In a matter of first impression, a panel for the Third U.S. Circuit Court of Appeals recently affirmed a judgment of the District Court of New Jersey in Singh v. Uber Techs., Inc. (April 26, 2023), compelling arbitration in a putative class action against Uber Technology, Inc. (Uber). The class action was brought against Uber by its drivers who alleged that the rideshare company misclassified them as independent contractors, thereby depriving them of overtime pay and other benefits under wage and hour laws. The panel held that the drivers must bring work-related disputes as arbitration proceedings per their contracts because the Federal Arbitration Act (FAA) exemption does not apply to them. 

The FAA compels federal courts to enforce a wide range of arbitration agreements except arbitration agreements contained in the “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The panel held that the Uber drivers are not included in a class of workers engaged in interstate commerce because they rarely cross state lines when transporting passengers.

The two key questions addressed by the panel were (1) what it means for a class of workers to be “engaged in interstate commerce” and (2) whether engagement with interstate commerce is central to the work of Uber drivers.

Regarding the first question, the Uber drivers argued that rare engagement is sufficient, but the panel concluded that the engagement must be “a central part” of their work. The panel further explained that this centrality test can be satisfied in two ways, either by (1) work that is actually engaged in the movement of interstate or foreign commerce, or (2) work that does not regularly cross state lines but is “so closely related” to interstate commerce as to be in practical effect part of it. Further, work meets this “closely related” standard if it is a “constituent part” of the interstate movement of goods or people rather than a part of an independent and contingent intrastate transaction. In other words, “the class must either be actually engaged in the movement of interstate or foreign commerce or in work so closely related thereto as to be in practical effect part of it.”

As to the second question, the panel agreed with the District Court that interstate commerce is not central to the work of Uber drivers by explaining that “[a]s a class, Uber drivers are in the business of providing local rides that sometimes—as a happenstance of geography—cross state borders.” The panel continued that “remove interstate commerce from the equation, and the work of Uber drivers remains fundamentally the same.” The panel stated that the drivers have not shown that infrequent interstate trips – evidence presented indicated 2.5% of Uber trips are interstate – are essential to their work, or that driving passengers to and from airports is a “constituent part” of the interstate movement of goods or people that could satisfy the “closely-related” test.

As a result, the panel concluded that Uber drivers are not a class of workers engaged in interstate commerce and, accordingly, that they do not fall under the FAA exception.

Whether the FAA exemption applies to rideshare workers is an important question for the gig industry because exclusion from the exemption will force these workers to individually arbitrate employment claims as opposed to bringing mass class actions.