> Insights > Supreme Court Decides Arbitration Exception Depends on Worker’s Role Versus Employer’s Industry
> Insights > Supreme Court Decides Arbitration Exception Depends on Worker’s Role Versus Employer’s Industry
Supreme Court Decides Arbitration Exception Depends on Worker’s Role Versus Employer’s Industry
On April 12, 2024, the U.S. Supreme Court issued a unanimous decision in the Bissonnette v. Lepage Bakeries Park St., LLC case, finding that plaintiffs may qualify for an exemption from the Federal Arbitration Act (FAA) to allow their wage-and-hour suit to proceed federal court.
Facts and Procedural History
The defendant, Flowers Foods, Inc., is the “second-largest producer and marketer of packaged bakery foods” in the United States, including products such as Wonder Bread. The plaintiffs were franchisees/distributors who purchase baked goods from defendant, and market, sell, and deliver the products to retailers in particular geographic territories. The plaintiffs signed distributor agreements with defendant which included arbitration agreements that require “any claim, dispute, and/or controversy” to be arbitrated under the FAA.
In 2019, plaintiffs brought a class action lawsuit, alleging that defendant underpaid them in violation of state and federal laws. The lawsuit prompted Flower Foods to move to dismiss plaintiff’s complaint and compel arbitration under the FAA. The Connecticut District Court dismissed the case in favor of binding arbitration, finding that plaintiffs were not “transportation workers” exempt from arbitration under the FAA. Despite plaintiff’s claims they were principally truck drivers, the district court found the “much broader scope of responsibility” under their distributor agreements with Flower Foods belied their claims. On appeal, the Second Circuit affirmed the dismissal based on Flowers Foods being in the “bakery industry” and the exemption to arbitration in Section 1 of the FAA applying only to “workers involved in the transportation industries.”
Section 1 of the FAA provides: “ . . . 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 question for the Supreme Court was “whether a transportation worker must work for a company in the transportation industry to be exempt under [Section] 1 of the FAA.”
Supreme Court Decision
The Supreme Court found that Section 1 of the FAA “says nothing to direct courts to consider the industry of a worker’s employer”, and the language “focuses on ‘the performance of the work’ rather than the industry of the employer.” (emphasis in original).
In resolving a circuit split between the First and Second Circuits, it was found that the Second Circuit “fashioned its transportation-industry requirement without any guide in the text”, and that including a “transportation-industry requirement” for employers would result in “mini-trials” about the employer’s industry and frustrate the purpose of the FAA to streamline dispute resolution.
While Flower Foods argued that the explicit reference to “seamen” and “railroad employees” in Section 1 of the FAA leads to the conclusion that the employer’s industry must be considered, the Supreme Court found that “seamen” and “railroad employees” share employment characteristics of being transportation industry workers. To qualify for the exemption, the exempt worker “must at least play a direct and ‘necessary role in the free flow of goods’ across borders.”
Implications
The Supreme Court’s decision that “[a] transportation worker need not work in the transportation industry to fall within the exemption from the FAA” means that agreements for binding arbitration may not be enforceable for employers of “transportation workers” who engage in interstate commerce.
However, the Supreme Court endeavored to limit this new construction of Section 1 of the FAA, because “virtually all products move in interstate commence.” In the Bissonnette case, the Supreme Court remanded without deciding whether plaintiffs were “engaged in foreign or interstate commerce” because they only delivered baked goods within the state of Connecticut.
Nonetheless, employers who are not in “transportation industries” should be aware that their “transportation workers” may be exempt from binding arbitration agreements, especially when their duties involve transporting goods across state or international borders. Future litigation is expected to better define who is considered a “transportation worker” under the FAA, as well as what constitutes being “directly involved” in transporting goods across foreign or state borders.
Foley Mansfield has successfully defended employers in all types of employment-related litigation, including wage and hour disputes. With offices from Minnesota to California to New York, we have extensive experience in state, federal, and appellate courts throughout the country, as well as before the National Labor Relations Board, the Equal Employment Opportunity Commission, and other local, state, and federal agencies.
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