October 09, 2020
A decision by the Ninth Circuit highlights a new strategy by the plaintiffs’ bar to counter employers' use of arbitration agreements—filing mass arbitration claims as an alternative to a class action.
The three-judge panel held Postmates to the language of its own arbitration agreement. The court held that the company must pay more than $10 million in fees to cover arbitration proceedings filed by thousands of its couriers, who alleged the gig economy giant misclassified them as independent contractors and failed to pay them minimum wage and overtime. The arbitration agreements allowed disputes to reach the courts only if there was a question of whether the class action waiver included in the waivers was enforceable or voidable. Postmates argued the couriers violated the prohibition on class arbitration, which the court ruled did not fall under this narrow exception.
Postmates now faces a possible reckoning of more than 2,000 simultaneous arbitrations and their associated fees. The company previously refused to pay these fees even after a California federal judge ordered them to pay in November 2019. This refusal could result in the company being held in contempt of court.
Postmates contends the Ninth Circuit ruling is limited to a denial of forum, and not a decision on whether the mass arbitration filings violate the prohibition on class actions contained in the arbitration agreement—a decision that an arbitrator out of court will subsequently decide. In a separate proceeding, Postmates has also pressed a federal district court judge to hold the California arbitration law under which workers brought Postmates into court over unpaid wages as unconstitutionally preempted by the Federal Arbitration Act.
Outlook: The case is an example of the new plaintiffs’ bar strategy of mass arbitration as a workaround of class action waivers in arbitration agreements. California has been particularly hostile to gig companies on the issue of worker misclassification, and to employers of all kinds when it comes to arbitration—a state law banning mandatory arbitration agreements is currently subject to a court-ordered injunction. This decision by the Ninth Circuit, and the underlying decision it affirms, is therefore unsurprising. Whether an arbitrator finds the mass arbitration proceedings to be in violation of the class action waiver of the arbitration agreements remains to be seen.