FAA’s “Residual Clause” Does Not Exempt Grubhub Drivers from Arbitration

Plaintiffs—Grubhub food-delivery drivers—filed two suits against Grubhub that were consolidated on appeal. The drivers contended that: (1) they were Grubhub employees protected by the Fair Labor Standards Act (FLSA); and (2) Grubhub violated the FLSA by failing to pay them overtime. Grubhub asserted that the plaintiffs were independent contractors, not employees, and that the FLSA did not apply. It moved to compel arbitration based on arbitration clauses contained in contracts that plaintiffs had signed. In both suits, the district courts concluded that the Federal Arbitration Act (FAA) applied and compelled arbitration. On appeal, the Seventh Circuit affirmed. Wallace v. Grubhub Holdings, Inc., 19-1564 & 19-2156, 2020 WL 4463062, at *1 (7th Cir. Aug. 4, 2020).

In their appeal, plaintiffs argued that the FAA did not apply to them because they were workers exempted from the FAA under section 1’s so-called residual clause. That clause states that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” According to plaintiffs, the residual clause applied because they carried “goods that have moved across state and even national lines” and thus they were “engaged” in interstate commerce. Wallace, 2020 WL 4463062 at *3. As plaintiffs saw it, the residual clause “is not so much about what the worker does as about where the goods have been.” Id.

Applying “the maxim of ejusdem generis” the court rejected this argument. The court explained that the residual clause was relatively narrow because the phrase “engaged in commerce” referred to workers who “are akin to ‘seamen’ and ‘railroad employees,’” e.g., interstate truckers and other “transportation worker[s] . . . whose occupations are centered on the transport of goods in interstate or foreign commerce.” According to the court, for plaintiffs to show they fell within the residuary clause, they had to demonstrate that “the interstate movement of goods [was] a central part” of their job description. This was something that plaintiffs had not even tried to do. Id at *2-3.

Plaintiffs tried to bolster their position by invoking FAA section 2 (9 U.S.C. § 2). “[E]mphasizing” that FAA section 2  only applies to contracts “evidencing a transaction involving commerce,” plaintiffs contended that if they were not “engaged in interstate commerce” under section 1, their employment could not “involve” interstate commerce under section 2—according to plaintiffs, a “catch 22.” Id. (emphasis added).

The court was not impressed. “[T]he provisions [cited by plaintiffs] create this catch-22 only if ‘engaged in commerce’ and ‘involving commerce’ mean the same thing, and as we have already explained, the Supreme Court has squarely held that they do not.” Id. (citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001).)