Protecting Workers’ Access to Justice in a Growing Gig Economy
By Kaiya Lyons
(Originally published in the American Association for Justice Employment Rights Section Blog. See Kaiya Lyons, Protecting Workers’ Access to Justice in a Growing Gig Economy, AAJ EMP. RTS. SECTION BLOG (Oct. 5, 2021), https://community.justice.org/blogs/aaj-blogs1/2021/10/05/protecting-workers-access-to-justice-in-a-gig-econ.)
Employers today utilize a growing variety of tools to cut costs and circumvent legal protections put in place to balance the distribution of power in the employment relationship. In an economy increasingly dominated by short-term independent contracts, American employers are turning to worker misclassification, mandatory individual arbitration agreements, and other strategies to shirk their legal responsibilities. These trends have placed millions of workers at risk of discrimination, sexual harassment, wage theft, and threats to their health and safety on the job by discouraging or disqualifying workers from pursuing legal claims, thereby concealing employer misconduct from the public.
AAJ staff and attorney members combat these efforts to undermine workers’ rights every day. However, employees, independent contractors, and their attorneys continue to face major hurdles to reporting and litigating against illegal employment practices.
Combating Worker Misclassification
The COVID-19 pandemic and the accompanying economic shutdown resulted in a crisis for workers across all demographics, the consequences of which will undoubtedly be felt for years to come. Crucially, these dire circumstances disproportionately affected women and people of color, exacerbating existing inequalities related to job security, livable wages, and access to essential social safety nets. Nowhere was this truer than in the context of the gig economy, which enjoyed exponential growth throughout the pandemic due, in part, to record unemployment rates and drastic changes to workers’ daily lives and caregiving responsibilities.
One of the largest threats facing this expanding app-based labor force is the rampant and willful misclassification of employees as independent contractors, which intentionally deprives individuals of rights and benefits duly afforded to them under the federal and/or state law. These include protections from discrimination and harassment, minimum wage and overtime pay, Social Security contributions, workers’ compensation and safety requirements, and collective bargaining rights. In eschewing their fundamental legal responsibilities to their workers, gig employers pass off those financial and human costs to already vulnerable communities and pose significant challenges to racial justice and gender equality in employment. Although plaintiff attorneys regularly oppose these tactics through independent contractor misclassification lawsuits, uncertainty caused by expensive lobbying efforts by large corporations and unpredictable administrative interpretations of applicable labor laws have complicated these efforts in recent years.
Recognizing the severe costs and pervasive impacts misclassification has on workers, their families, and government programs, some state legislatures have attempted to reign in corporate fraud as the gig economy grows. Most notably, in the fall of 2019, Governor Gavin Newsom signed into law California’s groundbreaking, albeit controversial, Assembly Bill 5 (AB5), which required companies to reclassify most independent contractors as employees. A breakthrough win for workers’ rights, AB5 took effect on January 1, 2020, but enjoyed a short window of success due to an expensive and successful opposition campaign lead by gig economy giants.
Through passing AB5, California legislators sought to codify the California Supreme Court’s landmark 2018 holding in Dynamex Operations West v. Superior Court of Los Angeles County.[i] In Dynamex, the court rejected a previous standard for classifying workers for the purposes of the state’s wage order rules and adopted a strict three-factor, worker-friendly “ABC” test. Specifically, this test establishes a rebuttable presumption that a worker is an employee unless the employer can demonstrate that the worker is free from control and direction in the performance of their services, performs work outside the usual course of hiring company’s business, and customarily engages in an “independently established trade, occupation, or business.”
By placing the burden of proving contractor status on the hiring entity, the California Supreme Court placed a significant obstacle in the way of employers whose business models rely on a steady stream of independent contractors and unpaid workers. In response, gig economy heavy hitters Uber, Lyft, and DoorDash, launched the most expensive ballot measure campaign in state history to pass Proposition 22 (“Prop 22”) and maintain their low-cost labor flow. California voters approved the measure in November 2020, exempting the companies’ drivers from AB5’s employee presumption—and the rights, protections, and benefits to which they would have been entitled. Notably, the exemption only applies to these app-based drivers and does not include similarly misclassified gig workers in other industries.
