Arbitration Clauses Will Not Be Enforced Against Employees Who Engage in Interstate Commerce – and What Comprises Interstate Commerce Is Not Always Obvious

As part of your company’s onboarding process, all employees sign an agreement making it crystal clear that if there ever is any dispute between them and the company, that dispute must be decided by an arbitrator in arbitration and not by a judge or jury in a court of law. Your agreement then adds a belt to those suspenders by itemizing a wide variety of specific claims that would be covered by the agreement and, thereby, subject to arbitration. Your agreement even specifically includes a statement to the effect that employees have a right to consult with an attorney of their own choice before signing the document. Surely, then, when an employee brings a suit in a court of law, you will be able to dismiss the claim and compel arbitration, right? Well, as GrubHub learned earlier this year, that may not be the case.

From September of 2016 through July of 2019, Veronica Archer worked for GrubHub as a driver delivering food and other products to consumers. At or about the time her employment with GrubHub began, Ms. Archer electronically signed an agreement that included provisions akin to those described above. In October of 2019, Ms. Archer joined with three other current or former employees of GrubHub (all of whom also had signed GrubHub’s agreement and agreed to arbitrate disputes with the company) and filed a class action lawsuit in Suffolk Superior Court. Not surprisingly, GrubHub moved to dismiss the suit and compel arbitration based on the foregoing agreement.

While the GrubHub agreement initially was governed by the Massachusetts Arbitration Act, Massachusetts law defers to federal law where interstate commerce is involved. Further, as the Superior Court noted in deciding GrubHub’s Motion to Compel and Dismiss:

The Federal Arbitration Act does not authorize a court to enforce an arbitration provision in an employment contract with an employee who is “engaged in foreign or interstate commerce.”

Presumably, GrubHub was unconcerned with this proposition, as Ms. Archer and the other plaintiffs only made deliveries within Massachusetts. As the Superior Court pointed out, however, the fact that the plaintiffs only made deliveries in Massachusetts did not mean that they did not engage in interstate commerce. In this case, while the drivers delivered food that was prepared by local restaurants, they also delivered pre-packaged food and other products (such as toilet paper, cleaning products, personal care products and flowers) that came from outside Massachusetts. Relying on a U.S. Supreme Court decision from 1943, Walling v. Jacksonville Paper Co., the Superior Court found that the deliveries of pre-packaged food and other products meant that the plaintiffs were engaged in interstate commerce and, thus, could not be bound by their express agreement to arbitrate claims.

What can in-house counsel learn from this decision? First, be wary of the fact that even a well-drafted arbitration agreement cannot override the FAA (and also will not be enforceable if it otherwise might be contrary to public policy). Second, if you are using such agreements with your employees, consider what they are doing and how you might limit their conduct so as to avoid the pitfall in which GrubHub found itself. Likewise, if there is some interstate commerce that must be undertaken, perhaps that can be limited to one or a few employees so that you still can enforce your arbitration provision against others. Lastly, let company management know well in advance of any dispute that there is no guarantee that you will be able to ensure that all disputes will have to be arbitrated. Indeed, the last thing any in-house attorney wants to do is surprise the business people by telling them that you are not going to be able to compel arbitration after someone has filed suit.

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