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Employers Can Avoid Arbitration Issue Raised in Amazon Case

Oct. 14, 2020, 8:00 AM

The U.S. Court of Appeals for the Ninth Circuit recently refused to enforce arbitration agreements for Amazon delivery drivers, setting the stage for continued litigation, including a possible U.S. Supreme Court showdown.

The Ninth Circuit denied Amazon’s petition for a rehearing in Rittmann v. Amazon.com Inc. So what does this mean for employers who want to enforce arbitration agreements? One thing they can do is draft clearly worded arbitration agreements tailored to their specific industry and affected workers.

Ninth Circuit Found Federal Arbitration Act Exemption

Rittmann involved Amazon’s drivers who made “last mile” deliveries. The Ninth Circuit held that the drivers were engaged in “interstate commerce”—even when they only made intrastate deliveries—such that they fell under the transportation exemption of the Federal Arbitration Act (FAA).

The Ninth Circuit reached this decision by relying on decisions in distinguishable contexts, including unfair competition and price discrimination. On this basis, it rejected Amazon’s argument that crossing state lines is required before drivers can be exempt from the FAA.

Given that Amazon is “one of the world’s largest online retailers” and that drivers picked up packages that had already crossed state lines to transport them to their final destination, the court held that drivers were “transportation workers engaged in the movement of interstate commerce,” thus making them exempt from the FAA.

How Employers Can Respond

The big takeaway from Rittmann for employers is to distinguish their employees from Amazon’s drivers.

One key way to do so is to show, if possible, that the employer’s goods are made and delivered within a single state or locality. Rittmann itself distinguished food delivery services by noting that “prepared meals for local restaurants are not a type of goods that are ‘indisputably part of the stream of commerce.’”

Another way to distinguish Rittmann is to use arbitration agreements that expressly state that if a court determines the FAA does not apply, state law substantive contract principles apply—something the arbitration agreement in Rittmann did not do. Indeed, Rittmann found that Amazon’s arbitration agreement was ambiguous, such that no valid arbitration agreement existed.

Employers can fix these issues by carefully drafting clearly worded arbitration agreements tailored to their specific industry and affected workers.

Amazon Is Expected to Seek Supreme Court Review

Rest assured that Amazon will not take Rittmann lying down. With approximately 10,000 affected delivery drivers at stake, Amazon is expected to seek review by the U.S. Supreme Court, especially if Amy Coney Barrett is confirmed.

Barrett’s decisions reveal a preference for strict statutory interpretation. She also recently wrote the Seventh Circuit’s opinion in Wallace v. GrubhubHoldings Inc. (2020), refusing to find Grubhub drivers exempt from the FAA, such that they had to arbitrate their wage and hour claims rather than pursue them in court.

Relying on the Supreme Court’s ruling in Circuit City Stores Inc. v. Adams (2001), Barrett noted that the phrase “engaged in commerce” meant something narrower than “affecting commerce” or “involving commerce” and it has “a more limited reach” by referring to “active employment” in interstate commerce. According to Barrett, courts must assess “whether the interstate movement of goods is a central part of the class members’ job description.”

In rejecting the drivers’ claims that they carried goods that moved across state lines, Barrett said the drivers “completely ignore the governing framework.”

“A package of potato chips, for instance, may travel across several states before landing in a meal prepared by a local restaurant and delivered by a Grubhub driver; likewise, a piece of dessert chocolate may have traveled all the way from Switzerland. The plaintiffs insist that delivering such goods brings their contracts with Grubhub within § 1 of the FAA. As they see it, the residual exemption is not so much about what the worker does as about where the goods have been.”

Barrett noted that “to fall within the exemption, the workers must be connected not simply to the goods, but to the act of moving those goods across state or national borders… [T]he plaintiffs’ interpretation would sweep in numerous categories of workers whose occupations have nothing to do with interstate transport—for example, dry cleaners who deliver pressed shirts manufactured in Taiwan and ice cream truck drivers selling treats made with milk from an out-of-state dairy.”

This result would “run afoul to the [Supreme] Court’s instruction that the scope [of the FAA’s exemption] be ‘controlled and defined’ by the work done” as well as its admonition that Section 1’s exemption “as a whole must be ‘afforded a narrow construction.’”

The Supreme Court may not grant review of Rittmann if the Seventh and Ninth Circuit decisions can be read harmoniously, as some scholars think it can be.

Regardless, one thing is clear: because employment arbitration agreements continue to be hotly contested in some jurisdictions, employers in all industries must ensure that their agreements are up to date to maximize their ability to enforce them.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Robyn E. Frick is senior counsel at CDF Labor Law LLP, a California-based labor and employment defense law firm. She represents clients in complex employment and business matters.

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