This article was first posted on Karl Bayer's DIsputing Blog on July 23, 2020 here.
The United States Court of Appeals for the First Circuit has ruled final mile drivers who operate solely intrastate in order to deliver goods that were shipped via interstate commerce are exempt from the Federal Arbitration Act. In Waithaka v. Amazon.com, Inc., No. 19-1848 (1st Cir. 2020), a Massachusetts man, Waithaka, entered into an independent contractor agreement with Amazon to collect and deliver packages locally and solely within the state. Prior to beginning delivering goods for Amazon, Waithaka downloaded the company’s AmazonFlex smartphone application and accepted its Terms of Service (“TOS”). The TOS included a binding agreement to arbitrate any future disputes on an individual basis and stated the arbitration agreement was governed by the Federal Arbitration Act (“FAA”). In addition, the TOS choice of law provision said:
The interpretation of this Agreement is governed by the law of the state of Washington without regard to its conflict of laws principles, except for Section 11 of this Agreement, which is governed by the Federal Arbitration Act and applicable federal law.
The TOS also included a severability clause that stated the TOS should be construed as if any unenforceable provisions were not present in the agreement.
Later, Waithaka filed a putative class action lawsuit against Amazon in a Massachusetts state court alleging the company misclassified workers as independent contractors and violated a number of Massachusetts labor laws. In response, Amazon removed the case to federal court and filed a motion to compel the case to individual arbitration based on the arbitration provision included in the AmazonFlex TOS. In the alternative, Amazon asked that the lawsuit be transferred from the District of Massachusetts to the Western District of Washington.
The federal district court “concluded that Waithaka’s Agreement was exempt from the FAA, that Massachusetts law therefore governed the enforceability of the arbitration provision, and that the provision was unenforceable based on Massachusetts public policy.” As a result, the Massachusetts federal court denied Amazon’s motion to compel arbitration. Despite this, the court agreed to transfer the case to the Western District of Washington. After that, Amazon filed an appeal with the United States Court of Appeals for the First Circuit over the district court’s order denying the company’s motion to compel arbitration.
Using the principles articulated in Circuit City as a guide, we turn now to the interpretive question raised in this case: does Waithaka belong to a “class of workers engaged in foreign or interstate commerce,” such that his contract with appellants is exempt from the FAA’s coverage?
In answering that question, we note that the Supreme Court recently held that the Section 1 exemption does not apply exclusively to contracts of “employees,” but rather to “agreements to perform work,” including those of independent contractors. New Prime Inc. v. Oliveira, 139 S. Ct. 532, 544 (2019). Accordingly, there is no dispute that the independent contractor agreement at issue here would fall within the Section 1 exemption if Waithaka qualifies as a transportation worker.
Because the FAA does not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” the court said its analysis would not only address what constitutes “interstate commerce,” but also the meaning of “engaged in” as well. According to the court:
We agree with Waithaka that understanding the scope of the residual clause turns not only on the definition of “interstate commerce,” but also on the words that precede that phrase: “engaged in.” The Court in Circuit City did not look solely to the phrase “interstate commerce” to interpret the scope of the Section 1 exemption. Rather, it emphasized the significance of the words modifying that phrase. 532 U.S. at 115-17. Therefore, to determine what it meant to be “engaged in” interstate commerce in 1925, and thus whether Waithaka and his fellow AmFlex workers fall within the scope of the transportation worker exemption, we consider the interpretation of statutes contemporaneous with the FAA, the sequence of the text of the exemption, the FAA’s structure, and the purpose of the exemption and the [FAA][https://www.disputingblog.com/tag/faa/] itself. Cf. id. at 111-21.
Next, the First Circuit examined contemporaneous statutes in an effort to decipher the scope of the phrase “engaged in” interstate commerce. The appellate court relied heavily on the Supreme Court’s interpretation of a similar jurisdictional phrase in the Federal Employers’ Liability Act (“FELA”), which was enacted 17 years prior to the FAA.
