GrubHub Ruling Draws New Line in Battles Over Driver Arbitration

If local Grubhub Inc. drivers deliver a restaurant’s desserts made from chocolate that traveled all the way from Switzerland, should that be enough to keep their wage claims in court? The Seventh Circuit recently said no, drawing a distinction that could send gig economy employment battles to private arbitration.

Although the chocolate may have crossed borders, the delivery drivers themselves didn’t, the U.S. Court of Appeals for the Seventh Circuit said August 4. This means they didn’t engage in “interstate commerce,” which would have allowed them to avoid arbitration agreements they signed with their employer.

Whether drivers are transportation workers in interstate commerce—and therefore can escape the reach of a federal law that favors arbitration of legal disputes—is one of several debates surrounding app-based companies like Grubhub, Uber Technologies Inc., and Lyft Inc.

Widely used arbitration contracts have kept drivers’ claims that they should be classified as employees, and not independent contractors, out of court for years.

The Chicago-based Seventh Circuit’s ruling follows a July decision from the First Circuit, which found that Amazon Flex drivers could keep their wage claims in court even though they stayed within one state’s boundaries. The Boston-based First Circuit said the drivers delivered goods in the “last mile” of an interstate commerce journey, and thus fell within a Federal Arbitration Act exemption.

“There is a lot of tension between the reasoning of these two decisions,” said Corbin Barthold, senior litigation counsel with the Washington Legal Foundation, which filed a friend-of-the-court brief in the Grubhub case. “The different approaches might lead to more overtly contradictory outcomes.”

The two decisions could influence several cases percolating in other appeals courts that also raise the interstate commerce question, attorneys said. The Ninth Circuit in San Francisco is poised to decide the issue in a national case brought by Amazon Flex delivery drivers under the Fair Labor Standards Act. The First and Ninth circuits will tackle the question in cases involving Uber and Lyft Inc.

Gig companies are closely watching the outcome of these cases, as forcing them to label workers as employees could upend their business models and lead to 20% to 40% increases in their costs of doing business, according to Bloomberg analysts.

No Circuit Split

In the Amazon ruling, the First Circuit found that the FAA’s exemption for transportation workers includes those who “transport goods or people within the flow of interstate commerce, not simply those who physically cross state lines in the course of their work.” Amazon.com Inc. has since asked the full First Circuit to review the case.

The Seventh Circuit distinguished Grubhub’s local delivery drivers from the “last mile” Amazon Flex drivers in the First Circuit case, avoiding an explicit circuit split on the interstate commerce issue. Directly opposing appeals of court rulings involving more similar drivers could one day tee up the issue for the U.S. Supreme Court to resolve.

The Seventh Circuit ruling is consistent with the First Circuit’s ruling because it draws a distinction between goods that are in the stream of interstate commerce, and goods that have been “at rest” in a state, said Charlotte Garden, a law professor at Seattle University. She said the distinction between the two is “thin,” but the fault lies with the Supreme Court’s 2001 ruling in Circuit City v. Adams.

In that case, the justices found that the FAA’s exemption doesn’t apply outside the transportation industry but didn’t give guidance on what is considered interstate commerce.

The Grubhub drivers’ attorney, Shannon Liss-Riordan of Lichten & Liss-Riordan, said the Seventh Circuit concluded that the cases were different, but didn’t explain why, which is why she may request the full court to reconsider the question. She said there is no reason Grubhub delivery drivers should be excluded from the FAA’s exemption for transportation workers engaged in interstate commerce.

“We are disappointed with the ruling and don’t believe it explained why transporting food items that have traveled interstate to their final destination does not constitute interstate commerce,” Liss-Riordan said. “Certainly when Congress enacted the FAA, it never foresaw that it would be used to stop drivers for a major national delivery company from challenging their employer’s systemic violation of wage laws.”

Grubhub declined to comment. The company’s attorney, Todd Church of Littler Mendelson, didn’t immediately respond to request for comment.

Barthold of the Washington Legal Foundation said it’s possible that the distinction could hold between the First Circuit’s interpretation of “last mile” delivery drivers and the Seventh Circuit’s views about “local delivery” drivers. Yet, he said there is room for confusion and different interpretations that could lead to different rulings.

The Seventh Circuit says the FAA exemption only applies to seamen, railroad employees, and “workers who are akin” to them. The First Circuit, meanwhile, considered “the nature of the business for which a class of workers form their activities” under a different law, the Federal Employers Liability Act, and other factors to be relevant to inquiry.

“It remains to be seen which of these methodologies will predominate as these cases work their way through the courts of appeals,” he said.

Central Gig Question

Thousands of drivers around the country are seeking to recover unpaid wages against companies, including Amazon, DoorDash Inc., and Uber, which rely heavily on labeling their workforces as independent contractors. Contractors, unlike employees, aren’t entitled to overtime, minimum wage and other benefits.

In the Grubhub case, advocates and business groups weighed in on both sides, signaling the importance of the outcome of the decision.

Public Justice, which submitted a friend-of-the-court brief, said the FAA should include workers who personally cross state lines, but also transport goods or passengers within a single state that are ultimately destined for or coming from another state or country.

“Arbitration makes it harder to fight back and make sure that workers have fair workings conditions,” said Jennifer Bennett, an attorney with Gupta Wessler, who penned the brief in her previous role at Public Justice.

The U.S. Chamber of Commerce and the National Association of Manufacturers, advocating for the company in a friend-of-the-court brief, said the drivers’ “proposed approach flouts the plain meaning of the statute—which focuses on the activities of ‘workers’ rather than the origin or movement of goods or the overall nature of a business.”

“Modern-day local delivery drivers are not analogous to the maritime and railway workers of 1925,” the attorneys wrote in the brief. “They neither facilitate the movement of goods across state lines nor are they subject to other special federal regulation. And although local courier jobs existed in 1925, no contemporaneous sources suggest that those local workers were viewed as being “engaged in interstate commerce” or intended to be excluded from the FAA’s reach.”