iPrior to the US Supreme Court’s 2022 decision in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022), the Section 1 exemption was generally limited to people employed by transportation companies, whose primary responsibility was the actual transportation of goods across state lines. Saxon held that workers who did not physically transport goods across state lines could still qualify for the exemption as long as they were “directly” and “frequently” involved in such transportation.[1] This new test, which focuses on the specific work performed by the person seeking exemption, essentially opened the floodgates for anyone, in any industry, to claim the exemption. Additionally, the level of factual analysis now required to determine if a person is a “transportation worker” involved in “interstate commerce” has opened up companies to the type of litigation and discovery that their arbitration agreements were designed to avoid.
Will the Section 1 Exemption be Limited to the “Transportation Industry”?
On February 20, the Supreme Court heard oral arguments in Bissonnette v. LePage Bakeries Park St., LLC, a case meant to resolve the post-Saxon circuit split regarding whether working in the transportation industry is a prerequisite to invoking FAA’s Section 1 exemption. The plaintiffs in Bissonnette, truck drivers who deliver packaged food products, contend it is irrelevant that their employer is in the food, not the transportation, industry because their actual work still involves interstate transportation.[2] If the Supreme Court limits Section 1 to apply only to workers employed it the transportation industry, it will put an end to workers in every industry seeking such exemption. However, unless the Supreme Court provides clear guidance, such limitation will likely result in further litigation concerning whether or not a business is in the “transportation industry” (i.e., does the industry encompass companies that operate multinational delivery networks for the distribution of their own products).
A New Fact-Intensive Exemption Inquiry
Exacerbating the post-Saxon landscape is the reduced threshold for a person or class to make a colorable argument that they qualify for exemption. In Ortiz v. Randstad Inhouse Services, LLC, 2023 WL 2070833 (C.D. Cal., 2023), a California District Court held that the plaintiff class, who prepared packages for shipment, including moving them to loading points in a warehouse, qualified as exempt transportation workers, even if they never personally loaded or unloaded any packages onto a shipping truck. The court explained that the tasks performed by the workers were sufficient to qualify for the exemption because the workers were part of the process of packages leaving the warehouse. Unlike “a salesperson, janitor, or customer service representative” who never actually handle goods, the plaintiffs were “personally involved in the movement” of such goods.[3]
In Fraga v. Premium Retail Services, Inc., 61 F.4th 228 (1st Cir. 2023), the First Circuit mused that the FAA Section 1 exemption applies to many more types of “transportation workers” than it did in 1925, simply because “many more goods travel many more miles by air and road than was the case in 1925.” In Fraga, a class of “merchandisers” (people who assist retail stores with stocking inventory, creating displays, and keeping price and signage up to date) sought exemption from the arbitration clauses in their employment agreements. The plaintiffs argued that they were involved in interstate commerce because they received promotional materials at their homes (coupons, signage, etc.), which they then transported to their assigned stores.
The First Circuit held that whether the plaintiffs were exempt turned on a factual determination as to whether they “frequently” performed these transportation tasks, regardless of the centrality of such duties to their work. However, the First Circuit declined to refine the “frequency requirement” in the abstract, stating only that doing such tasks two or three hours a day would certainly qualify, whereas doing so on rare occasions would not. On remand, the District Court, after conducting a thorough factual analysis, determined the class was not exempt because the plaintiffs only engaged in the transportation work one or two times a week and each time was usually less than an hour.[4] Under this post-Saxon framework, it took the defendant over two years to enforce the arbitration provision in the employee contracts.
Looking Beyond a Worker’s Actual Employer
Some courts no longer require claimants to demonstrate that they are actually employed by a company transporting goods across state lines in order to obtain an exemption. In Brock v. Flowers Food, Inc., No. 2023 WL 3481395 (D. Colo. May 16, 2023), the plaintiff was the owner of an independent distributor who brought defendant’s baked goods to market. The plaintiff, through his company, would order the defendant’s goods from across state borders, receive them at his warehouse, and then deliver them, with his own truck, to local customers. The defendant argued that plaintiff could not be exempt because he owned the business which placed (but did not initially transport) the orders. It further argued that plaintiff’s primary responsibilities, as his company’s owner, did not involve transporting goods. The court, in allowing the exemption, rejected both of these arguments explaining that the plaintiff’s “status as an independent distributor who owns his own company. . . . does not disturb this conclusion.”[5]
Similarly, in Webb v. Rejoice Delivers LLC, 2023 WL 8438577 (N.D. Cal., 2023), the defendant, an independent delivery company that employed the plaintiff, did not actually transport goods across state lines. Rather, the company contracted with Amazon to provide “last-mile” delivery services. Although the defendant company carried out deliveries for Amazon, it argued that, in assessing the plaintiff’s exemption status, the court “should not consider Amazon at all” because the plaintiff was not employed by Amazon. However, the court held that “the nature of what” the plaintiff actually did for the defendant, i.e., making “last mile deliveries of Amazon goods, . . . so that Amazon customers actually received the goods they ordered — puts him in a class of workers engaged in interstate commerce,” therefore exempting him from the FAA.[6]
Looking Ahead to 2024
Logistics companies that utilize arbitration agreements to limit class and collective actions (among both employees and independent contractors) must stay up-to-date on legal developments in the arena. In particular, companies may need to reconsider the job responsibilities of those workers whose secondary responsibilities may involve (even tangentially) the transportation of goods. Companies should recognize that the exemption status of their own employees may be impacted by the independent actions of the companies’ customers.
[1]Saxon, 596 US at 456–57 (US 2022).
[2] Bissonnette v. LePage Bakeries Park St., LLC, 49 F.4th 655 (2nd Cir. 2022).
[3] Ortiz, 2023 WL 2070833 at *4.
[4] Fraga v. Premium Retail Services, Inc., 2023 WL 8435180 (D.Mass. 2023).
[5] Brock, 673 F.Supp.3d at 1186.
[6] Webb, 2023 WL 8438577 at *9. Both Webb and Ortiz have been appealed to the Ninth Circuit Court of Appeals. Decisions in these cases are not expected until later this year or early 2025.