In total, the companies spent more than $200 million dollars fund the successful campaign. However, their legal battle did not end with the measure’s passage. In California and across the country, government and plaintiff attorneys continue to fight for the rights of misclassified Uber, Lyft, and other app-based company workers in court. Although the ridesharing companies’ attempts to recreate the success of Prop 22 in other states are ongoing, workers’ rights advocates and attorneys have challenged the original measure as an unconstitutional example of corporate overreach.
In the intervening year since the passage of Prop 22, gig economy employers have also faced opposition to their reliance on worker misclassification from the federal government. In May 2021, the Department of Labor withdrew a rule finalized during the Trump era, which would have made it easier for employers to classify workers as independent contractors under the Fair Labor Standards Act (FLSA) by formally adopting a revised “economic reality” test. This new test would have prioritized two “core factors” of the five-factor test for determining whether an employment relationship exists between the worker and the hiring entity, including the nature and degree of the worker’s control over their work and their opportunity for profit or loss.
The Department’s withdrawal of the final rule comports with the President’s campaign promises to prevent employee misclassification and preserves essential worker protections under the FLSA. In rejecting the Trump Administration’s attempt to narrow the considerations for determining independent contractor status, the Biden Administration has restored the status quo of FLSA application, but may also signal a welcome shift in federal employment rights and labor law interpretation more broadly. Moreover, President Biden’s prior support of the worker-friendly California Supreme Court “ABC test” underscores the importance of the tireless efforts plaintiff attorneys and civil justice advocates nationwide are doing to combat employer fraud and restore essential employment rights and benefits to misclassified members of the labor force.
Ending Forced Arbitration
In recent years, employers have turned to arbitration agreements as a first line of defense when faced with challenges to workplace discrimination and harassment, violations of wage and hour laws, unsafe work environments, and other unlawful employment actions. This dramatic increase in the use of mandatory arbitration agreements in employment contracts over the last two decades has disproportionately impacted the rights of women and people of color in the workforce. Furthermore, evidence suggests that this rapid and fundamental change to the balance of corporate power has resulted in a substantial decline in reports of illegal employment practices.[ii]
The rapid proliferation of forced arbitration clauses in the last few years has been attributed by some experts to the United States Supreme Court’s landmark opinion in Epic Systems Corp. v. Lewis,[iii] which effectively immunized private employers from class action lawsuits by holding that the Federal Arbitration Act (FAA) requires enforcement of collective action waivers in arbitration agreements required as a mandatory condition of employment. Writing for the majority, Justice Gorsuch upheld the validity of forced arbitration clauses in employment contracts, even where such agreements require employees to give up their right to collective ligation against their employer under the National Labor Relations Act (NLRA).
On the one-year anniversary of the opinion in Epic Systems, the Center for Popular Democracy and the Economic Policy Institute released a joint report evaluating its impact on the workforce. Moreover, the report projected that by 2024, more than 80% of all private-sector, non-union workers would be covered by forced arbitration clauses containing class and collective action waivers.[iv]
Gig Delivery Drivers & the FAA Transportation Exemption
Recently, waivers of workers’ rights to bring class action claims have become the subject of a burgeoning circuit split as courts attempt to decipher whether the FAA requires delivery drivers to arbitrate their claims against gig economy companies like Amazon, GrubHub, and other commonly app-based enterprises.
