Uber Arbitration Clause Upheld by Judge, Drivers Not Exempt

A California judge recently rejected the idea that rideshare drivers can be considered employed in interstate commerce and are therefore exempt from the Federal Arbitration Act. Recent California labor law disputes have involved rideshare drivers and other gig workers.

State Superior Court Judge Richard B. Ulmer handed down a ruling Sept. 25 that said an Uber driver who claims the company owes him wages must submit to arbitration in keeping with the terms he agreed to when he signed on to drive for the popular app. Those terms included an Uber arbitration clause that compel drivers to arbitration in the event they have a dispute with the company.

The driver in the case Ulmer was presiding over filed a complaint about unpaid wages and business expenses with the California Labor Commission and the commission joined him in challenging the Uber arbitration clause, Law 360 reported.

Leading Up to Judge’s Decision in Uber Arbitration Clause Case

Uber petitioned the court nearly a year ago to force the driver in question to submit to arbitration to settle their differences, but Ulmer granted the Labor Commission a six-month window of opportunity to research the matter and formulate a response.

“The legal landscape has changed markedly since then,” Judge Ulmer wrote in his Sept. 25 order. “The argument that Uber drivers are a class of workers engaged in interstate commerce for arbitration purposes has now been repeatedly made and unanimously rejected in California,” the judge also wrote.

To support his decision, the judge referenced several cases in California state and federal courts related to the question of how drivers for Uber and other rideshare apps should be classified. A number of recent decisions in those cases, as well as one delivered by the Ninth Circuit Court of Appeals led Ulmer to side with enforcing the Uber arbitration clause, he said.

Among the cases Ulmer cited was the Ninth Circuit Court of Appeals decision in September to uphold a lower court’s ruling that compelled a driver in Alabama to abide by the Uber arbitration clause because rideshare driving could not legally be classified as an interstate commerce.

The Federal Arbitration Act

Passed in 1925, the Federal Arbitration Act was meant to secure the validity and enforcement of arbitration agreements involved in commerce – basically, it is considered a national policy that favors the settlement of disputes through arbitration.

Section 1 of the Federal Arbitration Act includes an exemption though that says it will not apply to contracts for the “employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

The exemption is sometimes referred to as the “transportation worker” exemption, according to the National Law Review.

“The courts have struggled to determine whether particular individuals fall within the transportation worker exemption,” the National Law Review wrote in August. “Their conclusions are far from consistent and are arguably entirely irreconcilable.”

Given the disparities in how courts have ruled so far, legal experts expect the Supreme Court will one day soon weigh in on the issue by hearing a relevant case and offering a definitive interpretation.

Uber Arbitration Clause Case Part of Larger Trend

Questions about how those working in the gig economy should be treated – as independent contractors or employees, as working in interstate commerce, or not – and how their labor disputes should be handled are at the heart of debate both in and out of the courtroom across the nation now. Nowhere is that more the case than in California, though, where lawmakers have attempted to regulate the industry and secure protection for gig workers and the gig industries have been fighting back.

California’s controversial Assembly Bill 5 went into effect in January establishing a “test” by which to classify workers. The aim of the law was to prevent employers from denying full benefits and protections to their workforce by deciding to relegate them to independent contractor status to save themselves money.

The U.S. Department of Labor has taken up the issue, releasing a new proposal at the end of September that would institute an “economic reality” test that basically says if a person is economically dependent on an employer for work, then the person is an employee, not an independent contractor. The proposed standard is seen as relaxing requirements on employers, according to reporting by Bloomberg Law.

“[It] seeks to offer businesses … protection from a wave of worker lawsuits that have accused companies in the gig economy and in multiple other industries of shorting workers on pay by improperly designating them as contractors,” the Bloomberg reporting said.

The Uber Arbitration Clause Lawsuit is Case No. CPF 19516922 in the Superior Court of California in San Francisco County.

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