TCA Legal Comment – Courts Continue to Grapple with Arbitration Agreements Involving Transportation Workers Under the Federal Arbitration Act
Courts Continue to Grapple with Arbitration Agreements Involving Transportation Workers Under the Federal Arbitration Act
May 13, 2024
Where it applies, the Federal Arbitration Act (FAA) provides a degree of certainty that arbitration agreements will be enforced as written, including any class waivers requiring the resolution of disputes on an individual basis. Arbitration under the FAA has, therefore, been helpful in stemming the tide of class and collective actions.
However, the FAA has an exemption for contracts of employment of transportation workers engaged in interstate commerce – colloquially referred to as the “transportation worker” exemption. Since 2019, when the Supreme Court held that a “contract of employment” includes an owner-operator’s agreement to perform services themselves, the Supreme Court and lower courts have grappled with other elements of the exemption. While arbitration under state law remains an option even where the arbitration agreement is exempt from the FAA, the enforceability of class waivers can vary by state and is not uniformly favorable as it is under the FAA.
On April 12, 2024, in Bissonnette v. LePage Bakeries Park St., LLC, the Supreme Court held that the company that engages the worker doesn’t have to be in the transportation industry in order for the worker to be considered a transportation worker for purposes of the FAA exemption.
The case was on appeal from the U.S. Court of Appeals for the Second Circuit, where the court held that the company had to be in the transportation industry—as determined by whether the employer principally derives its commercial revenue from charges for the movement of goods or passengers—for the transportation worker exemption to apply. Applying this test, the court held that a bakery that makes and distributes baked goods was not in the transportation industry, and thus, the FAA applied to an arbitration agreement entered into by franchisees of the company who distributed its baked goods by truck. In reversing this holding, the U.S. Supreme Court reiterated guidance from a 2022 decision that the text of the FAA focuses on what the worker does, not what the company does. Had the Second Circuit’s approach been affirmed instead, truck drivers for private fleets, like Pepsi and Anheuser-Busch, would very likely not have been considered transportation workers. The Supreme Court refrained from going any further than rejecting the putative employer’s industry-focused test, and so did not decide whether the workers were otherwise transportation workers or engaged in interstate commerce. Those issues remain open and subject to further litigation in the lower courts, where there is disagreement as to whether a worker has to transport goods across state lines to be “engaged in interstate commerce” for purposes of the exemption.
Earlier that same week, in Fli-Lo Falcon, LLC v. Amazon.com, Inc., the U.S. Court of Appeals for the Ninth Circuit breathed life into FAA applicability when it held that business entities through which delivery service partners contracted with Amazon are not transportation workers because the business entities are not natural persons. The court further held that a contract with a business entity is not a “contract of employment” for purposes of the exemption, which would also result in the FAA applying to the agreement. Notably, the claims in this case, as well as those in similar holdings in the United States Courts of Appeals for the Fourth and Sixth Circuits, were brought by the business entities, not the individuals who owned those businesses. However, on May 2, a federal District Court in Connecticut in Silva v. Schmidt Baking Distribution, LLC, held that the exemption does not apply to contracts between two business entities when the claims were brought by individuals who were owners and/or officers of the business entity.
This continues to be a developing area of law with significant implications for companies considering arbitration, including as a way to resolve disputes on an individual instead of class or collective basis. For more information, contact Prasad Sharma or Braden Core.