Arbitration Update! Federal Court Stops California From Banning Arbitration: Federal Judge Stops California From Enforcing AB 51

by gspencermynko

Federal Court Grants Preliminary Injunction on Enforcement of California Ban on Employment Arbitration Agreements.

California Assembly Bill (AB) 51, which bans mandatory arbitration agreements, was set to go into effect on January 1, 2020. However, the Chamber of Commerce of the United States filed a suit to stop AB 51 and succeeded in securing a Temporary Injunction against the State of California from enforcing the new law (this occurred in a very similar fashion as to how the CTA stopped the State from enforcing AB 5 against trucking companies).

The U.S. District Court for the Eastern District of California granted a request for a preliminary injunction to prohibit the State of California from enforcing Assembly Bill 51 (AB 51) as to arbitration agreements governed by the Federal Arbitration Act (FAA). Chamber of Commerce of the United States, et al. v. Becerra, et al., No. 2:19-cv-2456 (E.D. Cal. Jan. 31, 2020).

On January 31, 2020, the Court then granted the request for a preliminary injunction enjoining the State from enforcing AB 51. On February 7, 2020, the court issued its written order detailing its reasoning for granting the preliminary injunction. It ruled that the four factors required for a preliminary injunction were met:

The likelihood of the plaintiffs succeeding on the merits of the case;
The likelihood of irreparable harm to the plaintiffs absent a preliminary injunction;
The balance of the equities; and
Whether an injunction is in the public interest.

As such, the State of California is banned from enforcing AB 51, which essentially makes employment arbitration agreements unenforceable. Chalk up a victory for Employers.

However, enforcement of arbitration agreements in trucking under the Federal Arbitration Act (FAA) became more difficult under New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019).

FAA and Transportation Worker Exception.

Last year the United States Supreme Court ruled that a trucking company cannot compel arbitration in a wage dispute brought by an independent contractor truck driver. Generally, employers can insist upon arbitration agreements in contracts with independent contractors. However, The US Supreme Court has decided that an exception to the Federal Arbitration Act (FAA) applies to independent contractor truck drivers. Even though the plaintiff (an interstate truck driver) had signed an arbitration agreement agreeing he was an independent contractor, the Court held the FAA could not be used to compel arbitration. But the Court also stated that a transportation worker who signed an arbitration agreement could be compelled to arbitrate pursuant to a court’s inherent authority or state arbitration statutes

Who Actually Works In “Interstate Commerce”?

Following the decision in New Prime, courts have made inconsistent rulings as to who falls within the scope of the transportation worker exception, focusing on whether transportation workers are engaged in interstate commerce. These range from “obvious” examples: long-haul truck drivers whos transport goods across state lines are “engaged in interstate commerce”. But what about transportation workers who work within a single state, such as last-mile delivery drivers, couriers, food delivery drivers, drivers of ride-sharing services, and other gig-economy transportation service?

Courts have applied vague, multi-factor tests which result in inconsistent and contradictory results:

These decisions have a broad, inclusive definition of the Transportation Worker Exception:

Waithaka v., Inc., LEXIS 140605 (D. Mass. Aug. 20, 2019) (last-mile delivery drivers were subject to the transportation worker exception, even though they did not cross state lines); See also Rittmann v., Inc., 383 F. Supp. 3d 1196 (W.D. Wash. 2019)

Ward v. Express Messenger Sys., LEXIS 175674 (D. Colo. Jan. 28, 2019) (package delivery drivers were subject to the transportation worker exception, even though they did not cross state lines);

Muller v. Roy Miller Freight Lines, LLC, 34 Cal. App. 5th 1056 (2019) (a trucker was subject to the transportation worker exception even though he did not personally transport goods across state lines).

These decisions have a narrow, exclusive definition of the Transportation Worker Exception, where employees are required to arbitrate disputes:

Austin v. DoorDash, Inc., No. 1:17-cv-12498, 2019 U.S. Dist. LEXIS 169728 (D. Mass. Sep. 30, 2019) (food delivery drivers were not subject to the transportation worker exception);

Davis v. Cintas Corp., No. 2:18-cv-1200, 2019 U.S. Dist. LEXIS 87261 (W.D. Pa. May 23, 2019) (route sales drivers were not subject to the transportation worker exception);

Borgonia v. G2 Secure Staff, LLC, No. 19-cv-914, 2019 U.S. Dist. LEXIS 70224 (N.D. Cal. Apr. 25, 2019) (airport employees providing passenger assistance and security services were not subject to transportation exemption).

Using California Law to Compel Arbitration of Transportation Worker Disputes

Obviously, there is great risk that arbitration agreements with transportation workers will not be enforced under the FAA. However, is enforcement under California Law possible? While the FAA provides limited shelter, despite the fight over AB 51, is there third way to compel arbitration?

Arbitration agreements may still be an option for contracts with carriers that are not a one-man/one-truck driving operation. During the oral argument, several justices probed whether an owner-operator who did not personally perform services or who operated multiple trucks would be subject to the exemption. The court did not address these issues in its opinion, arguably leaving them open for future litigation. That said, a trucking company may be able to protect itself if it contracts with another company instead of an individual.

Speak To An Experienced Transportation Attorney About Arbitration and Class Action Waivers.

Trucking and Transportation companies need to evaluate their current arbitration agreements to maximize their chance at enforceability. Can arbitration be governed by state law in the event the FAA is determined to be inapplicable; Or are there provisions for arbitration rules outside of Federal and State law? It is important to draft the arbitration provision carefully so that it will satisfy state law requirements.
Trucking companies need to work with lawyers who keep tabs on changing laws and make certain that their arbitration agreements are state of the art.

Furthermore, in light of recent developments, class-action waivers should be separate from arbitration clauses. Finally, the arbitration provision should make it clear that a trucking companies customers and clients are covered under the arbitration agreement.