More on Mass Individual Arbitration As an Alternative to Class Arbitration

By Echo K.X. Wang

A plaintiffs-side law firm is embracing a recently developed path to pursuing employment disputes against companies that mandate class-action waivers.

Last month in California’s Northern District federal court, Uber and Lyft were separately faced with individual JAMS Inc./American Arbitration Association claims and petitions to compel arbitration from thousands of Uber and Lyft drivers working for each company.

The Uber lawsuit, Abadilla v. Uber Technologies Inc., is scheduled for a hearing on a motion to compel arbitration on March 28 with U.S. District Court Judge Edward M. Chen. (The Abadilla case page is available at http://bit.ly/2By5Zpf.)

The Lyft lawsuit, Abarca v. Lyft Inc., is scheduled for an initial case management conference on Mar. 14, 2019 with U.S. District Court Judge William Haskell Alsup. (The Abarca case page can be found at http://bit.ly/2Svtny8.)

The drivers claimed that the ride-share companies have misclassified them as independent contractors and violated the Fair Labor Standards Act.

The basis for these arbitration claims arose in light of last year’s California Supreme Court case, Dynamex v. Superior Court of Los Angeles County, 4 Cal. 5th 903 (Cal. April 30, 2018) (available at http://bit.ly/2ByKGnH), where the state’s top Court limited companies’ ability to label their workers as independent contractors. Unlike workers classified as employees, independent contractors, including Lyft and Uber drivers, are not entitled to minimum wage and other benefits promised under state and federal law.

The U.S. Supreme Court last year ruled in favor of employers in limiting employee’s ability to bring class suits, backing waivers in favor of mandatory individual arbitration, in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (available at https://bit.ly/2rWzAE8); see also Noah Hanft, “What's Next for Employers, Post Epic Systems?” Corporate Counsel (July 24, 2018) (available on the CPR Institute’s website at here).

Another earlier Supreme Court case, Stolt-Nielsen v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (available at http://bit.ly/2SP4ugk), held that a party may not be compelled to submit to class arbitration under the Federal Arbitration Act unless otherwise provided for within the contract.

These decisions impose restrictions on employees’ ability to resolve workplace disputes, requiring them to arbitrate claims individually.

Yet 2019 has started off with a shift toward a more expansive view of workers’ rights which will affect—in ways yet to be determined—resolving conflicts with their employers. Last month, the Supreme Court in New Prime v. Oliveira, No. 17–340 (2019) (available at https://bit.ly/2CyEpbd) resolved a circuit split about whether the FAA Section 1 exemption applies to independent contractor agreements.

Plaintiff Oliveira brought a class action wage-and-hours claims against New Prime, an interstate trucking company. When New Prime sought to enforce its mandatory arbitration agreement under the FAA, Oliveira contended that he qualifies for the FAA Section 1 exemption, and the FAA shouldn’t apply to his case, thereby striking the mandatory arbitration clause in his independent contractor agreement.

The exemption clause states that “nothing herein” the FAA “shall apply to contracts of employment of . . . any [] class of workers engaged in foreign or interstate commerce.” While both parties agreed that Oliveira is considered a class of worker “engaged in interstate commerce,” the parties disagreed on whether the FAA’s “contracts of employment” included independent contractor agreements, or only to employer-employee agreements.

In the unanimous 8-0 decision by Justice Neil M. Gorsuch—new Justice Brett Kavanaugh wasn’t seated when the case was argued and didn’t participate—the Court held that “contract of employment” includes a broad reading of employee-employer relationships, including independent contractor agreements. Therefore, under FAA Sec.1, transportation workers like Oliveira may not be compelled to arbitrate.

Looking to the historical usage of the word “employment,” Gorsuch explained that when the FAA was enacted in 1925, “employment” was understood broadly to be “more or less as a synonym for ‘work.’” He also noted that both federal and state courts in the early 20th century have used the term “contract of employment” to describe work agreements involving independent contractors.

In summary, he wrote, “a contract of employment did not necessarily imply the existence of an employer-employee . . . . relationship.” (Emphasis is in the opinion.)

