Background
Johnson was a resident of Austin, Texas, who drove for Uber Technologies, Inc., a transportation networking company based in San Francisco, California. In May 2016, Uber lost an Austin public referendum to repeal an ordinance requiring transportation network companies to reassess and strengthen their background check procedures. Soon thereafter, Uber terminated its operations in Austin and ceased using any drivers there. Johnson filed suit in California asserting, among other things, that he and other class members were “employees” of Uber and thus entitled to a WARN Act notice, giving them 60 days’ notice before Uber could conduct the mass termination of its employees.
Uber filed a motion to compel arbitration arguing that Johnson signed an arbitration agreement when he became an Uber driver and did not opt out of that agreement. To opt-out, Johnson was supposed to notify Uber by email or U.S. mail within 30 days of signing the Uber contract; both parties agreed that he had not done so.
Johnson did not challenge the arbitration agreement, but he argued that the class action waiver was legally invalid because it conflicted with the WARN Act. The parties’ agreement contained a delegation clause giving the arbitrator jurisdiction to decide the arbitrability of all matters arising from Johnson’s relationship with Uber. However, it also contained an exception: it required any disputes concerning the validity or enforceability of the class action waiver to be decided by a court of law. This created something of a conundrum: who should get the case first, the arbitrator or the court?
Discussion
The district court noted that the WARN Act applies to employees but not to independent contractors. As a result, if Johnson were found to be an independent contractor, the WARN Act would not apply to him and could not conflict with the class action waiver in the parties’ arbitration agreement. If, on the other hand, Johnson were found to be an employee of Uber, then Johnson’s assertion that the WARN Act rendered the class waiver invalid and unenforceable would have to be decided by the court.
The court decided that whether Johnson was an employee or an independent contractor was a “threshold” question for the arbitrator to decide. It then ruled that:
If the arbitrator determines that Plaintiff is properly classified as an Uber employee—such that Plaintiff would qualify for the protections of the WARN Act—the arbitrator must send the case back to this Court for a determination whether the Class Action Waiver is valid in light of the WARN Act. If the arbitrator determines that Plaintiff is properly classified as an independent contractor, the arbitrator may retain jurisdiction over the rest of the case since the WARN Act would not impede arbitration under that circumstance.
It is unclear what would happen if the arbitrator decided that Johnson were an employee and the district court decided that the WARN Act rendered the class action waiver invalid. In that instance, perhaps the case would be returned to the arbitrator who would be required to preside over a class action arbitration.
Practice Point
This case reaffirms the principle that the courts must treat arbitration agreements on an equal footing with other contracts and enforce them according to their terms. However, it also demonstrates that arbitration agreements that reserve some issues for the court and others for the arbitrator can result in confusion, litigation, and some uncertainty.
