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In a significant win for employers operating businesses utilizing delivery drivers, on November 29, 2022, the First Circuit Court of Appeals held in Immediato v. Postmates, Inc. that couriers completing local, intrastate deliveries were not exempt from the Federal Arbitration Act (“FAA”), and could be compelled to submit to arbitration, because they were not engaged in foreign or interstate commerce.

By way of background, Postmates, Inc. operates an online and mobile platform that allows customers to order delivery meals from restaurants, as well as items from local grocery stores. Once an order is placed, Postmates arranges for a courier to deliver the order. If an individual is interested in working as a courier, they are required to register with Postmates through an online application and must agree to Postmates’ “Fleet Agreement.” The Fleet Agreement generally sets forth the rights and obligations of the parties, classifies couriers as independent contractors, and contains a mutual arbitration provision requiring that all disputes between the parties be resolved through final and binding arbitration.

In Immediato, several couriers working for Postmates in the greater Boston area filed suit in Massachusetts state court, claiming that they were misclassified as independent contractors and were therefore entitled to additional benefits and protections under Massachusetts law including minimum wage, sick leave and reimbursement of business expenses. Postmates subsequently removed the case to federal district court and moved to compel arbitration in accordance with the couriers’ Fleet Agreements. The couriers objected, contending that they were exempt from the FAA as transportation workers. The district court ruled that the couriers were not exempt from the FAA, and granted Postmates’ motion to compel arbitration.

On appeal, the First Circuit affirmed the federal district court’s ruling. Although written arbitration agreements are generally valid, irrevocable and enforceable under the FAA, if the contract evidences a transaction involving commerce (9 U.S.C. § 2), employment contracts for certain classes of workers are exempt from the statute including “workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The Supreme Court has interpreted this exemption to apply only to “transportation workers,” meaning workers who play a “necessary role” in the interstate transport of goods. Sw. Airlines Co. v. Saxon, 142 S. Ct. 1783, 1789-90 (2022).

Although the couriers in Immediato argued that they were exempt from the FAA as transportation workers (and therefore should not have been compelled to arbitrate their claims against Postmates), the First Circuit did not find this argument compelling. Looking to recent US Supreme Court precedent, the Court explained that the transportation worker exemption only extends to workers who are actively engaged in moving goods across borders through channels of foreign or interstate commerce, and that the workers must play a necessary role in the free flow of goods across state or international borders to qualify for the exemption. In this instance, the couriers were not engaged in foreign and interstate commerce: at the time, nearly all orders placed with Postmates (99.66%) were fulfilled within the state, and the average distance travelled by a courier during a delivery was approximately 3.7 miles.

The Court further stated that even though the items delivered by the couriers may have once travelled across state borders, their interstate journey terminated when the goods arrived at the local retailers or restaurants to which they are shipped. When couriers subsequently deliver meals or goods to customers, they do so as part of a new intrastate transaction. In reaching this finding, the Court distinguished Postmates couriers from workers who participate in the “final leg” of a package’s interstate journey, for instance, when an online retailer ships a package across state lines and delivery is ultimately completed by a local driver. In such cases, even if the delivery driver operated entirely within a single state, they were found to have engaged in interstate commerce because they contributed to the larger interstate movement of those goods.

This decision provides employers with additional guidance regarding the extent of the FAA’s transportation worker exemption, and should hearten employers that purely tangential relationships to interstate and foreign commerce alone will not allow workers to avoid arbitration of employee disputes.