Please enable JavaScript to view this website.

The Patchwork Legal Landscape on Enforcing Mandatory Arbitration Agreements on Gig-Economy Workers – Activities vs. Passengers and Goods in Interstate Commerce

A primary labor strategy employed by gig economy companies is to include mandatory arbitration provisions in their contracts with workers.1 These provisions require workers for companies like Uber or Grubhub to pursue their claims individually in private arbitration, rather than collectively with other workers in a class-action lawsuit.2 Research shows that the arbitration processes that bind workers subject to mandatory arbitration agreements provide employers with a significant advantage.3

Despite the wide scope of the gig economy, a major issue remains heavily contested and largely unsolved: should gig-economy workers be considered employees or independent contractors?4 Gig-economy companies prefer the latter option, as their business models rely on classifying its workers as independent contractors to avoid taxes and compliance with standard worker protections such as minimum wage and overtime protections.5 Many gig-economy workers disagree with this classification, which has resulted in a significant number of class-action lawsuits challenging their classification as independent contractors.6 By requiring that its workers pursue their claims in arbitration rather than in court, gig economy companies have minimized the risk of class-action lawsuits finding that their workers are employees rather than independent contractors, a finding that would threaten the business model of the gig economy.7

The SCOTUS Decision in New Prime

The Supreme Court’s January 2019 decision in New Prime v. Oliveria raised questions about the long-term efficacy of this mandatory arbitration strategy.8 New Prime concerned a trucking company’s reliance on the Federal Arbitration Act (FAA), which requires courts to enforce arbitration agreements, to compel a class of its truck drivers to arbitrate their claim that the company had failed to pay them a minimum wage instead of suing in court.9 However, the FAA contains an important exemption (§ 1 exemption) to the general requirement that courts must enforce arbitration agreements for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”10 In New Prime, theSupremeCourt was faced with the issues of whether: (1) courts must resolve the applicability of the § 1exemption to a class of workers; and (2) the “contracts of employment” language of the § 1 exemption covers workers hired as independent contractors.11 On the first issue, the Court held that lower courts, rather than an arbitrator, must decide whether the § 1 exemption applies to a given class of workers.12 To the second issue, the Court focused on what the term “contract of employment” meant when the FAA was passed in 1925. The Court reasoned that the exemption covers workers with independent contracting agreements because “most people then would have understood [the FAA] to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.”13 The court concluded that because the truck driver transported goods between states, he was engaged in interstate commerce and covered by the § 1 exemption.14 Therefore, the Court held that the FAA could not be used to compel arbitration here, despite the plaintiff’s mandatory arbitration agreement.15

New Prime presented lower courts with the opportunity to determine whether gig economy workers in independent contractor agreements are covered by the § 1 exemption of the FAA. Often the decisive factor in determining if the exception applies is whether the given class of workers is engaged in interstate commerce.16 For independent contractors who transport goods between state lines, like the plaintiff class in New Prime, the connection to interstate commerce is clear. It is less clear whether other types of gig economy workers that generally operate within a single state – like ride-share drivers, food delivery drivers, and last-mile delivery drivers – are engaged in interstate commerce. The resulting lower court case law regarding the exception’s coverage of gig economy transportation workers has been a patchwork of decisions involving inconsistencies and tensions across circuits and the various kinds of gig economy work.

The § 1 Exemption Applied to Workers who Transport Passengers

The first case in which a Federal Circuit Court relied upon SCOTUS’s New Prime decision to determine whether an independent contractor agreement fell within the § 1 exception was Singh v. Uber out of the Third Circuit.17 In this putative class-action suit, the lead plaintiff claimed that Uber had improperly classified him and other drivers as independent contractors rather than employees.18 This is important because as employees, they would be entitled to overtime pay and reimbursement for business expenses like gas and maintenance, but would not be entitled to these benefits as independent contractors.19 The District of New Jersey had held that the class of Uber drivers were not FAA exempt and granted Uber’s motion to dismiss and compel arbitration.20 In reaching this decision, the district court did not inquire into whether the class of Uber drivers was engaged in interstate commerce, finding that the transportation worker exception only applies to those who transport goods, not those who transport passengers.21  

