The city of San Diego is not attempting to circumvent or evade an applicable arbitration agreement between Instacart and its shoppers in its case against Instacart alleging employee misclassification, a California appeals court judge ruled last week. Rather, it is exercising its authority to enforce state law.

San Diego filed suit against Instacart, claiming its shoppers are misclassified as independent contractors. This was done in the in the wake of the California Supreme Court 2018 Dynamex ruling that made classifying workers as independent contractors more difficult and was later codified into California law.

In order to become shoppers through the Instacart platform, workers must sign its independent contractor agreement, which since 2017 has included an arbitration provision for any disputes between them and Instacart.

In response to San Diego’s lawsuit, Instacart filed a motion to compel a portion of the case to arbitration based on its agreements with shoppers. Before the motion was considered by the trial court, however, the city sought a temporary restraining order preventing Instacart from classifying its shoppers in the City of San Diego as independent contractors, which was granted in February 2020, saying the prosecution had shown a probability of success on the merits of its claim that Instacart had improperly classified its shoppers.

That ruling was stayed in anticipation of Instacart’s motion to compel arbitration; the ruling was later reversed.

At trial, Instacart asserted that the city was bound by the shopper’s agreements with Instacart because the shoppers were the “real parties in interest” in the case, not the people of California. However, the court focused on the relief sought by the city, including civil penalties, concluding that the lawsuit was brought primarily for the benefit of the public and rejected Instacart’s claim.

In its lawsuit, the city asserted Instacart maintains an unfair competitive advantage by misclassifying its shoppers and evades “long-established worker protections under California Law.” The city alleges that Instacart “avoids paying its shoppers a lawful wage and unlawfully defers substantial expenses to its shoppers, including the cost of equipment, car registration, insurance, gas, maintenance, parking fees, and cell phone data usage.” Finally, the city asserted that “Instacart also has an unfair advantage over its law-abiding competitors because, due to the misclassification, it contributes less to California’s unemployment insurance, disability insurance and other state and federal taxes.”

On appeal, Instacart repeated its arguments made in the trial court, claiming arbitration should be compelled because the city’s lawsuit is brought primarily to effectuate the rights of the shoppers. But the appeals court said San Diego’s case does not represent a private claim and the city “does not stand in the [employees’] shoes” for the purposes of this case.