No matter how far away the products they deliver may have been cultivated or how many state lines the ingredients may have crossed before final delivery to a customer, Postmates couriers are not engaged in foreign or interstate commerce. This is the holding of a federal appellate court asked to interpret the Federal Arbitration Act (FAA), despite the century of technological progress since its enactment by Congress. ABA Litigation Section leaders believe the decision is consistent with precedent but suggest that Congress should act to ensure that contractual dispute resolution remains predictable under the FAA.
In Immediato v. Postmates, Inc., the plaintiffs worked as couriers through a mobile application to deliver take-out meals from local restaurants in the Boston area. When the plaintiffs registered as couriers through the application, they accepted the defendant’s “Fleet Agreement,” which set forth certain terms, including a mutual arbitration provision requiring all claims be submitted to arbitration under the FAA. The Fleet Agreement classified the couriers as independent contractors.
The plaintiffs filed suit in Massachusetts state court seeking class status, arguing that they had been misclassified as independent contractors rather than employees. The defendant removed the action to the U.S. District Court for the District of Massachusetts and moved to compel arbitration under the Fleet Agreement. The district court dismissed the complaint and ordered the claim be brought in arbitration.
The plaintiffs appealed to the U.S. Court of Appeals for the First Circuit, arguing that they fell under section 1 of the FAA. While the FAA generally requires that written arbitration agreements are enforceable, section 1 exempts maritime, railroad, and other workers engaged in interstate commerce from operation of the FAA. The appellate court affirmed the district court’s dismissal. It determined that the plaintiffs fell within a nonexempt class of intrastate workers that delivered meals prepared at local restaurants and goods sold by local retailers.
To reach its conclusion that the Postmates plaintiffs were not exempt under section 1 of the FAA, the court set forth a two-prong test. First, it must define the “class of workers,” and then the court must determine “whether that class is ‘engaged in foreign or interstate commerce.’” The court stated that the “class of workers” is defined by the “actual work” done by the class. Here, the work done was local deliveries within the state, mostly just a few miles.
Once the class of workers was defined, the court analyzed the “foreign or interstate commerce” prong. In holding that the couriers were not engaged in interstate commerce, the appellate court contrasted Waithaka v. Amazon.com, Inc., in which the same circuit court had held that Amazon delivery drivers responsible for the final leg of interstate package deliveries were exempt from FAA arbitration. Here, the appellate court noted that the Postmates plaintiffs were “comparing plums with pomegranates.”
In Waithaka, customers purchased items directly from Amazon, which initiated the interstate movement of the purchased goods. The workers in Amazon who transported the goods—even if they were entirely in a single state—may sometimes be involved in interstate commerce as long as they “actively contribute to the larger interstate movement of those goods,” the court reasoned. Thus, Amazon “last-mile” drivers were workers engaged in “the flow of interstate commerce.”
Regardless of the origin of the good, in the Postmates case, and unlike in Waithaka, the goods’ journey in interstate commerce ends when it arrives at the local vendor. The second leg of the journey, from the local restaurant to the customer, is part of an “entirely new and separate transaction,” which comprises solely local intrastate commerce. The court noted that when Congress enacted the FAA, “the local retail of goods was not understood to be part of interstate commerce.”
Contrasting Waithaka, the court determined three principles regarding FAA section 1 exemption. First, “engaged in foreign commerce” in FAA section 1 may apply to workers engaged in an intrastate leg of interstate commerce. Second, however, their work must be a “constituent part” of that interstate movement, rather than an independent transaction. Third, the interstate movement ends when it reaches the local manufacturer or retailer. Applying these three principles, the court ruled that the Postmates plaintiffs were not exempt from FAA section 1 and their claim must be brought in arbitration.
“One of the difficulties is that it’s hard to have predictability,” points out Jeffrey E. Gross, New York, NY, vice-chair of the ABA Antitrust Law Section’s Trial Practice Committee. “The FAA was passed over 100 years ago. Rules that are designed to address the workforce from 100 years ago need to be reconsidered.” Given the opposite outcomes seen in this case and Waithaka, “a series of cases that make it so hard to understand if a contractual dispute resolution is going to work is bad,” Gross laments.
Other leaders agree but suggest the problem is with the age of the FAA rather than the predictability of the outcome. “I don’t see inconsistency here. What I think is problematic is that the FAA was written in 1925,” specifies Joan Stearns Johnsen, Gainesville, FL, past chair of the ABA’s Section of Dispute Resolution. “The courts look to the flow of the goods—whether there is an ongoing and continuous journey. You can see the goods on a unitary journey headed towards a final destination,” Johnsen explains.
“The courts are seeking to interpret what Congress intended in 1925 and apply that to our current much altered world,” notes Johnsen. In drafting the FAA, “clearly Congress did not contemplate Amazon drivers and Postmates drivers,” she quips. “Even if a company is engaged in interstate commerce, that does not automatically mean that the employee is engaged in interstate commerce,” she observes. In evaluating whether an individual employee is engaged in interstate commerce, whether that employee is engaged in a separate, local transaction may be determinative. “This case is consistent with precedent in that regard,” Johnsen concludes.
“A large company will have an employment agreement and will want to know where it is enforceable,” predicts Gross. “Practitioners should also understand that the FAA is not the only game in town,” he adds. Attorneys should consider alternative arbitration regimes when counseling clients. “To start, think about whether it serves the client’s interest to have the arbitration agreement be interpreted under the laws of a particular state as opposed to the FAA,” Gross recommends. In assessing the risk for a particular client, “it shouldn’t lead to this much litigation,” he remarks.