A Third Circuit panel vacated the district court’s decision in Singh, finding that the § 1 exemption “may extend to a class of transportation workers who transport passengers, 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.”22 In its analysis, the Third Circuit determined that the key phrasing here is “a class of transportation workers,” which means that the question is not whether the particular plaintiffs were engaged in interstate commerce, but whether the plaintiffs belong to a class of workers who are engaged in interstate commerce.23 While the Third Circuit did not determine whether the class of Uber drivers was engaged in interstate commerce, instead directing the district court, as the finder of fact, to allow limited discovery on the matter, it did rule that if the Uber drivers were engaged in interstate commerce, they would fall within the § 1 exemption and could not be compelled to arbitrate their employment disputes.24

In a similar class-action suit, the District of Massachusetts ruled in Cunningham v. Lyft to deny Lyft’s motion to compel arbitration, relying on the Third Circuit’s reasoning in Singh (as persuasive authority) to find that the class of Lyft drivers were FAA exempt.25 The district court adopted the view in Singh that the § 1 exemption applies to drivers who transport passengers as well as goods, if the driver is part of a class of workers engaged in interstate commerce.26 The District of Massachusetts also concluded that the plaintiff class of Lyft drivers was engaged in interstate commerce even though most of their activity occurred within the state of Massachusetts.27 Although the drivers themselves did not transport passengers across state lines, the district court found that because the plaintiffs frequently transported passengers to and from Boston Logan International Airport, the class of Lyft drivers “are part of the chain of interstate commerce, enabling their passengers to leave or enter Massachusetts.”28

District courts in the Ninth Circuit have reached opposite conclusions from Cunningham on whether similar classes of ride-share drivers are engaged in interstate commerce. In Rogers v. Lyft, the Northern District of California found that Lyft drivers in California are not engaged in interstate commerce because their work “predominantly entails intrastate trips” and any “interstate trips that occur by happenstance of geography do not alter the intrastate transportation function performed by the class of workers.”29 The district court also concluded that even though Lyft drivers frequently transport passengers to and from airports, their “relationship to interstate transit is only casual and incidental.”30 And in Capriole v. Uber Techs Inc., after considering both the Cunningham and Rogers approaches, the Northern District of California also found that the § 1 exemption did not apply after examining the data on the frequency of interstate trips and trips to and from airports, concluding that “Uber drivers do not perform an integral role in a chain of interstate transportation.”31

The Northern District of California’s conclusions in these cases were based in part on the fact that Uber and Lyft are not solely dedicated to transporting passengers to and from airports.32 According to that court, the volume of rides to and from the airport was insufficient in comparison to the number of generic intrastate trips that ride-share drivers take to allow the court to consider them as engaged in interstate commerce.33 In this writer’s opinion, a better approach would be to reframe the focus on whether the transportation workers play a significant role in facilitating the flow of interstate commerce, not on if this role is significant in relation to other activities that the transportation workers undertake. As the plaintiff class made clear in Capriole, noting that there were seven million ride-share trips to and from Boston Logan Airport in 2018, ride-share drivers facilitate a significant amount of interstate commerce.34 The § 1 exemption requires transportation workers to be engaged in interstate commerce, not that they are only engaged in interstate commerce.35 Thus, the significance of the class’ role in the flow of interstate commerce should not be undermined simply because they also engage in a lot of other activity that does not involve interstate commerce.

Goods v. Activities: The § 1 Exemption Applied to Workers who Transport Goods

Federal courts in the First, Seventh, and Ninth circuits have also examined § 1’s applicability to gig economy workers that transport goods within a single state rather than passengers. One segment of workers in this category is the so-called “last-mile” delivery drivers who use their own method of transportation to deliver products ordered through companies like Amazon. In Waithaka v. Amazon, a class-action suit in which the plaintiff alleged that Amazon had underpaid him and others by misclassifying them as independent contractors instead of employees, the First Circuit was faced with the issue of whether last-mile delivery drivers are engaged in interstate commerce.36 Amazon contended that the key factor in this determination was whether “the workers’ activities themselves qualify as ‘interstate commerce.’”37 With this reasoning, Amazon argued that last-mile delivery drivers are not engaged in interstate commerce because they do not “personally carry goods across state lines and [are] engage[d] only in intrastate activities.”38 The First Circuit rejected Amazon’s interpretation of the exemption and instead adopted a chain of commerce theory.39 The court found that last-mile delivery drivers are engaged in interstate commerce, and thus FAA exempt because they transport goods “on the final legs of interstate journeys,” bringing them “within the flow of interstate commerce.”40

