FAA’s transportation worker exception applies to transportation workers regardless of employer industry

At a glance

• The Supreme Court looked into the responsibility of employers to provide alternative work options when making employees redundant.
• The Supreme Court made it clear in their ruling that the law doesn’t require employers to give their employees the first available job opening. Instead, employers are required to provide job opportunities throughout the notice period.
• If an employer has multiple job openings that match an employee’s skills, the employer has the right to decide which job to offer based on fair reasons.
• The Supreme Court highlighted the importance of the fidelity principle, where employers are required to consider the employee’s interests and aim to keep the employment relationship ongoing. However, employers can refuse to offer a job that the employee is qualified for if they have a valid reason.

On April 12, 2024, the US Supreme Court unanimously held in Bissonnette v. LePage Bakeries Park Street, LLC that a worker need not work in the transportation industry to satisfy the ‘transportation worker’ exemption from coverage under Section 1 of the Federal Arbitration Act (FAA), which contains an exception for ‘contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.’

The court’s decision could spur more workers to try and avoid arbitration by claiming to be engaged in the transportation of goods in interstate commerce. Accordingly, employers are encouraged to review their existing arbitration agreements with workers who may be covered by the FAA’s transportation worker exemption and consider options to maximize enforceability.

Procedural background

Petitioners Neal Bissonnette and Tyler Wojnaroski entered into distribution agreements with Flowers Foods, Inc. as franchisees to purchase, market, sell, and deliver baked goods to local shops. The distributor agreement incorporated separate arbitration agreements that required ‘any claim, dispute, and / or controversy’ to be arbitrated under the FAA.

The petitioners subsequently filed a putative class action against Flowers Foods, Inc. under the Fair Labor Standards Act (FLSA), alleging that they were misclassified as independent contractors. In response to Flowers’ motion to dismiss, or in the alternative to compel arbitration, the petitioners argued that they could not be compelled to arbitrate because they were exempt under the FAA’s transportation worker exemption.

The FAA provides that arbitration agreements generally are ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract’. However, the FAA also provides that ‘nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce’.

The district court determined that petitioners were not transportation workers within the meaning of Section 1, and the court ordered the petitioners to arbitrate their claims and dismissed the case. According to the district court, the petitioners’ broad scope of responsibilities under their distributor agreements undermined their claim that they are truck drivers. On appeal, the Second Circuit affirmed the district court’s judgment on the alternative ground that petitioners were not transportation workers because they worked in the bakery industry and not the transportation industry.

The Supreme Court granted certiorari on the question of whether the exemption from coverage under that FAA for any ‘class of workers engaged in foreign or interstate commerce’ is limited to workers employed in the transportation industry.

The Supreme Court’s decision

Examining the text of Section 1 and precedent, the Court stated that it already had ‘expressly declined to adopt an ‘industry-wide’ approach’ to define the FAA exemption. According to the Court, the FAA’s residual clause is defined by what precedes it, and the commonality between ‘seamen’ and ‘railroad employees’ is that both are transportation workers – they are ‘connected by what they do, not for whom they do it.’

The Court further rejected petitioners’ argument that an exemption untethered to the transportation industry would exempt from arbitration virtually all workers who load or unload goods because ‘virtually all products move in interstate commerce.’ The Court stated that a transportation worker is one who is ‘actively engaged in transportation of goods across borders via the channels of foreign or interstate commerce. In other words, any exempt worker must at least play a direct and necessary role in the free flow of goods across borders.’ The Court concluded that these requirements ‘undermine any attempt to give the provision a sweeping, open-ended construction,’ noting that the scope of Section 1’s exemption is ‘narrow.’

Takeaways

While the Court emphasized the narrow scope of Section 1, the Court’s decision could open the door to litigation about whether particular workers play a ‘direct and necessary’ role in interstate commerce and, thus, whether they are exempt from the FAA. Notably, the Court declined to express an opinion on whether the petitioners are transportation workers based on the work they perform, or whether they are ‘engaged in foreign or interstate commerce’ when they do not drive across state lines. Instead, the Court remanded the case for further proceedings.

Employers may see more workers across industries attempt to invalidate arbitration agreements by arguing they are transportation workers. Accordingly, employers are encouraged to reevaluate which workers’ roles may be fall within the FAA exemption and exercise caution when drafting employment agreements for workers who engage in the transportation of goods across state borders. Employers may also want to consult with counsel on strategies to avoid application of the transportation worker exemption by having state arbitration law serve as a gap-fill for the exemption while not giving complete way to state law.

If you have questions about developments related to the FAA’s transportation worker exemption or require guidance regarding reviewing and/or revising arbitration agreements in light of Bissonnette, please contact any of the authors or your DLA Piper relationship attorney.