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The New Prime decision could have a significant impact on the interstate transportation industry, including the outcomes of the pending Uber and Lyft disputes. Chicago-based law firm Keller Lenkner  initially filed and is orchestrating both the 12,501 arbitrations claims against Uber (Abadilla v. Uber Technologies Inc.)and the 3,420 Lyft drivers arbitration claims against Lyft (Abarca v. Lyft Inc.).

When the two companies failed to fully pay the initial arbitration filing fees as promised within the companies’ arbitration agreements, Keller Lenkner enlisted Los Angeles firm Larson O’Brien LLP to help with the Uber Abadilla cases, and filed a motion to compel arbitration against both companies in the N. D. California District Court.

It is not a surprise that Uber and Lyft are delaying the fee payments. As it turns out, the large numbers of individual arbitrations are expensive and time consuming for companies. In the Uber arbitrations under JAMS, the initial filing fees for arbitration is $1,500 per dispute.

Similarly, Lyft’s American Arbitration Association arbitrations are $1,900 per dispute. A detailed list of AAA’s employment dispute arbitration fees is available at https://bit.ly/2X4VD9Q.

At the same time, Uber counters in the joint case management statement filed by both parties on Feb. 7 that the plaintiffs haven’t paid their arbitration fees either. The joint statement is available at http://bit.ly/2X10Tew.

Uber even proposed to resolve the arbitrations through four representative arbitrations. Alison Frankel, “Forced into arbitration, 12,500 drivers claim Uber won’t pay fees to launch case,” Reuters (Dec. 6, 2018) (available at https://reut.rs/2tha1xS). While Keller Lenkner rejected this offer on behalf of its clients, it is interesting and unusual that Uber proposed the equivalent of class arbitration, after fighting so hard—and successfully—against class action arbitrations at the Ninth U.S. Circuit Court of Appeals. O’Connor, et al.  v. Uber Technologies Inc., No. 14-16078 (Sept. 25, 2018) (available at http://bit.ly/2Gnhggl).

In combatting these individual arbitration claims, the ride-share companies adopted several tactics including: 1) delay the arbitrations by not paying the arbitration initial filing fees, 2) challenging their opposing counsels’ qualifications, and 3) offering incentives for employees to drop their arbitration claims.

The tactic to delay arbitration fee payments, as both Uber and Lyft seem to be doing, is not new. See Howard E. Levin, Stiffing the Arbitrators and the Respondents, ABA GPSolo eReport (Aug. 22, 2017) (available at http://bit.ly/2WZQD6c). Neither is the plaintiffs’ push for mass individual arbitrations. See Jessica Goodheart, “Why 24 Hour Fitness Is Going to the Mat against Its Own Employees,” Fast Company (March 13) (available at http://bit.ly/2pkDPIm) (A class of health club employees decertified by a California federal court filed hundreds of individual arbitrations, which the employer settled as a group); Ben Penn, “Buffalo Wild Wings Case Tests Future of Class Action Waivers,” Bloomberg Law (July 12, 2018), https://bit.ly/2Sx9qXY (Workers at Buffalo Wild Wings filed nearly 400 individual arbitrations for wage-and-hour disputes, which also resolved in a group settlement).

Uber and Lyft did not respond to a request for comment.

Since arbitrations can only proceed after the initial filing fees are paid, there is perverse incentive for companies to delay or even refuse to pay the arbitration fees, in hopes that employees would either pay for the filing fees themselves, or simply give up and abandon the claims altogether.

As noted, the companies advanced arguments to attack the qualifications of their opposing firms and attorneys. In a separate but similar wage-and-hour arbitration dispute at the California Northern District federal court, Uber succeeded in its motion to disqualify Keller Lenkner and its partner Warren Postman from representing Diva Limousine against Uber in Diva Limousine Ltd. v. Uber Technologies Inc. (case page available at http://bit.ly/2Ia1wz2).

