For years courts have been struggling to determine the proper application of the Section 1 exemption of the Federal Arbitration Act (FAA). See 9 U.S.C. § 1. Now the U.S. Supreme Court has brought some clarity to the analysis. In Southwest Airlines Co. v. Saxon, Case No. 21-309 (June 6, 2022), the court unanimously concluded that Latrice Saxon, an airline ramp supervisor, was part of the “class of workers engaged in foreign or interstate commerce” and consequently was exempted from the FAA’s coverage. Saxon alleged that she regularly had to handle baggage, airmail and commercial cargo that had moved throughout the country, although Southwest disputed this on the ground that Saxon was merely a supervisor in charge of managing the people who actually handle baggage. See 993 F.3d 492, 494 (7th Cir. 2021).

Saxon had agreed to individually arbitrate any wage disputes that might arise. She, instead, brought a putative class action against the airline under the Fair Labor Standards Act alleging that it had failed to pay overtime wages. That action touched off a dispute that moved from the district court to the Seventh Circuit and ultimately to the Supreme Court.

The Seventh Circuit’s decision concluded that “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce, as that term was understood at the time of the [FAA’s] enactment in 1925.” 993 F.3d at 494. Yet, the Seventh Circuit’s decision put it in conflict with the Fifth Circuit in Eastus v. ISS Facility Service, Inc., 960 F.3d 207 (5th Cir. 2020). We  blogged the Eastus decision on June 1, 2020.

Justice Clarence Thomas applied a textual approach to identify the “class of workers” and in concluding whether they are “engaged in foreign or interstate commerce.” Given Saxon’s allegations that she regularly handled cargo, he accepted that Saxon is part of a class of workers “who physically load and unload cargo on and off airplanes on a frequent basis.” But he did not consider whether only supervision of cargo loading was sufficient for the exemption, or whether infrequent handling of cargo would result in an exemption. Next, Justice Thomas examined “whether the class of airplane loaders” is properly involved in commerce under FAA Section 1. The Court held that it was. “[A]ny class of workers directly involved in transporting goods across state or international borders falls within § 1’s exemption.”

Justice Thomas was clear that “§ 1 exempted only contracts with transportation workers, rather than all employees from the FAA.” (Emphasis added). The Court flatly rejected Saxon’s argument that § 1 “exempts virtually all employees of major transportation providers.” Indeed, such a broad-based approach would effectively nullify the purpose of the FAA”. The Court also recognized in a footnote what many commentators have acknowledged, namely, “that the answer will not always be so plain when the class of workers carries out duties removed from the channels of interstate commerce or the actual crossing of borders,” citing Rittman v. Amazon.com, Inc., 971 F.3d 904, 915 (9th Cir. 2020), and Wallace v. Grubhub Holdings, Inc., 970 F.3d 788, 803 (7th Cir. 2020).

So, while the Saxon decision resolved the issue presented, many others remain regarding the proper scope of the FAA exemption in today’s commercial environment. How broadly does the term “engaged” in commerce sweep? What about last-mile or last leg delivery drivers? Where is the line drawn? The Court’s footnote 2 acknowledges the delivery driver issue, but the Court felt it did not need to address the issue that has fueled significant litigation.

Bottom Line:

The Supreme Court held that a ramp supervisor who frequently loaded and unloaded cargo was covered by the FAA’s § 1 exemption and was not bound to arbitrate her claims under federal law. But many issues remain, including whether she is subject to arbitration under state law.

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