By Alison Vogel, Esq.
In a matter of first impression, the Third Circuit recently affirmed the New Jersey District Court’s ruling that Uber drivers are not a class of workers “engaged in foreign or interstate commerce” for purposes of section 1 of the Federal Arbitration Act (FAA) and properly compelled two consolidated actions to arbitration. Singh v. Uber Technologies, Inc. and Calabrese et al. v. Uber Technologies, Inc. et al., 67 F.4th 550 (3d Cir. 2023).
It is well-established that the FAA favors the enforcement of arbitration agreements. Section 1 of the FAA, however, exempts from its coverage arbitration agreements within the “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1 (emphasis added).
In Singh v. Uber Technologies, a putative class action, the plaintiff asserted, among other claims, that Uber violated New Jersey wage and hour laws by misclassifying drivers as independent contractors. In granting Uber’s motion to compel arbitration, the District Court held that section 1 of the FAA did not apply to transportation workers who carry passengers. On appeal, the Third Circuit reversed, holding that the exception applies to such transportation workers “so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it.” On remand, the District Court was tasked with determining whether plaintiff belonged to a class of transportation workers engaged in interstate commerce. Following the action’s consolidation with Calabrese v. Uber Technologies and joint discovery, the District Court again ruled in Uber’s favor and compelled arbitration. Plaintiffs appealed.
In analyzing whether the plaintiffs were members of a “class of workers engaged in foreign or interstate commerce,” the Third Circuit initially defined the scope of the “class of workers” at issue as all Uber drivers nationwide. The Third Circuit next determined that for a class of workers to be “engaged in interstate commerce” for purposes of section 1 of the FAA, the “interstate movement of goods” or passengers must be “a central part” of the job description of the class to fall within the exception. In reaching this conclusion, the Court differentiated between “actual work” typically carried out by the class members and rare border crossings.
In determining that Uber drivers were not a class of workers engaged in interstate commerce, the Third Circuit found that “[a]s a class, Uber drivers are in the business of providing local rides that sometimes – as a happenstance of geography – cross state borders.” The Court noted that the drivers’ infrequent, incidental interstate trips were not an essential part of their job and their intrastate duties were not a “constituent part” of the interstate movement of goods or people. The Court was also not persuaded by evidence of Uber’s policies, which stated that interstate trips are “integral to Uber’s business and fulfillment of its mission goals,” finding that a business engaged in interstate commerce may employ workers who are not so engaged. As a result, the Court concluded that Uber drivers were not exempt from section 1 of the FAA.
The Third Circuit also rejected plaintiffs’ objections to the District Court’s decision to compel arbitration on various contractual grounds. Specifically, the Court found that the argument that there was “no contract to arbitrate” failed because plaintiffs did not challenge the formation of the arbitration agreement on their first appeal. In addition, the Court found that the challenges to the delegation clause also failed because the agreement had an unambiguous statement identifying arbitrable claims and arguments and the clause was not illusory. The Court similarly did not find the “opt out” provision illusory even though it bound plaintiffs who opted out of arbitration in later contracts with Uber to arbitration agreements that they accepted in the past.
This decision is significant as the Third Circuit’s ruling is in line with the Ninth Circuit and First Circuit. In Capriole v. Uber Technologies, Inc., 7 F.4th 854, 865 (9th Cir. 2021), the Ninth Circuit found that Uber drivers have a fundamentally “intrastate transportation function,” which was not altered by infrequent trips across state lines. Similarly, in Cunningham v. Lyft, Inc., 17 F.4th 244 (1st Cir. 2021), the First Circuit found that Lyft was “primarily in the business of facilitating local, intrastate trips” and the drivers were not “engaged in interstate commerce.” These decisions illustrate that the act of crossing state borders, without more, is insufficient for exemption from coverage under the FAA. In view of these decisions, employers whose businesses may involve transporting goods or people across state lines should review whether these activities are essential to their employees or independent contractors’ jobs in order to determine whether these individuals may be subject to arbitration agreements.
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