Companies have long sought to use arbitration to try to limit their liability on unpaid overtime claims. However, a recent court decision involving Postmates illustrates that arbitration may be a classic case of companies needing to be careful what they wish for. This case also provides a roadmap for plaintiffs that have signed arbitration provisions to assert their legal rights regarding overtime pay.
Postmates Inc. is an online food delivery service. Postmates hires individuals as “couriers,” who pick up and deliver food to patrons from restaurants. Thousands of couriers have sued Postmates, claiming that they were misclassified as independent contractors and denied overtime pay. To work for Postmates, each courier must sign a “Fleet Agreement,” which classifies them as independent contractors, not employees. The Fleet Agreement contains a Mutual Arbitration Provision stating that the parties “agree to resolve any disputes between them exclusively through final and binding arbitration instead of filing a lawsuit in court.” The Arbitration Provision contains a Class Action Waiver and Representative Action Waiver, which provides that “any and all disputes or claims between the parties will be resolved in individual arbitration” and that the parties “waive their right to have any dispute or claim brought, heard or arbitrated as a class and/or collective action” or “representative action.”
The arbitration requirement applies to “any and all claims between the Parties, including but not limited to those arising out of or relating to this Agreement, the Contractor’s [courier’s] classification as an independent contractor, … and all other aspects of the Contractor’s relationship with Postmates….” Pursuant to a delegation clause, the parties must also use arbitration for disputes regarding the Mutual Arbitration Provision itself (with a specified caveat):
Only an arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Mutual Arbitration Provision. However, as stated in Section 11B.IV below, the preceding clause shall not apply to the Class Action Waiver and Representative Action Waiver.
Section 11Biv provides:
Notwithstanding any other clause contained in this Agreement, this Mutual Arbitration Provision, or the American Arbitration Association Commercial Arbitration Rules (“AAA Rules”), any claim that all or part of this Class Action Waiver and/or Representative Action Waiver is unenforceable, unconscionable, void, or voidable shall be determined only by a court of competent jurisdiction and not by an arbitrator. As stated above, all other disputes regarding interpretation, applicability, enforceability, or formation of this Mutual Arbitration Provision shall be determined exclusively by an arbitrator.
To initiate arbitration, a courier must file a demand stating “(1) the name and address of the party seeking arbitration, (2) a statement of the legal and factual basis of the claim, and (3) a description of the remedy sought.” Arbitration is administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules and “Postmates shall pay the arbitrator’s and arbitration fees and costs, unless applicable law requires otherwise.”
On March 6, 2019, Petitioners’ counsel informed Postmates that it represents more than 3,000 Postmates couriers in California and Illinois who claim Postmates has misclassified them as independent contractors. Counsel represented that the couriers planned to “proceed with every arbitration simultaneously” which would “obligate Postmates to pay AAA more than $20 million—” a number that “will continue to grow, as roughly 500 additional drivers engage our firm each week.” Given this expense, counsel offered to discuss alternative processes for resolving the claims. Despite attempts to resolve the matter in the following months, the parties were unable to come to a mutually agreeable solution.
On April 22, 2019, Petitioners’ counsel filed an arbitration demand with AAA on behalf of 4,925 California Postmates couriers and on May 13, 2019, filed a demand on behalf of additional claimants, including the 200 Illinois Petitioners here. Both demands were filed as a single document reciting the claimants’ grievances and an attached spreadsheet listing the individual claimants. AAA determined that it would administer the arbitrations and assessed filing fees payable by Postmates under the Fleet Agreement.
On May 31, 2019, AAA contacted Postmates regarding its position on the assessed fees and arbitration demands. Postmates responded that in its view no arbitration proceedings had begun because the couriers’ arbitration demands were improper under the Fleet Agreement. For example, Postmates argued that the demands had been filed as “one, mass arbitration demand” which “circumvents the Fleet Agreement’s express requirement that all arbitrations must take place on an individualized basis.”
