Delivery Trucks Photo Credit: aydinmutlu/iStockphoto.com

A federal judge in Newark has rejected attempts by a discount furniture retailer and its delivery contractor to enforce arbitration agreements whose language was deemed ambiguous.

U.S. District Judge John Michael Vazquez of the District of New Jersey denied the defendants’ motions to compel arbitration in a wage-and-hour suit on behalf of a class of delivery truck drivers and drivers’ helpers working out of the Edison warehouse of Bob’s Discount Furniture. The suit claims delivery workers are wrongly classified as independent contractors to deny them overtime pay for putting in greater than 40 hours per week.

On Monday the U.S. Supreme Court, in Epic Systems v. Lewis, ruled 5-4 that workplace employment agreements that ban class actions do not violate labor law. That decision would not have any impact on the Bob’s case, said plaintiff lawyer Ravi Sattiraju.

Bob’s was also in the headlines last month when the Supreme Court held in Wenger v. Bob’s Discount Furniture that actual harm is needed to make out claims under the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act.

In this week’s case, named plaintiff Omar Espinal sued Bob’s, of Manchester, Connecticut, and XPO Logistics Inc. of Greenwich, Connecticut, which manages delivery for Bob’s and other companies. Espinal claimed that Bob’s had an employer-employee relationship with him but the company sought to conceal that fact by entering into an agreement with XPO.

The complaint makes no reference to an arbitration agreement, but XPO cited an agreement between two other entities, SS Express Trucking and 3PD. The delivery services agreement [DSA] between SS and 3PD included an arbitration clause.

Bob’s cited a different arbitration agreement—included in the master delivery operation service agreement [MDOSA] it signed with XPO. But the plaintiff is not a signatory to either of those agreements, the court said in May 18′s ruling.

The parties are in dispute over several things—the plaintiff’s employment relationship with SS Express; XPO’s relationship with 3PD, the party that entered into the contract with SS Express; and the effects of Bob’s agreement with XPO vis-a-vis the plaintiff, Vazquez wrote.

Neither XPO nor Bob’s has a contract directly with the plaintiff which requires arbitration,” Vazquez wrote. “Bob’s relationship with plaintiff is even more tenuous, as its arbitration agreement is with XPO rather than plaintiff’s purported employer, SS Express.

“As a non-signatory to either the delivery service agreement [between SS Express and 3PD] or the MDOSA, the plaintiff can only be bound by an arbitration agreement under limited circumstances,”—incorporation by reference, assumption, agency, third-party beneficiary, veil-piercing/alter ego, and waiver and estoppel.

Vazquez said discovery is needed to determine if the plaintiff is bound as a non-signatory, Vazquez said, but he refused to permit discovery.

The DSA arbitration clause stated that “the arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this agreement.” However, plaintiff does not bring any claims pursuant to the agreement. Instead, he relies on two statutes, the [New Jersey Wage and Hour Law] and the [New Jersey Wage Payment Law] as well as one quasi-contract theory, unjust enrichment.

“As a result, the relevant DSA language is not ‘clear and unmistakable’ evidence of an agreement to delegate the determination of arbitrability of plaintiffs statutory claims,” Vazquez said.

“This limitation, as to claims arising solely as to the DSA, on the arbitrator’s ability to determine arbitrability, creates an inherent ambiguity. Therefore, because the arbitrability delegation clause in the DSA is ambiguous, the presumption that the court decides arbitrability applies,” he said.

The judge stated that the DSA’s arbitration clause mentions “allegations of misclassification or wage and hour violations”—which are the majority of plaintiffs claims—but the clause also limits what claims are subject to arbitration by stating that arbitration is applicable to those allegations “arising out of or relating to this agreement, or the breach thereof.”

“The court finds that this language renders the scope of the arbitration clause ambiguous. As the New Jersey Supreme Court has ruled, a waiver of statutory rights must be clear and mistakable,” Vazquez said.

Sattiraju, head of a Princeton firm representing Espinal and the class, said XPO was trying to take advantage of an arbitration agreement used by 3PD, its predecessor at the Edison warehouse, but the judge held that such a waiver of statutory rights was not sufficiently clear to hold up.

Sattiraju said misclassification is the basis of frequent abuses of employees in the logistics field, and such cases are a big part of his practice.

Brian Kaplan of DLA Piper in New York, who represents XPO Logistics, did not return a call.  Sean Sheely of Holland & Knight in New York, who represents Bob’s, declined to comment.