Recently, and for the first time in more than 20 years, the United States Court of Appeals for the First Circuit ruled on the transportation worker exemption contained in Section 1 of the Federal Arbitration Act (FAA). In Waithaka v. Amazon.com, Inc., 966 F.3d 10 (1st Cir. 2020), the court of appeals upheld a district court’s decision not to compel Amazon “AmFlex” delivery drivers (who are independent contractors) to arbitrate their wage claims. The decision is significant for companies that require their delivery drivers to sign arbitration agreements.

The FAA and Its Transportation Worker Exemption

The Federal Arbitration Act sets forth a procedural framework that requires courts to treat arbitration agreements as “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” While the FAA applies broadly, Section 1 of the statute renders its provisions inapplicable to contracts of employment of seamen, railroad employees, and other transportation workers engaged in interstate commerce. In Waithaka, the First Circuit addressed the question whether AmFlex drivers who do not cross state lines themselves, but who deliver goods that have crossed state lines, qualify as transportation workers “engaged in foreign or interstate commerce” who are exempt from the FAA under Section 1.

The Court’s FAA Analysis

The court of appeals began its FAA analysis by observing that the plaintiff, Bernard Waithaka, and his fellow class members were not excluded from the transportation worker exemption because they were independent contractors rather than employees. As the court noted, the Supreme Court of the United States recently held (in New Prime, Inc. v. Oliveira, 139 S. Ct. 532, 544 (2019)) that the FAA’s transportation worker exemption applies to “‘agreements to perform work’” and therefore applies with the same force to independent contractors that it does to employees.

The court then addressed Amazon’s argument that Waithaka and the other AmFlex delivery drivers in his putative class were not engaged in interstate commerce, and thus were not covered by the transportation worker exemption, because they operated entirely within Massachusetts and did not themselves carry goods across state lines. The court rejected Amazon’s “cramped construction” of the transportation worker exemption, reasoning that “regardless of whether the workers themselves physically cross state lines[,] … [b]y virtue of their work transporting goods or people ‘within the flow of interstate commerce,’ … Waithaka and other AmFlex workers are ‘a class of workers engaged in … interstate commerce.’” As such, the court held, Waithaka and his fellow AmFlex drivers were covered by the FAA’s exemption for transportation workers, and the FAA provided no basis for compelling arbitration of their claims against Amazon.

Massachusetts Public Policy Precludes Class Waiver When the FAA Does Not Apply

Finding the FAA inapplicable, the court next looked to see whether the agreement’s arbitration clause might still be enforceable under state law. Answering that question required the court to determine whether the arbitration agreement was governed by the law of Washington—which was the law chosen in the agreement’s choice-of-law provision—or of Massachusetts, where Waithaka and his fellow putative class members had performed their work under the agreement. The court held that Massachusetts law applied, despite the arbitration agreement’s choice of Washington law, because the agreement contained a class action waiver and thus was contrary to the Commonwealth’s “fundamental public policy” precluding the contractual waiver of an employee’s right to assert claims for violations of the Massachusetts Wage Act, the Massachusetts Independent Contractor Law, and the Massachusetts Minimum Wage Law on a class basis. Therefore, the court of appeals held, because the arbitration agreement contained a class waiver, it was unenforceable under Massachusetts law and the district court’s refusal to compel arbitration was correct.

Considerations for Employers

This decision is significant for employers with workers in Massachusetts, primarily for two reasons. First, the Waithaka court confirmed (1) that contract provisions purporting to bar workers from bringing class actions for violation of Massachusetts’s wage and independent contractor laws are contrary to a fundamental public policy of the Commonwealth and (2) that public policy is sufficient to overcome the contract’s choice of another state’s law. Second, companies that employ or engage delivery drivers in the Commonwealth may want to keep in mind that, in light of the Waithaka decision, the FAA may not apply to those drivers if they deliver goods within Massachusetts that originate outside the Commonwealth, or that originate in Massachusetts and subsequently are transported outside of it. Accordingly, to the extent employers wish to enter into arbitration agreements with those workers, they may want to ensure that such agreements conform to Massachusetts’s requirements for arbitration agreements, including that they do not include a waiver of the workers’ right to bring class action claims under the Commonwealth’s wage and independent contractor laws.