Gig Company Court Shield Against Drivers Stands on Shaky Ground

Businesses like Amazon Flex and Instacart that rely on “last-mile” gig drivers would potentially have to rethink their supply chains and contracts if the US Supreme Court hands down a ruling that keeps employment disputes in court.

Before next summer, the high court will decide a long-running legal question over whether those local delivery drivers qualify as “transportation workers engaged in interstate commerce,” meaning they can avoid mandatory arbitration under federal law.

If the justices affirm that last-mile drivers are covered by that Federal Arbitration Act exemption, as many attorneys and arbitration law scholars predict, companies would lose one of their strongest legal safeguards against potentially costly class actions over wages and other benefits.

They’ll also likely feel compelled to modify their distribution models and draft contracts to manage labor risks and defend against lawsuits as a workaround to the ruling, attorneys and legal scholars said.

Companies that use last-mile drivers in particular “will have to either give up on arbitration or rewrite their arbitration and employment agreements to come up with a different way to compel arbitration,” said Michael Rubin, a partner at Altshuler Berzon LLP who litigated precedent-setting arbitration cases regarding the scope of the FAA’s coverage, including before the high court.

“At some point, the uncertainty of these workarounds should discourage employers from continuing on their quixotic efforts to deprive workers of their day in court,” he said.

The Supreme Court’s review comes as companies continue to defend against lawsuits—some of which have resulted in multi-million-dollar settlements in recent years—accusing them of misclassifying drivers as independent contractors rather than employees who are entitled to federal or state wage protections.

For employers, arbitration is generally seen as more time- and cost-efficient than litigation. According to Lise Gelernter, an arbitrator based in Buffalo, N.Y., businesses will likely analyze their contractual relationships and decide whether retaining their current distribution structures “is worth the extra cost” of compliance versus the risk of litigation.

“It might be worth it to some companies, but they would really want to price that out,” she said.

Piecemeal Approach

Before the Supreme Court is Flowers Foods v. Brock, one of several proposed class actions against the packaged bakery foods company and various subsidiaries, alleging they misclassified workers as independent contractors.

Flowers Foods seeks to overturn a 2024 US Court of Appeals for the Tenth Circuit ruling, which allowed a driver to invoke the FAA exemption to pursue his wage case in court. The company claims the driver wasn’t engaged in interstate commerce, since he delivered products from a Colorado warehouse to local customers.

Many legal observers like Barry Winograd, who teaches employment arbitration at UC Berkeley School of Law and Penn Carey Law School, expect the justices to extend the transportation worker exemption to last-mile drivers.

But it’s unlikely to alter the legal landscape for Uber Technologies Inc. and Lyft Inc. drivers who transport passengers because the high court’s FAA carveout jurisprudence doesn’t hinge on a worker’s mobility but on whether their work is essential to the interstate movement of goods, he said.

Brock presents a “simple question based on the precedent the court has issued: if there’s a flow or channel of commerce you’re engaged in it, even if you don’t cross a border,” Winograd said.

The Supreme Court’s approach to cases regarding the FAA’s scope also shows a pattern of incremental rulings that slowly define who falls under the transportation worker carveout.

Since its 2001 Circuit City v. Adams decision established that the exemption applies to transportation workers involved in the flow of interstate commerce, the high court has taken a worker-by-worker approach to clarifying who falls under the carve-out, without issuing a sweeping exemption rule.

Its 2019 New Prime Inc. v. Oliveira decision held that the exemption applies to independent contractors. Three years later in Southwest Airlines Co. v. Saxon, the court ruled that airplane cargo loaders qualify for the carveout because of their involvement in transporting goods crossing state or international borders.

And in last year’s Bissonnette v. LePage Bakeries ruling, the justices said that a worker who engages in foreign or interstate commerce need not be employed by a company in the transportation industry to be exempt.

Now, Brock asks whether last-mile drivers are part of that same continuum. Circuit courts are divided, resulting in a patchwork of rulings that has left companies and workers operating in a legal gray area.

Next Big Fight?

Litigation is already percolating in lower courts over whether rideshare and app-based food delivery drivers engage in interstate commerce, exempting them from mandatory arbitration. These issues could become the next major Supreme Court test on the reach of century-old arbitration law into app-based labor, legal experts said.

The Ninth, Third, and First circuits have held that rideshare drivers aren’t exempt because they don’t move goods or passengers across state lines as part of a continuous interstate flow.

Meanwhile, the Seventh Circuit held that Grubhub Inc. drivers aren’t exempt, as they deliver meals that originate and are consumed in the same state.

“The main problem with the test for interstate commerce is that it is very fact-dependent” on who contracted with the drivers at issue, whether their service was part of the ongoing interstate travel of passengers or goods, and the scope of the work throughout the distribution chain, Gelernter said.

Until Congress establishes adequate protections for workers being forced into arbitration, modifications to arbitration pacts aimed at sidestepping adverse judicial rulings will only lead to further litigation because the plaintiffs’ bar “will find new ways” to challenge them, Rubin said.

“And the process of squeezing the balloon from different angles and having it pop out the other side will continue,” he said.