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EMPLOYMENT LAW: Court’s “Swift” Action Threatens Greater Employment Litigation

The largest interstate truckload carrier in the U.S., Swift Transportation Co., was dealt a major blow in early January 2017, when an Arizona federal district court bypassed the trucking giant's arbitration agreements with five of its drivers, ruling that the drivers were in fact employees, rather than independent contractors. In concluding that the plaintiffs are exempt from arbitration under section 1 of the Federal Arbitration Act ("FAA"), the Arizona District Court effectively vitiated Swift's independent contractor and arbitration agreements with its drivers. Section 1 of the FAA specifically excludes the arbitration of "contracts of employment" of transportation workers.

The ruling came after years of litigation and follows two companion decisions from 2016 wherein a Ninth Circuit Court of Appeals Panel declined to issue a writ of mandamus ordering the district court to compel arbitration and found that that it lacked jurisdiction to review the district court's interlocutory order compelling discovery and trial on the issue of whether the drivers were properly classified as independent contractors. The district court had previously held that the district court, rather than an arbitrator, must decide whether the dispute was exempt from arbitration under Section 1 of the FAA.

The FAA is an act of Congress that applies in both state and federal courts and provides for judicial facilitation and resolution of private disputes through arbitration. Arbitration is a preferred method of dispute resolution in many industries because of knowledgeable arbitrators, the speedy and cost-effective process, the flexibility of confidentiality, and the benefit of a global decision across several jurisdictions. Arbitration is also an effective means of controlling the risks and costs of litigation. This is particularly true in large industries, such as trucking. For example, without the benefit of enforceable class-action waivers in arbitration agreements, companies like Swift could face the threat of a class-action prompted by a single disgruntled driver. Moreover, the costs and exposure associated with class actions can lead companies like Swift to settle otherwise defensible claims, rather than place their companies at risk.

For Swift, the threat of more law suits premised on driver classification following the district court's ruling is a real concern. According to a filing with the Securities and Exchange Commission, in the quarter ending in September 2016, Swift averaged 17,480 active drivers, of which 4,391 were classified by Swift as independent contractors. Following the district court's decision, the latter potentially have suits against the company on the same issue.

In California alone, truck drivers have filed 799 wage claims on the grounds of employee misclassification since 2011 and more than $35 million has been awarded to drivers in 302 cases, according to the California Labor Commissioner's Office. In December 2016, one Southern California port trucking firm was ordered to pay 38 drivers nearly $7 million in back pay after the state Labor Commissioner's Office ruled they were improperly treated as independent contractors instead of employees.

The key difference between Federal law and California law on this issue is that California Labor Code Section 229 allows for the pursuit of a claim for unpaid wages despite the existence of an arbitration agreement. Federal law does not have such a provision. In fact, the FAA expresses a clear federal policy in favor of arbitration and any doubts concerning the scope of arbitration issues are most often resolved in favor of arbitration.

However, the FAA only mandates arbitration in contracts that contain arbitration provisions involving interstate commerce (as opposed to exclusively intrastate commerce), and Section 1 of the FAA exempts from coverage contracts of employment involving transportation workers, such as truck drivers. In general, the Section 1 exemption is narrowly construed and the party opposing arbitration bears the burden of proving that it applies.

The Arizona district court apparently found that the drivers for Swift overcame their burden and reclassified five independent contractors as employees, thereby eliminating the mandatory arbitration provision in their contracts. Swift has appealed the decision with the Ninth Circuit, but the final outcome is uncertain.

Given the high stakes involved in the potential re-classification of drivers, transportation companies and other businesses operating in the field of intermodal transportation and logistics in California need a trusted partner in navigating the changing landscape. Poole & Shaffery, LLP has garnered a reputation throughout California for providing professional, effective legal representation in litigation, business counseling, transactional services, arbitration and mediation, and a range of other legal services. The firm has a strong track record for providing exceptional representation in both transportation and employment law by combining the personal, hands-on attention and focus of a smaller firm with the extensive professional resources that are customarily found in a much larger firm.