The Ninth Circuit in Rittman v. Amazon also concluded that last-mile delivery drivers are transportation workers engaged in interstate commerce under the chain of commerce theory.41 The court reasoned that the last-mile drivers’ activities, even wholly within a single state, are still a part of continuous interstate transportation because “the Amazon packages they carry are goods that remain in the stream of interstate commerce until they are delivered.”42

However, courts have not applied the chain of commerce theory to all classes of gig economy workers that transport goods within a single state, including food delivery drivers. In Wallace v. Grubhub, the Seventh Circuit held that food delivery drivers whose activities were entirely within a single state were not engaged in interstate commerce.43 The plaintiffs had used a chain of commerce theory argument, contending that they were engaged in interstate commerce because “they carry goods that have moved across state and even national lines.”44 The court concluded that the drivers’ connection to goods moving in interstate commerce was not enough to bring them within the § 1 exemption because “workers must be connected not simply to the goods, but to the act of moving those goods across state or national borders.”45 In other words, rather than focusing on the goods that the workers transport, as the First and Ninth Circuits have done, the Seventh Circuit has focused on the workers’ activities in moving goods. So here, the Seventh Circuit held that because the interstate movement of goods was not a central part of their activities, the Grubhub workers were not engaged in interstate commerce, and thus not FAA exempt.46 Because most gig-economy work is entirely intrastate and does not involve actively moving goods or people across state lines, the activities-based approach suggests that most gig-economy workers would be excluded from the § 1 exemption, save for the small number of workers who actively cross state borders.47

The Seventh Circuit avoided the goods-focused approach in part to limit the scope of the § 1 exemption such that it would not “sweep in” transportation workers that have nothing to do with interstate commerce.48 However, it’s not a given that the goods-focused approach would result in such a sweeping scope for the § 1 exemption. For example, even if the Seventh Circuit in Wallace had used the goods-focused approach like the First and Ninth Circuits in the Amazon cases, there is a distinction between the packages delivered by Amazon last-mile delivery drivers and the food from local restaurants delivered by Grubhub workers that warrants the conclusion that Grubhub workers are not engaged in interstate commerce.49 Amazon packages move across state lines as part of a single transaction, intended to ultimately be delivered to customers, with last-mile delivery drivers playing a role in this continuous chain of commerce.50 On the other hand, the link between interstate food distributors and customers that receive food via Grubhub delivery drivers requires two separate transactions, such that there is not a continuous chain of commerce.51 The first transaction involves interstate food distributors who intend for their goods to end up at the local restaurants from which customers order, a connection that Grubhub workers play no role in.52 After that first transaction is completed, the goods moving through interstate commerce come to a rest, which means that the later transaction between the final customer and the local restaurant, facilitated by the Grubhub delivery driver, is entirely intrastate.53

Rather than threatening to dramatically increase the scope of the § 1 exception, the goods-based approach provides reasonable boundaries that account for the differing connections between goods and people moving in interstate commerce and the gig-economy workers who transport them.

Going Forward

The patchwork of judicial decisions on whether a given class of gig-economy transportation worker is engaged in interstate commerce can be explained in part by the disparities between the various gig-economy segments. Although these workers are similar in that they are all independent contractors, ride-share driving is fundamentally different than last-mile delivery, and last-mile delivery is fundamentally different than food delivery. As a result, gig-economy transportation workers of different segments have varying degrees of connection to and roles in facilitating interstate commerce. Thus, even if there were a standard approach to deciding whether a class of workers is engaged in interstate commerce, lower courts would still be faced with the difficulty of line-drawing, given the different classes of gig-economy workers varying connections to interstate commerce.54

One way that Congress could address the confusion about who qualifies under the § 1 exemption is by reconfiguring the FAA to reflect its original scope, which was not intended to enforce arbitration agreements included in any employee contracts.55 Despite the FAA’s original intent of “provid[ing] for the enforceability of arbitration agreements between merchants – parties presumed to be of approximately equal bargaining strength . . .,”56 the Supreme Court has broadened its scope to extend to a significant amount of employee contracts.57 A straightforward way that Congress could address the confusion about the scope of the § 1 exemption while reducing the material advantages that employers have in resolving labor disputes via arbitration would be to broaden the § 1 exemption to all workers that impact interstate commerce, making sure to define the threshold for what constitutes an impact on interstate commerce.58 While this amendment to the FAA would open the door for gig-economy workers to bring class-action suits against their employers, threatening those employers’ business models, it would provide clarity for courts in addressing the scope of the FAA and prevent the reduction of collective bargaining power for the significant number of workers subject to mandatory arbitration agreements.59

