On Friday, the U.S. Court of Appeals for the First Circuit held that last-mile drivers who do not cross state lines are nonetheless interstate “transportation workers” exempt from the FAA so long as they transport goods or people within the “flow of interstate commerce.” The First Circuit’s opinion is the first circuit-level holding on this issue. There are two other appeals on this issue pending in the Seventh and Ninth Circuits, with decisions expected this summer.

In Waithaka v. Amazon.com, Inc., the First Circuit followed earlier Supreme Court precedent under a contemporaneous statute that used similar “engaged in commerce” language to hold that crossing state lines is not dispositive. Because the exemption applied, arbitration could not be compelled under the FAA. The First Circuit then looked to whether arbitration should be compelled under state law, conducting a conflicts-of-law analysis focused on the class waiver provision. Assuming that Washington law would enforce a class-waiver provision, the court determined that Massachusetts courts would view the class waiver as violating an important public policy to allow class claims under the Massachusetts Wage Act and Independent Contractor Law. Because the arbitration provision included a “blow up” provision that made the whole agreement unenforceable if the class waiver was deemed unenforceable, the court held that arbitration was unavailable to the parties.

Here are the key takeaways from the opinion:

• The First Circuit held that the FAA may not be used to enforce arbitration agreements with certain last-mile drivers. This is true even though the drivers did not cross state lines. This holding governs federal courts in Maine, Massachusetts, New Hampshire, Rhode Island, and Puerto Rico.
• State arbitration laws may be used to enforce arbitration agreements even for drivers exempt from the FAA. Underscoring this in two cases last week, the New Jersey Supreme Court held that arbitration agreements—and class waivers—were enforceable against delivery drivers under the New Jersey Arbitration Act even if the FAA did not apply. See Arafa v. Health Express Corp., No. A-6-19; Colon v. Strategic Delivery Solutions, LLC, No. A-7-19 (N.J. July 14, 2020).
• But be aware that class waivers may not be enforceable under a given state’s arbitration laws. For example, here, the First Circuit found that the class waiver was not enforceable under Massachusetts law. A similar holding has been reached under California law in a case where the FAA did not apply. See Garrido v. Air Liquide Indus. U.S. LP, 194 Cal. Rptr. 3d 297 (Cal. Ct. App. 2015).
• Expect a fight over which state’s arbitration law will apply. Simply selecting a state arbitration act to apply if the FAA does not is not the end of the story. If the worker does not live or work in the state selected by the arbitration agreement, a court may hold that the choice-of-law provision is not enforceable. And even if a court finds a choice-of-law provision is enforceable, if the worker’s home state doesn’t enforce class waivers, it could set up a “conflicts of laws” analysis that invalidates the waiver and, potentially, the entire arbitration agreement.

Scopelitis’ arbitration team is ready to assist your review of your company’s arbitration arrangements. For more information, please contact Greg Feary, Braden Core, Prasad Sharma, or Ryan Wright.