On June 7, 2019, AAA informed the parties that the couriers’ demands were proper under AAA’s rules and that if Postmates had an issue regarding the substance or manner of the demands, it could raise that issue with the appointed arbitrator. AAA further stated that it would decline to administer the couriers’ claims unless Postmates paid $11,022,400 in administrative filing fees by June 13, 2019.
On June 10, Postmates reiterated its objection that the couriers “exploited AAA’s rules by filling a collective demand” and requested that AAA allow Postmates to pay arbitration fees as cases are administered, rather than for all cases at once. In response, Petitioners’ counsel re-filed individual demands for each courier using AAA’s individual demand form.
Postmates maintained that the demands, although served individually, were still deficient because they “continued to assert generic claims that were copied and pasted thousands of times” and did not recite the amount in controversy asserted by each courier. Postmates declined to pay AAA’s filing fees by June 13, 2019.
On June 17, 2019, AAA informed the parties that the couriers’ demands were sufficient to trigger arbitration, but that it would decline to administer the cases unless all fees were paid. AAA suggested that Postmates could pay an initial fee of $300.00 per claimant while the parties further considered mediation or other options. As neither party agreed to that solution, AAA closed the cases.
On June 3, 2019, Petitioners’ filed a petition to compel arbitration in the Northern District of California on behalf of the California couriers. The California couriers moved to compel arbitration and for an order that Postmates pay arbitration filing fees. Postmates filed a cross-motion to compel arbitration requesting that petitioners refile their demands as individual arbitration demands and proceed to arbitration on an individual basis. The court granted the motions, but only insofar as they sought an order compelling arbitration. Adams v. Postmates Inc., 414 F. Supp. 3d 1246 (N.D. Cal. 2019). The court denied petitioners’ request for fees and Postmates’ request that petitioners refile their demands. On September 26, 2019 Petitioners, Illinois couriers, filed a Petition to Compel Arbitration in federal court in Illinois. As in the California proceedings, the parties each moved to compel arbitration in accordance with the Fleet Agreement.
On July 20, 2020, federal judge Mary Rowland issued an opinion denying relief to Postmates. Judge Rowland ordered the parties to complete mediation. The Court further concluded that the parties must arbitrate any dispute that Petitioners’ demands do not comply with the Fleet Agreement. In essence, the Court refused to involve itself in deciding how the arbitrations should proceed, instead allowing these decisions to be made by the AAA and the appointed arbitrator.
Postmates previously attempted to avoid arbitration by “settling” with a class of couriers in California state court. In June, San Francisco Superior Court Judge Anne-Christine Massullo denied preliminary approval of an $11.5 million class action settlement in which Postmates sought to resolve couriers’ wage and cost claims. Postmates also filed a separate federal lawsuit in Los Angeles against more than 10,000 of its drivers, seeking an injunction to prevent individual arbitrations from going forward.
The motion filed by Postmates had all the hallmarks of a desperation, hail-mary pass from the company – not happy with the decisions by the AAA – the organization that Postmates had selected in its own legal documents – to allow the arbitrations to proceed, Postmates asked a federal court to intervene, and this request was shot down. It now faces the prospect of paying a staggering amount of money – tens of millions of dollars – to the AAA just for the privilege of being sued there. Judge Rowland also noted that she was “frustrated for the hundreds of couriers and for Postmates that they have been unable to have the merits of the claims heard and resolved while the lawyers have engaged in the procedural gymnastics.” This case illustrates the absurdity of arbitration and why it should be outlawed or sharply curtailed in employment cases. It is dramatically more expensive and less efficient than the traditional legal system, and at the end of the day not even the companies that require it in their own legal documents want to proceed to arbitration. The sole purpose of arbitration in employment cases is to discourage and prevent claimants from vindicating their legal rights. But all is not lost – decisions like this from Judge Rowland demonstrate that companies are ill-advised to mandate arbitration, as they eventually will be stuck with a huge bill for doing so.
About the author: Josh Borsellino represents workers in claims for unpaid overtime. If you have questions about overtime pay, call Josh at 817.908.9861 or complete this contact form for a free consultation.