deliver goods

[Page 303]

or prepared restaurant meals to customers' homes or offices.⁷ While some platform companies offer only one type of service, generally either some form of ride-sharing or food delivery, other companies are expanding their range of services, meaning drivers can participate in transporting both goods and people through the same platform.⁸

Regardless of the platform, there are benefits of working as a gig economy delivery driver, including a flexible self-created work schedule,⁹ the opportunity to gain supplemental or part-time income,¹⁰ and the ability to work seamlessly for multiple platforms simultaneously.¹¹

[Page 304]

To become a driver for one of these platform-based companies, applicants must accept the terms of use that create a contractual relationship between the company and the driver.¹² An agreement to arbitrate a dispute, which precludes a driver from bringing a collective or representative action against the company,¹³ is common in these contracts.¹⁴ Despite this requirement to arbitrate disputes, there has been an uptick in suits brought by drivers against their respective platform employers for employment contract violations.¹⁵ Litigation brought against these companies conflicts with a recent trend in the United States to view arbitration, including employment arbitration, favorably.¹⁶ In bringing these suits, drivers argue that they are exempt from arbitration based on a carveout in the Federal Arbitration Act (FAA).¹⁷ Section 1 of the FAA exempts certain classes of workers from mandatory arbitration, including "workers engaged in foreign

[Page 305]

or interstate commerce,"¹⁸ which the U.S. Supreme Court has ambiguously classified as "transportation workers."¹⁹

Without guidance from either the statutory language or Supreme Court jurisprudence, it is unclear which workers are "transportation workers" for purposes of the Section 1 exemption.²⁰ The influx of these suits forces lower courts to determine whether gig economy drivers are transportation workers under Section 1 of the FAA; if so, Section 1 would exempt them from mandatory arbitration.²¹ A recent circuit split involving a range of gig-based companies and their drivers considers whether gig economy drivers are transportation workers "engaged in foreign or interstate commerce," thereby exempting these drivers from having to arbitrate their claims.²² Recent cases illustrate that courts diverge widely in their treatment of gig economy drivers based on a variety of Section 1 interpretations.²³ The Supreme Court has declined to rule on this issue,²⁴ which will invariably result in lower courts furthering the patchwork of interpretations.

This Note argues that a narrow interpretation of the Section 1 exemption is the appropriate reading, under which gig economy delivery drivers are not entitled to the arbitration exemption. Part II examines the contours of the FAA, Section 1, and the recent extension of Section 1 to employment disputes within the scope of Supreme Court caselaw. Part III surveys the current circuit split and the varied approaches taken by three circuit courts of appeals. Part IV then illustrates why the Section 1 exemption should not extend to gig economy delivery drivers and offers a defense of arbitration in employment dispute contexts.

[Page 306]

II. Background: The Federal Arbitration Act

Alternative dispute resolution (ADR) mechanisms, including arbitration, mediation, and negotiation, operate as a substitute for litigation by offering an efficient and effective means to resolve disputes between parties.²⁵ Arbitration exists as one ADR mechanism and is defined as follows:

[A]rbitration is an adjudicatory method of private, third-party dispute resolution. It is an alternative to adjudication in the courts, on the one hand, and to self-help, negotiated settlements, and mediation on the other. It depends upon and can be controlled in large measure by agreement between the parties. Arbitration is currently facilitated by strong legislative policies favoring enforcement of the agreement and finality of the award. It is, in short, a favorite of the law at a time when interest in alternative dispute resolution is high.²⁶

Arbitration contains three basic elements: (1) parties' agreement to arbitrate a dispute; (2) parties' selection of a dispute resolution method with the intent to reduce time and cost in rendering a fair decision by a neutral third party; and (3) an award or decision that is final.²⁷ The FAA governs the majority of consensual arbitral agreements in the United States.²⁸ The FAA applies broadly to written contracts involving an agreement to settle disputes by...