A putative federal class action brought on behalf of delivery drivers asserting invasion of privacy and wiretapping claims against a global e-commerce company survived an interlocutory appeal last week.  The Ninth Circuit Court of Appeals upheld a decision from the U.S. District Court for the Southern District of California that allows plaintiff’s claims to proceed.

The opinion, written by Judge Schroeder, affirmed the lower court’s decision denying the company’s motion to compel arbitration.  The Court held that the e-commerce company did not provide adequate notice of a change to its terms of service (TOS) for delivery drivers, so a 2019 agreement did not replace the original TOS the lead plaintiff and others assented to in 2016.  Moreover, while the 2016 agreement validly bound the parties, the Court held that the claims, which include invasion of privacy and wiretapping, fell outside of the scope of that agreement’s arbitration clause, so litigation, not arbitration, must resolve the dispute.

Delivery Driver Alleged the E-Commerce Giant Spied on His, and Others’, Private Communications

In February 2021, the lead plaintiff alleged that the e-commerce company “was unlawfully monitoring communications” in closed social media group chats for those, like him, who worked as gig-style delivery drivers for the company.  The drivers communicated about unionizing efforts, benefits, warehouse conditions, and more under the assumption that their communications were private.  The class action suit raised state claims of invasion of privacy under California’s Invasion of Privacy Act and the California Constitution, as well as federal claims for violation of the Federal Wiretap Act and the Stored Communications Act.  The e-commerce company sought to compel arbitration under its 2019 TOS with its gig drivers, but the Southern District of California denied the motion.  The company brought its interlocutory appeal thereafter.

The Ninth Circuit Court of Appeals Had Proper Jurisdiction Over the Appeal

To start, the Ninth Circuit held that it had proper jurisdiction to hear the appeal.  The plaintiff challenged the Court of Appeals’ jurisdiction over the interlocutory appeal because the original complaint was not brought under the Federal Arbitration Act (FAA), which makes rulings on motions to compel arbitration immediately appealable.  Though the plaintiff cited the practice, in other Federal Circuits, of not allowing interlocutory appeals on motions to compel arbitration, the Court noted that it is settled law in the Ninth Circuit that “an order denying a motion to compel arbitration is immediately appealable as tantamount to a denial of injunctive relief under 28 U.S.C. § 1292(a)(1).”

The Earlier Agreement Between the Parties Applies to This Dispute, Because of Improper Notice of Material Changes to the Arbitration Clause in the Later Agreement

Next, the Court of Appeals considered whether the district court applied the correct contract in considering whether the claims were arbitrable.  The e-commerce company argued that an updated TOS agreement it sent to its delivery drivers in 2019, which contained a broader arbitration clause, should apply.  The key difference between the 2016 and 2019 agreements was the 2019 agreement’s broader arbitration provision “that made the issue of arbitrability itself subject to arbitration” (emphasis added).  The Court of Appeals upheld the district court’s ruling that the 2016 TOS agreement applied because the e-commerce company gave its drivers inadequate notice of the new terms in the 2019 agreement.

Without adequate notice, the drivers could not affirmatively assent to new contractual terms, the Court of Appeals reasoned, citing the U.S. Supreme Court’s emphasis on the necessity of consent in contracts: “[P]arties cannot be coerced into arbitrating a claim, issue, or dispute absent an affirmative contractual basis for concluding that the party agreed to do so.” (citing Viking River Cruises, Inc. v. Moriana, ––– U.S. ––––, 142 S. Ct. 1906, 1923, 213 L.Ed.2d 179 (2022)).

The Court of Appeals wrote that the burden was on the e-commerce company to show the drivers’ assent to the new terms in the 2019 agreement, not on the plaintiffs to show the lack of consent.  In this case, however, there was no evidence that the email allegedly sent to drivers adequately notified drivers of the update to the arbitration clause.  The court consequently held: “a reasonable person would not believe that the . . . drivers’ conduct constituted an intent to be bound by a new arbitration provision in the 2019 TOS.”

Federal and State Invasion of Privacy Claims and Wiretapping Claims Are Not Arbitrable Under the Agreement Between the Parties

Having determined which agreement bound the parties, the Court of Appeals finally turned to the question of arbitrability.  The e-commerce company argued that, even under the 2016 TOS, the case should be sent to arbitration because the claims fell under the scope of that arbitration provision.  The Court of Appeals, like the district court, disagreed.  The Court found the various allegations of spying behavior from the e-commerce company not arbitrable because they “involve employer misconduct wholly unrelated to the parties’ agreement.”  Even if the alleged spying occurred while the drivers were performing services related to the agreement, it does not mean that the alleged misconduct arose from the agreement.

The e-commerce company argued that, even if the claims in the dispute were not arbitrable, the dispute should still be sent to arbitration because the company may have potential defenses to the claims within the privacy-related provisions of the agreement.  But the Court still disagreed because of settled law that “[a]rbitrability issues . . . are to be decided on the basis of the complaint.”

Takeaways Regarding the Arbitrability of Privacy Claims

Though the Court of Appeals declined to wade into the debate on whether gig workers are employees or independent contractors, its ruling provides insight into the Ninth Circuit’s treatment of data privacy disputes going forward.

In holding that the alleged misconduct that led to violations of California state privacy laws and federal wiretapping and stored communications laws did not arise under the terms of service, the Ninth Circuit declined to shield companies from public litigation when the conduct at issue is arguably unrelated to the provision of services outlined in the agreement between the parties.  The Ninth Circuit extended its emphasis on protecting the privacy rights of consumers in such litigation to protect employees and contractors from practices at issue in this case as well.

Caroline Dzeba also contributed to this article.