Section 1 of the FAA provides an exemption for transportation workers engaging in interstate commerce, including seamen, airline and railroad workers, and many commercial motor vehicle drivers. In 2019, the SCOTUS held that this exemption applies to all transportation worker arbitration agreements, regardless of whether the contractual relationship is that of an independent contractor or employee.[v]
In 2020, several circuit courts addressed whether gig 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 First and Ninth Circuits have interpreted the FAA’s transportation exemption liberally, finding that AmazonFlex delivery driver who do not physically cross state lines are nonetheless engaged in interstate commerce as the “last leg” of continuous interstate package delivery on behalf of a national company.[vi]
In contrast, the Seventh Circuit found that GrubHub drivers, who delivered in-app food orders from local restaurants to nearby customers, were not exempted from their arbitration agreement under the FAA.[vii] Following the Supreme Court’s more narrow construction of the Act in Circuit City Stores, Inc. v. Adams, the court held that the delivery drivers “must be connected not simply to the [interstate] goods, but to the act of moving those good across state . . . borders.”[viii]
Earlier this year, on February 22, 2021, the Supreme Court denied certiorari review of Amazon’s appeal of the Ninth Circuit’s decision in Rittman. In doing so, the Court declined to settle the circuit split and provide clarity regarding whether arbitration agreements can be enforced against certain “gig workers,” such as delivery drivers. The effects of this veritable punt of the issue have yet to be seen in full. However, as gig economy giants push state legislatures to classify their drivers as contractors and further push the limits of union busting and payroll fraud, the urgency for clarity will only continue to escalate going forward.
Sexual Harassment Claims & Preemption Legislation
The issue of ending forced arbitration in employment contracts has also become a heated subject in the public discourse surrounding the impact of the #MeToo movement thanks, in part, to the advocacy of former Fox News personality Gretchen Carlson.
After Carlson sued Fox News chairman and CEO Roger Ailes for sexual harassment in 2016, the mogul retaliated by petitioning the court to compel arbitration of her claims. By enforcing the mandatory arbitration clause in her employment contract, Ailes successfully prevented Carlson from taking him to court and—perhaps more importantly—making public the full details of her time at the network. Although Carlson’s high-profile allegations and the ensuing legal battle resulted in Ailes’s resignation and a seven-figure settlement with Fox News, her fight for access to justice was just beginning. Her bravery empowered other individuals to come forward with their own stories—across a variety of industries, professions, regions, and incomes—and ignited a fierce flame that would become a cultural firestorm throughout the country.
In the years following her settlement, Carlson continues to fight for the rights of all people who have experienced workplace sexual harassment to have their days in court. These efforts include advocating for federal remedies such as the bipartisan and bicameral Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. Representatives Pramila Jayapal (WA-07), Cheri Bustos (IL-17), and Morgan Griffith (VA-09) joined Senators Kirsten Gillibrand (D-NY), Lindsey Graham (R-SC), and Dick Durbin (D-IL) announced the bill on July 14, 2021, with the support of AAJ, Public Citizen, the National Women’s Law Center, the National Partnership for Women and Families, and Carlson. The legislation aims to empower sexual assault and harassment survivors and “would allow survivors to seek justice and accountability under the laws that are supposed to protect them, versus being forced into secret arbitrations that prevent the truth from ever coming to light,” according to AAJ CEO Linda Lipsen.
Four months earlier, on February 11, 2021, Rep. Hank Johnson (D-Texas) reintroduced the Forced Arbitration Injustice Repeal (FAIR) Act, which would prohibit the enforcement of pre-dispute arbitration agreements in cases involving employment, consumer, antitrust, or civil rights claims.[ix] A prior version of the FAIR Act passed the House in 2019, but subsequently died in the Senate Judiciary Committee.[x]
Around the country, some state legislatures have been able to respond more rapidly to the concerns surrounding forced arbitration in the wake of the #MeToo movement. In the past five years, progressive-leaning states, including California, Maryland, New Jersey, New York, Vermont, and Washington have enacted laws prohibiting the enforcement of arbitration provisions in employment agreements in relation to claims of sexual harassment.
However, these laws have also come into conflict with the mandates of the FAA, which provide that contractual arbitration provisions shall be upheld as binding on the parties to the agreement with limited exceptions, including the exemption for transportation workers discussed above.[xi]
For instance, in 2019, the Southern District of New York held that federal law preempted the state’s attempt to ban forced arbitration in sexual harassment cases.[xii] Likewise, in California, the U.S. Chamber of Commerce challenged a similar statute, A.B. 51, which would have precluded enforcement of arbitration agreements in claims for violations of state employment law. The state is currently temporarily enjoined from enforcing the law pending the court’s permanent ruling on the issue of federal preemption.[xiii]
In addition to state and federal legislative efforts, the battle to end forced arbitration in the context of workplace sexual harassment has been waged in the courtroom, as attorneys continue to fight for plaintiffs’ rights in opposition to defense motions to compel arbitration. In 2020, the American Association for Justice joined the National Women’s Law Center and 46 other organizations in filing an amicus brief in Pambakian v. Blatt, et al., No. 20-5076 (9th Cir. July 6, 2020) after the Central District for California granted the defendants’ motion to compel enforcement of a retroactive arbitration provision to the plaintiff’s sexual assault claims against her employer.
