California Transportation Industry Waives Goodbye to Enforcement of Federal Arbitration Act Provisions in Employment Contracts
In a loss for the California transportation industry, the Court of Appeal for California’s Fourth Judicial District recently found in Muro v. Cornerstone Staffing Solutions, Inc., that the Federal Arbitration Act (“FAA”) is unenforceable in employment contracts regarding employees who are engaged in transporting goods in interstate or foreign commerce, regardless of whether the employer itself is in the transportation industry.
Defendant Cornerstone Staffing Solutions, Inc. (“Cornerstone”), a staffing firm dedicated to the transportation and logistics industries, hired Plaintiff Tony Muro (“Muro”) as a truck driver for Team Campbell, a Cornerstone client in California. The employment contract between Cornerstone and Muro included a provision requiring that all disputes arising out of Muro’s employment with Cornerstone be resolved in arbitration. The contract also incorporated a separate provision in which Muro waived his right to pursue class actions, either in court or arbitration.
In response to Muro’s action – styled as a proposed wage and hour class action – Cornerstone moved to compel arbitration and dismiss the class claims. In denying Cornerstone’s petition, the court found that Section 1 of the FAA exempts “contracts of employment of . . . any other class of workers engaged in foreign or interstate commerce” and that it was immaterial whether Cornerstone itself was engaged in the transportation industry for the exemption to trigger. Identifying that Muro regularly engaged in interstate commerce by transporting goods throughout the western United States, the court noted that “[a] transportation worker does not forfeit the benefit of the exemption merely because the employer has other divisions or segments devoted to nontransportation activities.”
Finding the FAA provision void, the court applied California precedent to conclude that the class waiver constituted an unlawful exculpatory clause and that the trial court had properly denied Cornerstone’s petition to compel arbitration. While the Muro Court’s decision represents novel California State precedent, the United States Supreme Court may soon end the debate nationwide, having recently granted review of a decision from the United States Court of Appeals for the First Circuit (New Prime Inc. v. Oliveira), interpreting the scope of the FAA’s transportation workers’ exemption.