Thus, contrary to Amazon’s contentions, the FELA cases concerning workers directly involved in transport advance our understanding of the Section 1 exemption. Consistent with the Supreme Court’s focus on “the flow of interstate commerce” in Circuit City, these cases show that workers moving goods or people destined for, or coming from, other states — even if the workers were responsible only for an intrastate leg of that interstate journey — were understood to be “engaged in interstate commerce” in 1925.
The Court of Appeals then dismissed several other arguments put forth by Amazon before stating:
We recognize that the FAA was enacted to counter hostility toward arbitration and that, accordingly, we must narrowly construe the statutory exemption from the Act. See Circuit City, 532 U.S. at 111, 118-19. However, the FAA’s pro-arbitration purpose cannot override the original meaning of the statute’s text. See New Prime, 139 S. Ct. at 543 (rejecting a narrower construction of the FAA’s exemption provision, even though that construction advanced the Act’s pro-arbitration policy). Moreover, construing the exemption to include workers transporting goods within the flow of interstate commerce advances, rather than undermines, “Congress'[s] demonstrated concern with transportation workers and their necessary role in the free flow of goods.” See Circuit City, 532 U.S. at 121.
The appellate court ultimately concluded the FAA did not apply to Waithaka’s lawsuit:
In sum, we reject Amazon’s cramped construction of Section 1’s exemption for transportation workers. The original meaning of the phrase “engaged in . . . interstate commerce,” revealed by the FELA precedents, and the text, structure, and purpose of the FAA, all point to the same conclusion: Waithaka and other last-mile delivery workers who haul goods on the final legs of interstate journeys are transportation workers “engaged in . . . interstate commerce,” regardless of whether the workers themselves physically cross state lines. By virtue of their work transporting goods or people “within the flow of interstate commerce,” see Circuit City, 532 U.S. at 118, Waithaka and other AmFlex workers are “a class of workers engaged in . . . interstate commerce.” Accordingly, the FAA does not govern this dispute, and it provides no basis for compelling the individual arbitration required by the dispute resolution section of the Agreement at issue here.
After that, the First Circuit turned to whether Washington or Massachusetts law applied to the TOS. Although the appellate court initially agreed with Amazon that Washington law applied under the terms of the agreement, the court was also persuaded by Waithaka’s conflict-of-law argument. The Court of Appeals said:
Thus, based on the SJC’s reasoning in [Machado][https://law.justia.com/cases/massachusetts/supreme-court/2013/sjc-11175.html], we are confident that the SJC would conclude that, like the statutory right to proceed as a class in the context of Massachusetts Chapter 93A consumer claims, the statutory rights to proceed as a class articulated in the Massachusetts Wage Act, Independent Contractor Misclassification Law, and Minimum Wage Law — as well as the statutory provision that precludes contractual waiver of these rights — represent the fundamental public policy of Massachusetts, and that the SJC would therefore invalidate a class waiver in an employment contract, like that of Waithaka, not covered by the FAA. See Mass. Gen. Laws ch. 149, §§ 148, 150 & ch. 151, § 20. Notwithstanding the Supreme Court’s view that such state policies must give way when the FAA governs a dispute, the policies remain intact where, as here, the FAA does not preempt state law. See Machado, 989 N.E.2d at 470-71, 473.
Next, the appellate court turned to the question of “whether Massachusetts law would oust the contractual choice of Washington law,” based on an “assumption for purposes of this case that Washington law would permit the class waiver provisions to be enforced — and thereby preclude arbitration from being compelled pursuant to state law.” The court concluded:
Hence, assuming that Washington law would permit the class waiver provisions, Massachusetts law would oust the contractual choice of Washington law as contrary to the Commonwealth’s fundamental public policy and would govern the enforceability of the dispute resolution section of the Agreement. Under Massachusetts law, the class waiver provisions would be invalid. Because, as noted, see supra Section III.B, the Agreement stipulates that the class waiver provisions cannot be severed from the rest of the dispute resolution section, the arbitration provision would be similarly unenforceable.
Finally, the United States Court of Appeals for the First Circuit affirmed the lower court’s order denying arbitration in the case.
This opinion is the first circuit-level decision on the issue of whether final mile transportation workers who operate solely intrastate are exempt from the FAA. The Seventh and Ninth Circuits are currently considering the same issue. Decisions from both courts are expected as soon as this summer.