3rd Circuit: Rideshare Drivers May Not Have to Arbitrate

The U.S. Court of Appeals for the 3rd Circuit recently vacated a district court’s order compelling arbitration in a putative class action brought by a driver of a ridesharing company, finding that the plaintiff and other drivers who transport people and not cargo may nonetheless fall within section 1 of the Federal Arbitration Act (FAA) that exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from compelled arbitration of employment disputes.

The plaintiff argued that the ridesharing company improperly classified him and other drivers as independent contractors rather than employees, and that they were entitled to overtime and reimbursement of certain business expenses.  The company moved the court to compel arbitration pursuant to the arbitration clause in the relevant employment contract.  The plaintiff opposed the motion and argued that he and other drivers fell within the FAA’s residual clause exempting transportation workers.  (The plaintiff had also raised other statutory bases in attempting to exclude his claims from the FAA, but the U.S. Supreme Court rejected those bases before the appeal was decided.)  The district court found that section 1 of the FAA only applied to transportation workers who transport cargo, not those who transport passengers.  Another issue in the litigation that was resolved prior to the Third Circuit’s decision was whether the district court or the arbitrator should have the first opportunity to rule on arbitrability (and therefore the applicability of the residual clause), because of the arbitration agreement’s provision delegating determinations of arbitrability to the arbitrator.  Earlier this year, the Supreme Court resolved that issue as well, in the New Prime case, holding that courts must decide whether an arbitration agreement is excluded from FAA coverage, even when there is a delegation clause.

With that procedural issue resolved, the Third Circuit held that the residual clause in section 1 of the FAA is not limited to transportation workers who transport cargo and that the residual clause “may operate to exclude from FAA coverage the contracts of employment of all classes of 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.”  Thus, the court vacated the lower court’s decision and remanded for the district court to allow limited discovery into whether the plaintiff belongs to a class of transportation workers engaged in interstate commerce, or engaged in work so closely related thereto as to be in practical effect part of it.  Discovery was appropriate because the operative complaint and the documents that it incorporated did not contain sufficient facts to determine whether the FAA’s residual clause applied.