Gist v. Zoan Mgmt., Inc.

370 Or. 27

513 P.3d 578

Jeff GIST, individually and on behalf of all similarly situated, Petitioner on Review,

v.ZOAN MANAGEMENT, INC.; Senvoy, LLC; and Driver Resources, LLC, a domestic limited liability company, Respondents on Review.

CC 1311-15916(SC S067992)

Supreme Court of Oregon.

Argued and submitted May 4, 2021.

July 8, 2022

Lisa T. Hunt, Law Office of Lisa T. Hunt, Lake Oswego, Oregon, argued the cause and filed the briefs for petitioner on review. Also on the briefs was David A. Schuck, Schuck Law LLC, Vancouver, Washington.

Nicholas V. Beyer, Parsons Farnell & Grein, LLP, Portland, Oregon, argued the cause for respondents on review. Charles J. Paternoster filed the brief. Also on the brief was Nicholas V. Beyer.

Christina E. Stephenson, Meyer Stephenson, Portland, filed the brief for amicus curiae Oregon Trial Lawyers Association.

Before Walters, Chief Justice, and Balmer, Flynn, Duncan, and Garrett, Justices, and Baldwin, Senior Judge, Justice pro tempore.^**

DUNCAN, J.

After plaintiff filed this class-action complaint against defendants in the trial court, defendants filed a motion to compel arbitration. The trial court granted the motion. Plaintiff appealed, and the Court of Appeals affirmed. Gist v. ZoAn Management, Inc. , 305 Or.App. 708, 473 P.3d 565 (2020). On plaintiff's petition, we allowed review. For the reasons explained below, we affirm.

Plaintiff and defendants executed a contract—the "Driver Services Agreement" (DSA)—for plaintiff to provide delivery services for defendants.¹ The DSA states that drivers are independent contractors.

The DSA includes a section on dispute resolution. That section provides that any party "may propose mediation as appropriate" as a means for resolving a dispute arising out of or relating to the DSA. It then provides that, if the parties do not pursue mediation or mediation fails, "any dispute, claim or controversy" arising out of or relating to the DSA—including disputes about "the existence, scope, or validity" of the DSA itself—shall be resolved through binding arbitration conducted by a panel of three arbitrators.

The DSA also includes a savings clause, which allows for the severance of any invalid or unenforceable term or provision of the DSA. The savings clause provides:

"If any term or provision of [the DSA] or the application of it to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of [the DSA] and the application of such term or provision to other persons or circumstances shall not be affected and shall be enforced to the fullest extent allowed."

Thus, the DSA reflects the parties’ agreement that, if the arbitrators determine that a term or provision of the DSA is invalid or unenforceable, the arbitrators have the authority to disregard that term or provision and apply the remaining provisions of the DSA.

Approximately three years after the parties executed the DSA, plaintiff filed a complaint against defendants, asserting that he was not an independent contractor, but instead was an employee and that defendants had violated Oregon statutes governing employee wages and hours. Plaintiff brought his claims as a class action on behalf of himself and "all current and former individuals subject to" the DSA.

In response to plaintiff's complaint, defendants filed a motion to compel arbitration, pursuant to the Federal Arbitration Act (FAA). 9 USC §§ 1 et seq . Plaintiff did not dispute that the FAA applied. Instead, he argued that the arbitration agreement in the DSA was not enforceable because it is unconscionable.² As mentioned, the trial court granted defendants’ motion, defendants appealed, the Court of Appeals affirmed, and we allowed review.

Under the FAA, courts can only consider the unconscionability of the arbitration provisions specifically, not of the DSA as a whole. The United States Supreme Court has made this quite clear:

"First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts."

Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 445-46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) ; see also Rent-A-Center, West, Inc. v. Jackson , 561 U.S. 63, 70, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) ("[A] party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate.").

On review, plaintiff argues, inter alia , that the arbitration agreement within the DSA is unconscionable because it requires him to arbitrate his wage and hour claims but prohibits the arbitrators from granting him relief on those claims. Plaintiff bases his argument on a provision of the arbitration agreement that states that the arbitrators cannot "alter, amend or modify" the terms and conditions of the DSA. Plaintiff argues that, because the DSA classifies drivers as independent contractors and the arbitration agreement prevents the arbitrators from altering, amending or modifying the terms of the DSA, the arbitration agreement prohibits the arbitrators from concluding that he is an employee and enforcing his rights as an employee under Oregon's wage and hour statutes, including his right to attorney fees. Therefore, plaintiff further argues, the arbitration agreement is unconscionable because it is contrary to public policy, as codified in ORS 652.360(1), which generally prohibits employers from using a "special contract or any other means" to exempt themselves from any statute relating to the payment of wages.

Defendants disagree with plaintiff's reading of the provision that the arbitrators cannot "alter, amend or modify" the DSA. Noting that the arbitration agreement provides that the arbitrators have authority to decide "any dispute, claim or controversy" that arises out of or relates to the DSA, defendants concede that the arbitrators’ authority "certainly includes questions as to whether drivers are independent contractors or are entitled to the benefits of classification as employees under Oregon's wage and hour statutes." Defendants state, "The DSA does not deny the arbitrator[s] the authority to classify the drivers as employees and apply the corresponding law."³ Defendants also state that, "[a]lthough a party to an arbitration agreement may limit the subject matter of the dispute the parties submit to the arbitrator, the parties cannot, and did not, control the legal analysis that the arbitrator[s] may apply to that dispute." Therefore, defendants conclude, "An arbitration agreement that limits the arbitrator's authority to ‘alter, amend, or modify’ the terms of the DSA does not limit any statutorily mandated...