ARTICLE
22 April 2024

U.S. Supreme Court Clarifies When The Federal Arbitration Act's "Transportation Exemption" Applies

LM
Littler Mendelson

Contributor

With more than 1,800 labor and employment attorneys in offices around the world, Littler provides workplace solutions that are local, everywhere. Our diverse team and proprietary technology foster a culture that celebrates original thinking, delivering groundbreaking innovation that prepares employers for what’s happening today, and what’s likely to happen tomorrow
On April 12, 2024, the U.S. Supreme Court addressed whether the Federal Arbitration Act's (FAA) transportation exemption—meaning the FAA would not apply ...
United States Litigation, Mediation & Arbitration
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On April 12, 2024, the U.S. Supreme Court addressed whether the Federal Arbitration Act's (FAA) transportation exemption—meaning the FAA would not apply—only relates to workers within the transportation industry. In Bissonnette v. LePage Bakeries Park St., LLC,1 the Supreme Court unanimously held Section 1 of the FAA exempts classes of workers who are actively engaged in interstate transportation, even if the individuals are not employed by a company in the transportation industry (the "Transportation Exemption"). Do not be sour, 'dough, the decision clarifies the "industry" question, but leaves unresolved how courts should determine if an employee is a "transportation worker" under the Transportation Exemption. Last, but not yeast, there will be no further "bakery" related jokes; it's a shame that bread puns are always so crumby.

Background and Opinion

Contrary to the broad reach of the FAA, which requires only some nexus to interstate commerce, the Transportation Exemption is understood to prohibit the FAA's application to "seamen, railroad employees," and other "similar class" of "transportation workers" actually engaged in interstate commerce. The companies in Bissonnette produced, marketed, and delivered packaged bakery foods. The lower courts found the plaintiffs were in the "bakery industry" and therefore the Transportation Exemption was inapplicable. The Supreme Court reached an opposite result. Chief Justice Roberts's opinion in Bissonnette resolves a conflict between decisions from the Second Circuit and First Circuit2 over whether the Transportation Exemption only applies to transportation workersin the transportation industry.

The plaintiffs, Neal Bissonnette and Tyler Wojnarowski, were delivery truck drivers for Flowers Foods, Inc. which manufactured baked goods – including WonderBread – for grocery stores across the country. The plaintiffs were franchisees, who owned the rights to distribute products in Connecticut to local shops, after Flowers Foods baked the bread and buns and sent them to a warehouse for pickup. The plaintiffs' job duties went beyond the delivery of the baked goods and included finding new locations for the sale of the goods, advertising, and stocking the goods in the stores. In 2019, the plaintiffs brought a class action lawsuit against Flower Foods alleging misclassification and other labor violations. Flower Foods moved to compel the plaintiffs' claims to arbitration under the FAA, which the district court granted and the Second Circuit affirmed. Both courts rejected the plaintiffs' Transportation Exemption argument.

The Supreme Court's opinion did not address whether the plaintiffs qualified as "transportation workers" based on the work they performed as drivers or whether they were "engaged in ... interstate commerce" when neither drove across state lines and were only delivering the baked goods within Connecticut. Rather, the Court addressed the narrow issue of whether Section 1 of the FAA requires the "transportation worker" to be employed by a company in the "transportation industry" to be exempt.

The opinion examined the history of the Transportation Exemption, noting that at the time of the FAA's enactment in 1925, there were specific statutory dispute resolution regimes already covering "seamen" and "railroad" employees, and thus an exemption was required to avoid "unsettling those schemes." The Supreme Court's prior decisions in Circuit City Stores, Inc. v. Adams3 and New Prime Inc. v. Oliveira4 recognized that Section 1 was limited to "transportation workers" and that the residual clause reserves for Congress the decision whether to enact additional "specific legislation for those engaged in transportation," while "ensuring that workers in general would be covered by" the FAA.

Referencing the most recent opinion from the Supreme Court on the Transportation Exemption, Sw. Airlines Co. v. Saxon,5 where the court held a transportation worker is one who is "actively" "'engaged in transportation of . . . goods across borders via the channels of foreign or interstate commerce," Chief Justice Roberts emphasized it is the performance of the work rather than the industry of the employer that is relevant to any Transportation Exemption inquiry. The holding also rejected the Second Circuit's use of a "transportation-industry requirement," noting such a test would "often turn on arcane riddles about the nature of a company's services" such as "Does a pizza delivery company derive its revenue mainly from pizza or delivery? Do companies ... which both sell products of their own and transport products sold by third parties—derive their revenue mainly from retail or shipping." In reaching its conclusion, the Supreme Court raised concerns related to lengthy and expensive "mini-trials" on the industry question becoming a regular occurrence. As a result, the opinion concluded the focus would be on whether the workers' duties "play a direct and 'necessary role in the free flow of goods' across borders," as this requirement "undermine[s] any attempt to give the provision a sweeping, open-ended construction, in¬stead limiting [Section 1] to its appropriately 'narrow' scope."

Of course, the decision begs the question of whether the Supreme Court has exchanged one "mini-trial" for another, as now disputes will surely focus on whether the workers' duties truly require the active engagement in the transportation of goods across state borders.

Key Takeaways

  • The Supreme Court's decision vacated and remanded the Second Circuit's decision, but Chief Justice Roberts said the Court did not express an opinion on "any alternative grounds in favor of arbitration" raised in the lower courts.
  • Bissonnette abrogates the circuit split on whether there is an "industry" specific requirement for the Transportation Exemption.
  • Next up will be continued challenges on the appropriate test and standard for what class of employees qualify as a "transportation worker" under the Transportation Exemption.
  • Expect a proliferation of new and potentially frivolous challenges by plaintiffs' counsel about the application of the Transportation Exemption, which we also saw following the two most recent Supreme Court cases addressing this issue, New Prime Inc. and Saxon.
  • As the decision does not end the arbitration enforceability analysis, employers should examine their arbitration agreements and ensure they contain language identifying an applicable state arbitration law if the FAA is determined not to apply to a particular employee.

Footnote

1 601 U.S. ___ (2024).
2 The Supreme Court opinion only expressly addresses the conflict between the Second and First Circuits. But as noted in LePage Bakeries Brief in Opposition, the Eleventh Circuit, like the Second Circuit, also applied the transportation industry exemption.
3 532 U.S. 105 (2001).
4 586 U.S. 105, 110–111 (2019).
5 596 U.S. 450 (2022).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
22 April 2024

U.S. Supreme Court Clarifies When The Federal Arbitration Act's "Transportation Exemption" Applies

United States Litigation, Mediation & Arbitration

Contributor

With more than 1,800 labor and employment attorneys in offices around the world, Littler provides workplace solutions that are local, everywhere. Our diverse team and proprietary technology foster a culture that celebrates original thinking, delivering groundbreaking innovation that prepares employers for what’s happening today, and what’s likely to happen tomorrow
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