  1. Shira Ovide, Gig Work Is Risky for Apps, Too, Ny Times (Sept. 11, 2020), 

  2. The Gig Economy: Using Mandatory Arbitration Agreements with Class Action Waivers, Fisher Phillips (May 1, 2017), 

  3. Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Econ. Pol’y Inst. (Sept. 27, 2017), 

  4. See Charlotte Garden, Disrupting Work Law: Arbitration in the Gig Economy, 2017 U. Chi. L. F. 205, 205 (2017). 

  5. Alana Semuels, What Happens When Gig-Economy Workers Become Employees, Atlantic (Sept. 14, 2018), 

  6. See e.g., O’Connor v. Uber Techs., Inc., 201 F. Supp. 3d 1110 (N.D. Cal. 2016); Cotter v. Lyft, Inc., 193 F. Supp. 3d 1030 (N.D. Cal. 2016). 

  7. The Gig Economy: Using Mandatory Arbitration Agreements with Class Action Waivers, Fisher Phillips (May 1, 2017), 

  8. New Prime Inc. v. Oliveria, 139 S. Ct. 532 (2019). 

  9. Id. at 536. 

  10. 9 U.S.C. § 1 

  11. 139 S. Ct. at 536 

  12. Id. at 534. 

  13. Id. at 544. 

  14. Id. 

  15. Id. 

  16. Tara Boghosian, The Future of Gig Economy Drivers and Mandatory Arbitration Agreements, OnLabor (March 31, 2020), (“Most often, the crux of a case is whether the worker’s job has a sufficient ‘interstate’ quality.”). 

  17. Singh v. Uber Techs. Inc., 939 F.3d 210 (3d Cir. 2019). 

  18. Id. at 214. 

  19. Id. 

  20. Singh v. Uber Techs. Inc., 235 F. Supp. 3d 656, 671 (D.N.J. 2017). 

  21. Id. 

  22. Id. at 214. 

  23. Id. at 227 (“We recognize that the inquiry regarding § 1’s residual clause asks a court to look to classes of workers rather than particular workers . . ..”). 

  24. Id. at 219, 227-28. 

  25. Cunningham v. Lyft, Inc., 450 F. Supp. 3d 37, 48 (D. Mass. 2020). 

  26. Id. at 45. 

  27. Id. at 46-48. 

  28. Id. at 46. 

  29. Rogers v. Lyft, Inc., 452 F. Supp. 3d 904, 916 (N.D. Cal. 2020). 

  30. Id. at 917. 

  31. Capriole v. Uber Techs. Inc., 460 F. Supp. 3d 919, 932 (N.D. Cal. 2020). 

  32. Capriole, 460 F. Supp. 3d at 932; Rogers, 452 F. Supp. 3d at 916. 

  33. Id. 

  34. 460 F. Supp. 3d at 930. 

  35. 9 U.S.C. § 1. 

  36. Waithaka v., Inc., 966 F.3d 10, 13 (1st Cir. 2020). 

  37. Id. at 18. 

  38. Id. 

  39. Id. 

  40. Id. 

  41. Rittman v., Inc., 971 F.3d 904 (9th Cir. 2020). 

  42. Id. at 915. 

  43. Wallace v. Grubhub Holdings, Inc., 970 F.3d 798, 803 (7th Cir. 2020). 

  44. Id. at 802. 

  45. Id. 

  46. Id. at 803. 

  47. Id. 

  48. Id. at 802. 

  49. See Austin v. Doordash, Inc., No. 1:17-cv-12498-IT, 2019 WL 4804781 (D. Mass. 2019). 

  50. Id. at *4 

  51. Id. 

  52. Id. 

  53. See A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). 

  54. See Waithaka, 996 F.3d at 25–26. 

  55. See Margaret L. Moses, Statutory Misconstruction: How the Supreme Court Enacted a Federal Arbitration Law Never Enacted by Congress, 34 Fla. St. U. L. Rev. 99, 100-01 (2006). 

  56. Id. at 106 

  57. Katherin V.W. Stone and Alexander J.S. Colvin, The Arbitration Epidemic, Econ. Pol’y Inst. (Dec. 7, 2015), 

  58. See id. (describing the advantages that employers have in arbitration disputes). 

  59. See id. (estimating that over a quarter of nonunion employees are subject to mandatory arbitration agreements).