In the bag! Federal court judge rules Instacart's arbitration agreement checks out

November 06, 2015

Employment Law Alert

We are experiencing a firestorm of litigation challenging worker classifications in the on-demand economy. One  way companies may be able to minimize exposure to expensive litigation is through the use of well-drafted arbitration agreements. This alert discusses a federal court’s recent decision and what companies can do to protect themselves from future litigation.

Instacart bagged a victory on Tuesday this week when U.S. District Court Judge Edward M. Chen rejected a class action in the making by enforcing an arbitration agreement signed by Instacart’s delivery drivers. A class action lawsuit was filed against the young company earlier this year taking aim at Instacart’s classification of its workers.

Instacart workers buy and deliver groceries to customers using Instacart’s online and mobile platform. Instacart has in-store shoppers who are part-time employees and who are provided training and supervision. Instacart also utilizes delivery drivers who Instacart classifies as independent contractors. The delivery drivers use their own cars and choose whether to respond a customer’s request.

In February, delivery drivers filed a class action lawsuit in California’s Northern District Court claiming they had been misclassified as independent contractors. The drivers claim they are entitled to be reimbursed for expenses, such as fuel, parking fees, vehicle maintenance, and vehicle-related insurance. Additionally, the drivers accuse Instacart of refusing to pay their wages, overtime wages, income tax contributions, and certain benefits required by state and federal law.

As a result of Judge Chen’s ruling, drivers must individually arbitrate claims that they were misclassified as independent contractors. Interestingly, Judge Chen found that the agreement’s fee-splitting and fee-shifting provisions were unconscionable and severed them from the arbitration agreement. In addition, Chen kept alive the plaintiffs’ claims under the state Private Attorney General Act, which he said could not be waived under the California Supreme Court’s 2014 ruling in Iskanian v. CLS Transportation. The PAGA claims were stayed pending the outcome of arbitration.

Arbitration agreements have been a major issue in the recent flood of employment litigation plaguing on-demand companies, many of which rely on the independent contractor model.

The complaint against Instacart has allegations similar to two ongoing lawsuits also pending in the Northern District against ride-sharing Uber and Lyft. Instacart, Uber and Lyft are just three of the dozens of on-demand companies being hit by lawsuits challenging worker classification in the surging on-demand economy.

Judge Chen is also hearing the Uber case in which he recently certified a class of drivers seeking employee status, allowing them to proceed with claims that the company illegally withheld their tips. (Uber has filed an appeal with the U.S. Court of Appeals for the Ninth Circuit, arguing that the case raises “urgent questions” for the burgeoning on-demand economy that are too important to leave to a single jury. The appeal is still pending.) In the Uber case, Chen excluded drivers who signed up with Uber in summer 2014 or later, ruling they could be bound by Uber’s arbitration agreement. Chen also determined that Uber’s 2013 arbitration agreement was unenforceable, a ruling Uber’s lawyers also have appealed.

As seen here, well-drafted arbitration agreements with enforceable class action waivers can be an effective way for on-demand companies and really any company with contingent workers to protect themselves. Generally speaking, the bigger a potential class size, the more appetizing to hungry plaintiffs’ counsel. Shrink the class, and you shrink the temptation.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

Back to top