by Andrew Flake
I’ll confess to being a gadget person, interested in any new bit of technology or device, whether for home, office, or travel, and my family’s stocking stuffer items for me usually reflect that. Last year, it was a pineapple slicing tool, this year, a rechargeable drill, both of which I use and I like.
But sometimes, we may find we have more than we need. And that can be true in consumer and commercial contracting as well. For both lawyers and laypersons, there’s often a tendency, in the perceived interest of completeness, to include provisions that may not fit.
As an example, a gift that I purchased for my wife, a set of lessons for both of us in a fitness practice she’s been wanting to learn: When I received a link confirming my registration, I was surprised to see a twenty-paragraph, 10-point font, five page contract for services: it included provisions pertaining to IP that would be shared with me that I did not realize I was purchasing, along with various provision restricting audio or video that I did not realize I would be capturing. It was obviously a form contract sourced from a business-to-business context, not especially well-adapted for two individuals.
In Silva v. Schmidt Baking Distrib., LLC, a December 22 opinion, the Third Circuit looked at two agreements that were ostensibly distributor agreements between Schmidt, a baked good company, and two companies handling deliveries, the contacts executed by the presidents of each “distributor.” As it turned out, the two distribution companies had been formed by two individual delivery drivers for Schmidt, at Schmidt’s request, and the drivers were doing the same work for the bakery both before and after entry into the contract. Prior to the contracts, they had been W-2 employees of a staffing agency.
The two drivers then filed a putative class action in state court in Connecticut, alleging that, despite Schmidt’s characterization of them as independent contractors, Schmidt had violated state wage and overtime laws. Schmidt removed the case to United States District Court, and moved to compel arbitration. The district judge granted the motion on grounds that the distribution agreements were not “contracts of employment,” and thus, exempted from Federal Arbitration Act (FAA). Under Section 1 of the FAA, the statute does not apply to certain classes of commerce-related workers: “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
After granting a request for interlocutory appeal, the Third Circuit reversed, reasoning that Congress had intended the “contract of employment” language in a broad sense, “to capture any contract for the performance of work by workers,” regardless of the existence of an employer-employee relationship. That latter principle found expression in the Supreme Court’s 2019 opinion in New Prime, Inc. v. Oliveira, another Section 1 case. Noting that Section 1 itself does not cover all employment relationships, the Third Circuit looked beyond the distribution language to the substance of the work, finding both plaintiffs Silva and Rothkugel “perform truck-driving work that directly impacts ‘the free flow of goods,’…and they are clearly transportation workers who fall within the ambit of § 1 of the FAA.”
The result would be different had the plaintiffs been, not individuals, but “sizeable” transportation or logistics companies employing “significant” workforces. It aligned in this distinction with other Circuits including the Ninth, Fourth, and Sixth. We’ll presumably see the terms “sizeable” and “significant” developed in future disputes and corporate structures.
At the end of the dispute, the work Schmidt expended in the restructuring of its workforce contracts was unavailing. Unwrapped and unboxed just in time for the holiday, the distribution agreement did not change the fundamental nature of the work being performed or the workers performing it. ABF