Workers in jobs that involve interstate transport can be exempt from arbitration under the Federal Arbitration Act (FAA) even if their employer is not in the transportation industry, the Supreme Court decided on April 12.
The FAA, passed in 1925, supports the enforceability of and encourages the use of arbitration agreements, allowing employers to require employees to agree to arbitrate a variety of claims arising out of the employment relationship.
However, the FAA contains an exemption that applies to “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Employers cannot require these employees to arbitrate employment claims. Courts have been wrestling with the question of when an employee is “engaged in interstate commerce.” In 2022, the Supreme Court determined that a Southwest Airlines employee who supervised the loading and unloading of luggage was part of a class of workers “engaged in foreign or interstate commerce” because she was “intimately involved” with moving goods across state lines. Therefore, Southwest could not require her to arbitrate employment claims. The Court emphasized that the focus should be on the work performed by the employee rather than the industry of their employer.
On April 12, the Court relied on this reasoning in Bissonnette v. LePage Bakeries Park St. LLC. This case was brought by two franchisees who owned the rights to distribute products from Flowers Foods, makers of Wonder Bread and other baked goods. Part of the Distributor Agreement with Flowers Foods was an Arbitration Agreement that required “any claim, dispute, and/or controversy” to be arbitrated under the Federal Arbitration Act.
In 2019, the distributors filed a class action lawsuit against Flowers, claiming they had been underpaid in violation of state and federal law. Flowers argued the claims had to be individually brought to arbitration as required by the Distribution Agreement and asked for the class action to be dismissed.
The District Court dismissed the case in favor of arbitration. The District Court examined the responsibilities set out in the Distributor Agreements and determined the distributors were “principally truck drivers." This, along with the fact the distributors' territory was solely local, prevented them from being exempt from the FAA. The United States Court of Appeals for the Second Circuit ignored this analysis and instead affirmed the decision on the alternative ground that an employee can be exempt under the FAA if their industry’s main source of revenue is from the “movement of goods and passengers.” Relying on this test, the Second Circuit decided that Flowers’ revenue was primarily from baked goods and upheld the arbitrability of the distributors' claims.
However, the Supreme Court reversed that decision, stating that a transportation worker did not need to work in the transportation industry to be exempt from the FAA. Chief Justice John Roberts wrote for the Court that the language of the FAA requires the focus to be on the employee, not an entire industry. Roberts further rejected the argument from Flowers Foods that an industry-based test would be the most appropriate, stating that such a test would turn on “arcane riddles” such as whether a pizza delivery service receives its revenue mainly from pizza or delivery. These revenue questions could force lengthy court proceedings to determine sources of revenue, contradicting the FAA’s goal of streamlining disputes.
The Court’s decision provides further clarity on the kinds of workers who may be exempt from the FAA but still leaves big question marks, especially for those involved in the gig economy. Previously, companies had invoked arbitration agreements to avoid going to court to determine the employment classifications of drivers. The recent ruling may prevent that action in the future.
The case will now be sent back down to the Second Circuit to make a ruling based on the April 12 opinion.
