In the latest Weekly Wright Report:

• Door Dash – When Individual Arbitration Goes Wrong – read now
• Up in the AirBnB: Is Your Area Dealing With Short-Term Rentals? – read now

Door Dash – When Individual Arbitration Goes Wrong

In our May 2018 edition of the Weekly Wright Report, we highlighted the Supreme Court’s decision in Epic Systems Corp. v. Lewis, No. 16-285.  In Epic Systems, a 5-4 majority held that arbitration provisions containing class and collective action waivers in employment agreements are enforceable, continuing a recent trend of decisions favoring enforceability of arbitration agreements.  Many employers favor mandatory individual arbitration because it prevents class action lawsuits, keeps individual claims smaller, and are seen as a deterrent to employee claims entirely.  Following the Epic Systems decision, a recent trend has emerged that should effect an employer’s decision when electing whether or not to require individual arbitration of claims against the company.

Most arbitration agencies require that employers pay the bulk of the administrative fees and costs, even when the employee initiates the proceedings.  For example, the American Arbitration Association (AAA), the most common arbitration agency, charges an employee an initial filing fee of $300 to commence an arbitration proceeding but then charges their employer $1900 in initial administrative fees.  After the initial fees are paid, typically the employer is required to pay all of the costs of the assigned arbitrator, frequently hundreds of dollars per hour.

This issue came to a head recently in a case involving Door Dash, a food delivery company.  Door Dash had all of its independent contractors sign agreements requiring that they submit to individual arbitration, rather than face a class action which could completely ruin the company financially.  Since they could not file a class action to challenge the company’s pay practices, roughly 5,000 individual drivers in California banded together to file separate arbitrations related to their compensation.  As a result, Door Dash was invoiced for more than $12 million in administrative fees.  When Door Dash refused to pay, the employees sued in federal court, which then ordered Door Dash to submit to the arbitration and pay the $12 million fee.

As Door Dash’s situation makes clear, employers should be careful when requiring arbitration for employees’ claims against the company.  Employees are able to effectively coordinate using social media and many arbitration agencies require that employers pay the costs upfront, eliminating any financial advantage the employer may have gained from mandating individual arbitration.  In cases where many employees have small claims, such as wage and hour cases, the cost of arbitration can easily exceed any legal liability. For questions about the Epic Systems decision, whether your employment practices should include mandatory arbitration, and the correct way to impose arbitration, please contact our Employment & Labor Law practice group.

Up in the AirBnB: Is Your Area Dealing With Short-Term Rentals?

Two jurisdictions in and around Richmond are adopting rules to regulate AirBnB-style rentals. The Henrico County Board of Supervisors introduced a new policy that would require those people seeking to rent their properties on websites like AirBnB to register their properties with the County. Those seeking to rent would be required to pay a $200 registration fee each year. In addition to the registration fee, a “transient occupancy tax” would be imposed for all stays of 30 or fewer consecutive days. The tax rate would be 8% of the rental charge for the stay. This is the same tax rate levied on hotel and motel stays. There has been feedback in the past from some county residents who have complained about short-terms rentals in their neighborhoods bringing in noisy and rowdy guests.

The City of Richmond is also putting forth its own proposal. Like Henrico, Richmond will require a biennial permit costing $300. The proposed rules state that an operator can only rent the property on a short-term basis if it is his or her “primary residence,” where he or she resides for at least half of the year. The goal of this provision is to prevent private properties from being used by out-of-area owner-operators as hotels. The City of Richmond’s current proposal does not impose any occupancy taxes, but those will be looked at again as options in later years.

Recently, the City of Annapolis, Maryland passed legislation requiring anyone who wished to list their property for a short-term rental to get a license. The City of Baltimore put regulations in place in 2019 requiring a biennial license and imposing an 9.5% occupancy tax. It was recently reported that those owners renting through AirBnB in Baltimore brought in almost $20 million in revenue in 2019.

The short-term rental market has become a fixture for both homeowners and vacation-goers across the country. For that reason, we have seen many measures like the one above to regulate the market, and the reasons for such regulation vary. Like the folks in Henrico County, some neighbors are concerned about what effects short-term rentals will have on certain houses in the neighborhood. Other regulations simply seek to hold owners to the same standards as hotel or motel owners with respect to their tax burden.

All in all, if you are looking to rent out a room, investment property, or your primary home, make sure you are educated on all of the local rules and regulations before doing so!

Want more? Visit the Weekly Wright Report page to browse past issues.