Court denies Instacart's arbitration bid after allegations it misclassified employees

City alleges that app denied staff employee protection and harmed workers through loss of payroll tax revenue

Court denies Instacart's arbitration bid after allegations it misclassified employees

While the Federal Arbitration Act aims to ensure that agreements stand on equal footing to all contracts, arbitration will be inapplicable if the parties did not show a valid agreement, a California court recently said.

The case of The People of the State of California v. Maplebear, Inc. involved Instacart, a San Francisco-based company that operates a platform that connects consumers to Instacart’s Shoppers with the aim of arranging “same-day, on-demand grocery shopping and delivery services.”

The Shoppers, who would get groceries bought by consumers via Instacart’s app at partner stores, were required to sign an independent contractor agreement with an arbitration provision as a condition of using Instacart’s platform.

Read more: Employers can't use arbitration as shield against liability

San Diego’s city attorney filed an enforcement action under the Unfair Competition Law on behalf of the People of the State of California against Maplebear Inc., doing business as Instacart. The action alleged that Instacart:

  • unlawfully misclassified its employees as independent contractors to deny them employee protections;
  • harmed its workers, as well as the public through a loss of significant payroll tax revenue;
  • obtained an unfair advantage against its competitors.

Instacart filed a motion to compel arbitration of a portion of the city’s action based on its agreements with the Shoppers. The trial court, denying the motion, determined that Instacart failed to show a valid agreement to arbitrate between it and the People of California.

On appeal, Instacart conceded that the city was not a signatory to its arbitration agreements with the Shoppers. However, Instacart contended that the city was bound by the agreements, given that it was effectively representing or trying to validate the Shoppers’ individual employment law rights. The city was similar to a plaintiff filing a claim under the Private Attorney General Act of 2004, Instacart argued.

The California Court of Appeal for the Fourth District, Division One affirmed the trial court’s decision to deny the motion to compel arbitration. Contrary to Instacart’s argument, the city was not trying to evade an applicable arbitration agreement between Instacart and its Shoppers, the appellate court held. Rather, it was exercising its authority to enforce state law on behalf of the People of California.

Similarly to the case of E.E.O.C. v. Waffle House, Inc. (2002), the appellate court found that there was no private claim and that the city was not standing “in the employee’s shoes.” Instead, the city was acting in its capacity as a public prosecutor and was exercising its traditional police powers, the appellate court concluded.

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