Looking Forward
As the nation recovers from the effects of the COVID-19 pandemic on the economy and workforce, employment lawyers and their clients face significant obstacles to contesting, investigating, and litigating employer misconduct. Plaintiff attorneys and their advocates continue to fight uphill battles against bad laws aimed at narrowing the reach of key employment rights and protections to fewer classes of workers with each passing year.
In order to more effectively bridge these emerging legal gaps and protect more workers from illegal employment practices, it is important that we take affirmative steps to better understand the factors that continue to prevent individuals from coming forward with complaints of discrimination, harassment, wage theft, and other forms of misconduct. These factors are not limited to wrongful independent contractor classifications that strip workers of their rights or forced arbitration agreements that deprive them of their ability to defend their rights in court. Instead, myriad other considerations exist that could detrimentally impact your potential clients’ willingness to pursue a claim, including but not limited to the threat of retaliation, financial insecurity, and non-disclosure agreements.
Nevertheless, and against many odds, the employment lawyers have witnessed momentous successes in recent years, including landmark Supreme Court holdings advancing the rights of LGBTQ+ community members in the workplace and awarding unpaid wages and overtime to class members. Indeed, with numerous adept and accomplished AAJ attorneys on the frontlines of these battles, additional victories for plaintiffs are continuously on the horizon.
About the Author
Kaiya Lyons is a Senior Staff Attorney at the American Association for Justice. She formerly served as the Civil Rights Litigation Fellow at Bernabei & Kabat PLLC in Washington, D.C., where she litigated employment discrimination, sexual harassment, and whistleblower retaliation cases on behalf of diverse clients nationwide. You may contact her via email at kaiya.lyons@justice.org.
[i] 416 P.3d 1 (Cal. Sup. Ct. 2018).
[ii] See Am. Ass’n Just., The Truth About Forced Arbitration 28 (2019).
[iii] 138 S. Ct. 1612 (2018)
[iv] Ctr. Popular Democracy & Econ. Pol’y Inst., Unchecked Corporate Power: Forced Arbitration, the Enforcement Crisis, and How Workers Are Fighting Back (May 2019), https://files.epi.org/uploads/Unchecked-Corporate-Power-web.pdf.
[v] New Prime, Inc. v. Oliveira, 139 S. Ct. 532, 544 (2019).
[vi] See Rittmann v. Amazon.com, Inc., 971 F.3d 904, 919 (9th Cir. 2020) and Waithaka v. Amazon.com, Inc., 966 F.3d 10 (1st Cir. 2020).
[vii] Wallace v. Grubhub Holdings, Inc., 970 F.3d 798 (7th Cir. 2020).
[viii] 532 U.S. 105 (2001).
[ix] H.B. 963, 117th Cong. (2021).
[x] H.B. 1423, 116th Cong. (2019).
[xi] See Keith J. Frank, State Legislation Precluding Compelled Arbitration in Sexual Harassment Claims and the FAA, Am. Bar Ass’n (Feb. 24, 2020), https://www.americanbar.org/groups/business_law/publications/blt/2020/03/compelled-arbitration/.
[xii] Latif v. Morgan Stanley & Co. LLC, 18-CV-11528 (DLC), 2019 WL 2610985 at *2 (S.D.N.Y., June 26, 2019) (granting the employer’s motion to compel arbitration and preempting Article 75 of New York’s Civil Practice Law and Rules (CPLR 7515) “to the extent that it stands as an obstacle to the accomplishment and execution of the full purpose and objectives of the FAA.”) (internal citation omitted).
[xiii] See Chamber of Commerce of the United States of America, et al. v. Bacerra, et al., 2:19-cv-2456 (E.D. Cal. Jan. 31, 2020).
