In the News: 3rd Circ. Offers Gig Workers Tool to Blunt Arbitration Pacts

LA partner Steven Katz commented on a recent decision by the Third Circuit that gives gig economy workers who can prove they're engaged in interstate commerce new leverage to argue they can pursue employment disputes in court, rather than participating in mandatory arbitration agreements.

The appeals court held Wednesday that an Uber driver who sued the company over unpaid overtime and expenses shouldn't have been forced into arbitration, ordering more fact-finding on what qualifies for the Federal Arbitration Act's so-called transportation worker exemption.

Employee advocates and plaintiffs attorneys say the Third Circuit's precedential ruling sets a course for ride-hailing drivers and potentially other gig economy workers to dodge arbitration in employment disputes, especially if their work routinely takes them across state lines, like in the tri-state area of New York, New Jersey and Connecticut.

But management-side attorneys say the ruling is no silver bullet because those workers will have to prove they fit the criteria for the FAA's Section 1 exemption, and state arbitration statutes could still derail their legal pursuits in court.

Katz said it's "utterly unremarkable" that the panel said Section 1 applied to workers who transported passengers as well as goods. For Section 1 to be successful as a defense will depend on the gig economy worker's location, he said.

"The opinion suggests that whether the Uber drivers at issue are working in 'foreign or interstate commerce' will largely turn on whether their duties require them to transport across state or national borders on a more-than-incidental basis," Katz said. "If they work in a multistate metropolitan area, it might be relatively easy."

The ruling might meaningfully impact Uber drivers in the tri-state area, as well as surrounding states, who'd have a stronger argument on the "engaged in interstate commerce" issue. But it's far less likely to help Uber drivers who operate in larger states like California or Texas or nowhere near another state's border, like Hawaii, attorneys said.

"I doubt that even one in a hundred drivers in Los Angeles has ever driven a passenger 120 miles to the Mexican border, or nearly 200 miles to the Nevada state line," Katz said.