In Diva, Uber argued that in his previous job at the U.S. Chamber of Commerce, Postman frequently “exchanged confidential and privileged communications [with Uber] on the driver classification issue,” and should therefore be disqualified for conflicts of interest. (A detailed account of Uber’s argument can be found at Alison Frankel, “Law firm for Uber drivers in mass arbitration is bounced from federal court case,” Reuters (Jan. 10) (available at https://reut.rs/2GntPYS).

On Jan. 11, Judge Edward M. Chen from the California Northern District federal court in San Francisco granted Uber’s motion to disqualify Postman & Keller Lenkner. On Feb. 11, 2019, the plaintiff appealed this decision to the Ninth Circuit, filing a writ of mandamus.

Uber is now trying to use the Diva opinion as the basis to disqualify Keller Lenkner and Larson O’Brien in the Abadilla case. In Uber’s opposition to the plaintiffs’ motion to compel arbitration (see motion available at http://bit.ly/2TNcnjx), the company argued that while the counsel of record for the 12,501 drivers is the Larson O’Brien firm, the arbitration demands were initially submitted to JAMS by Keller Lenkner.

Uber expressed doubts on Larson O’Brien’s involvement in the case, alleging that Keller Lenkner, with Larson O’Brien by association, should not be able to represent the drivers given the Diva disqualification judgment.

Keller Lenkner might face the same conflict problem against Lyft as well.  In November, soon after Keller Lenkner requested arbitration, Lyft filed a tort lawsuit against Postman, seeking both money damages and an injunction against Postman from representing the Lyft drivers in arbitrations. (Lyft Inc. v. Postman, case court docket available at https://bit.ly/2SRO4DY). There, Lyft alleged that Postman worked closely with Lyft when he was at the Chamber of Commerce, and like Uber, alleged that he was exposed to confidential information about Lyft’s driver classification issues (see motion available at https://bit.ly/2tiNMYu).

On Jan. 16, the Court grant an extension for Postman to respond to the complaint, but Postman has yet to respond as of Feb. 14. It is unclear if the Diva opinion, now on appeal, would affect Keller Lenkner’s eligibility to represent the drivers in the Lyft arbitrations.

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In addition to stalling the arbitration and imposing other defenses against the arbitrations, Uber and Lyft might also consider other ways to settle these claims. Uber already did this in the past, in offering to pay 11 cents per mile in exchange for drivers to opt out of another arbitration. After all, Uber and Lyft are both hoping to go public in the next few months, and it would be to their advantage to resolve these matters before then.

It is unknown if mass individual arbitrations—the plaintiffs’ “death by a thousand cuts” strategy—will turn out to be a key path for gig-economy workers. While mass individual arbitrations may impose pressure for companies to change their policies or to settle, would it be possible to arbitrate so many disputes?

Although it appears that Uber is stalling for time by attacking Postman’s qualifications, it is questionable whether Keller Lenkner, a 10-attorney firm, is equipped to handle more than 16,000 individual arbitrations--though, according to Keller Lenkner, they have been referring affected clients to other firms as a way to address this problem.

The plaintiffs’ mass arbitration strategy also has been questioned by experts, who wonder whether it risks corrupting the processes.  They charge that attorneys employing this strategy may be trying to gain negotiation leverage, rather than intending to arbitrate each claim, which, they say, is detrimental to ADR. See Andrew Wallender, “Corporate Arbitration Tactic Backfires as Claims Flood In,” Bloomberg Law (Feb. 11) (available at https://bit.ly/2BwruqF).

Moreover, in light of New Prime, significant changes loom in how transportation workers bring their claims. For drivers in the ride-share industry who “engage[] in … interstate commerce,” New Prime stands for the proposition that they have a choice to bring future wage and hour claims directly to the state and federal courts, rather than through arbitrations.

Another question is whether Uber and Lyft drivers will fit under the FAA Sec. 1 umbrella of transportation workers “engaged in … interstate commerce.” Even if they are, how will the New Prime sit with individual state laws and regulations?

The author is a Spring 2019 CPR Institute intern, and a student at Brooklyn Law School.