Third Circuit Decision Threatens Rideshare Company’s Right to Arbitrate

The Third Circuit recently opened the door to exempting Uber drivers from the Federal Arbitration Act (“FAA”). In a precedential decision, the Court of Appeals vacated a District Court’s decision compelling arbitration of an Uber driver’s wage claim and remanded the case back to the District Court to determine whether the exemption applies.

The case is a class action brought in New Jersey on behalf of the plaintiff, Jaswinder Singh, and similarly situated New Jersey Uber drivers. The class seeks a ruling that drivers are employees rather than independent contractors, and thus entitled to the legal benefits available to employees such as overtime, unemployment and workers’ compensation insurance. Uber moved to dismiss the case and compel arbitration under the FAA. Singh opposed the motion, claiming that Uber drivers were exempted from the FAA. The District Court sided with Uber, dismissing the case and compelling arbitration under the FAA.

At issue in the appeal was Section 1 of the FAA, which exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Prior caselaw has interpreted the “other class of workers” portion, commonly referred to as the “residual clause,” to exclude only contracts of employment of transportation workers who are engaged in interstate commerce. In compelling arbitration, the District Court held that, contrary to Singh’s arguments, the residual clause did not apply to Uber drivers because they transport passengers, not goods. Since the District Court held that the residual clause did not apply to workers engaged in the transport of passengers, it did not need to determine whether Uber drivers were engaged in interstate commerce.

The Third Circuit Court of Appeals disagreed, holding that the residual clause is not limited to transportation workers who transport goods, but may also apply to those who transport passengers. It noted that the text of the residual clause itself broadly applied to any other class of workers engaged in foreign or interstate commerce. The caselaw narrowing its application to transportation workers was based on a canon of construction interpreting the residual clause based on the language it followed. Since the residual clause followed explicit references to “seamen” and “railroad employees,” the “other class of workers” was interpreted to embrace only classes similar to the preceding examples of transportation workers.

But the Third Circuit declined to interpret the terms “seamen” or “railroad employees” to include only those who transport goods. Instead, the Third Circuit held that the residual clause 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. Accordingly, the Third Circuit vacated the District Court’s order to vacate arbitration.

Since the District Court did not decide whether the Uber driver was engaged in interstate commerce, further proceedings at the District Court level will occur before there is a definitive answer on whether Uber drivers are included in the FAA’s Section 1 exemption.

For more information regarding this decision and best practices, please contact John R. Vreeland, Esq., Partner and Chair of the firm’s Wage & Hour Compliance and Dispute Resolution Practice Group, at jvreeland@genovaburns.com or 973.533.0777.