The Third Circuit welcomed us to the fall arbitration season with an important decision for the gig economy, Singh v. Uber Techs. Inc., 2019 WL 4282185 (3d Cir. Sept. 11, 2019).  Relying on the key logic of SCOTUS’s January ruling in New Prime, Inc. v. Oliveira, the Third Circuit concluded that Uber drivers may qualify FAA § 1’s exemption for “any other class of workers engaged in foreign or interstate commerce.”  I say “may qualify” because the Third Circuit technically remanded the case.

This is an important one, so it’s worth thinking through it carefully.  There at least three key takeaways from the case: (1) workers may qualify for the § 1 exemption if they belong to a class of workers moving passengers or goods in interstate commerce; (2) the determination of whether workers fall within such a class hinges on consideration of a non-exclusive list of factors; and (3) lower courts can and should demand discovery necessary to make this factor-based determination.

Exciting stuff!  Let’s dive in!

The facts are simple: a New Jersey Uber driver brought a putative class action in state court.  He alleged that Uber misclassified drivers as independent contractors rather than employees.  That deprived the drivers of over overtime pay and it forced them to incur business expenses that Uber should have paid.  Uber removed the case.  Then it sought to compel arbitration on an individual basis.  The employee resisted on a number of grounds, including that the contract with Uber fell within the exemption of FAA § 1.  The district court, however, decided that the employee did not qualify for the exemption.  It reasoned that the exemption only applies to workers who transport goods, not passengers.  The district court then rejected the employee’s other objections and sent the case to arbitration.

That sets the stage for the first of the three big takeaways: according to the Third Circuit, the FAA § 1 exemption “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.”  This is huge.  Uber argued vigorously that the exemption should be narrowly construed to apply only to transportation workers moving goods.  Some dicta would seem to have supported that proposition.  But the Third Circuit roundly rejected it.

That, in turn, raised the second big takeaway: the lower court needs to evaluate various factors to determine if particular employees belong to a class of employees engaged in interstate commerce.  Notice the phrasing here.  The question isn’t whether the particular workers were engaged in interstate commerce.  It’s whether the particular workers belong to a class of workers who are engaged in interstate commerce.

Both the employee and Uber argued that the question could be resolved based on the existing record.  The employee argued that the court should look at the contract between the parties.  That contract implicitly contemplated a relationship with drivers from all fifty states and thus encompassed interstate travel.  Uber countered that the court should look only to its lived experience – Uber drivers inherently serve a local market, even if they occasionally might cross a state line here or there.

The court rejected both arguments.  The contract between the parties is one source of evidence about whether the workers belong to a class of workers engaged in interstate commerce.  But it’s not dispositive.  Similarly, the local nature of much of the work might be a factor, but it’s hardly the only factor.  Instead, the court instructed the lower court, on remand, to consider “various factors” including but not limited to “the contents of the parties’ agreement(s), information regarding the industry in which the class of workers is engaged, information regarding the work performed by those workers, and various texts—i.e., other laws, dictionaries, and documents—that discuss the parties and the work.”

And that brings us to the third big takeaway, which, in some respects, seems perhaps the most general and significant: the court’s instruction about what procedural framework governs a motion to compel, Fed. R. Civ. P. 12(b)(6) (motion to dismiss) or 56 (summary judgment).  The Third Circuit doubled down on an approach that it laid out in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013).  That approach uses a motion to dismiss standard for a motion to compel if the existence of a valid agreement to arbitrate between the parties is apparent from the face of the complaint or incorporated documents.  On the other hand, if the complaint and its supporting documents are unclear” as to whether the parties agreed to arbitrate, “or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement” in dispute, a “restricted inquiry into factual issues [is] necessary . . . .”

In this case, the court concluded that the complaint and supporting documents were unclear about whether the driver belonged to class of workers engaged in interstate commerce.  Accordingly, the court ordered the district court, on remand, to “permit discovery on the question before entertaining further briefing.”

On one hand, this third takeaway threatens, if read for all it’s worth, to authorize the same sort of “smell test” that SCOTUS unanimously rejected earlier this year in Henry Schein, Inc. v. Archer & White Sales, Inc.  Remember, there the Court put to rest the “wholly groundless” doctrine, which some circuits had used to do an end-run around a delegation clause.  Taken at face value, this Guidotti approach could do much the same thing by giving courts the opportunity to second guess the validity of an arbitration agreement.

On the other hand, in this particular case, the Third Circuit probably got things right.  Although the Uber agreement contains a delegation clause, as SCOTUS made clear in New Prime, such a delegation clause only kicks in once a court concludes that an arbitration agreement subject to the FAA exists.  In other words, a court must first determine if the contract falls within the  § 1 exemption.

All that said, the combination of the second and third takeaways from this case make things very messy, at least for a while, for the gig economy.  Until the dust settles, parties may wind up spending a lot of time litigating whether the FAA even applies.