Some of the confusion regarding the legal definition of who can and cannot be considered exempt from employer arbitration agreements has been clarified thanks to a recent decision by the U.S. Supreme Court.
The high court decision involved a dispute over how to interpret the Federal Arbitration Act (FAA), which is cited in helping to define which workers can be compelled to resolve disputes with employers through arbitration. Explicitly exempted from the act are workers involved in interstate transportation, like railroad, steamship line and truck drivers.
The Supreme Court has now decided that the workers who fall under the exemption must be designated by the kind of work they do rather than if their employers are involved in interstate or international transportation.
To make matters even more confusing, there is a different law with a similar acronym called the Federal Aviation Administration Authorization Act (FAAAA) is used to help define independent contractor status for airline and other interstate transportation workers, including truck drivers.
Under this law, independent driver determinations have been an ongoing source of contention over whether or not they are engaged in interstate commerce when they are making deliveries within a state. In one recent case, a federal appeals court decided that food delivery drivers fell under the jurisdiction of the FAAAA because the ingredients used in making the food they delivered to homes came from out of state.
In the case recently ruled on by the Supreme Court involving the FAA law, the unanimous 8-0 decision, (Justice Amy Coney Barrett chose to recuse herself because she earlier participated in the Seventh Circuit Appeals Court decision the court was hearing). In this case, the Supreme Court agreed with the Seventh Circuit’s holding that ramp agents and supervisors who physically loaded cargo onto airplanes that were traveling across state lines are subject to the FAA’s transportation worker exemption.
The person in whose name the case was brought worked at Midway International Airport in Chicago as a ramp supervisor for Southwest Airlines. She sued the company in federal court, alleging that Southwest failed to pay overtime wages to her and others. However, she previously had agreed to submit any disputes over wages to an arbitrator who would decide them in arbitration on an individual basis.
The worker’s attorneys argued that her work placed her outside the scope of the FAA because Section 1 of the act provides that it does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
Confusion over the definition of “any other class of workers engaged in foreign or interstate commerce” has continued ever since the latest version of the FAA was enacted in 1947, leading to continuing controversy and legal disputes, contributing to confusion over the status of workers in different situations.
A federal district court sided with Southwest, reasoning that ramp agents and supervisors are responsible for the handling of goods but not responsible for the transportation of those goods across state lines. The Seventh Circuit Court of Appeals reversed that decision, holding that “the act of loading cargo onto a vehicle to be transported interstate is itself commerce” as the term was understood at the time the most recent version of the FAA was enacted.
Bright Line or Muddy Waters?
The Seventh Circuit’s view of the law conflicted with a decision handed down by the Fifth Circuit Court of Appeals, leading to the appeal to the Supreme Court, which agreed to resolve the conflict between the two appeals courts.
The Southwest manager’s lawyers urged the Supreme Court to take an expansive view of this issue and to base their decision on her employer’s industry – air transportation involving interstate commerce of goods, said Jennifer Riley, Andrew Scroggins and Tyler Zmick, attorneys with the law firm Seyfarth Shaw who were not involved in the case.
“The court expressly rejected this sweeping approach, noting that the FAA refers to ‘workers,’ not ‘employees’ or ‘servants,’ which suggests that the scope of the exemption turns on the performance of work,” they explained.
The High Court held that this determination should not address the nature of the employer’s business but be directed to defining the actual work that the members of the relevant group of workers typically carry out. In the words of the Supreme Court decision, the Southwest manager is considered to be “a member of a ‘class of workers’ based on what she does at Southwest, not what Southwest does generally.”
The Seyfarth Shaw attorneys also pointed out that the decision rejects any bright-line test based on the employer’s industry and allows for a worker-based inquiry. “As such, it leaves room for employers looking to enforce their arbitration agreements under federal law and opens the door to future litigation regarding whether workers are actually ‘engaged in interstate commerce’ when they do not cross borders to perform their work.”
While the court agreed that “airplane cargo loaders” are engaged in interstate commerce, it acknowledged that the distinction may not always be clear. The justices said they recognized that the answer to whether the class of workers is engaged in foreign or interstate commerce “will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders.”
The Seyfarth Shaw attorneys observed that employers managed to avoid the worst-case scenario feared by some – a holding that the transportation worker exemption applies to all employees who work for employers engaged in the transportation industry. Instead, the Supreme Court issued a fact-specific decision that focused on the application of the transportation worker exemption to a worker directly engaged in loading cargo for transport across borders.
Companies should anticipate that other workers who are less directly involved in the flow of interstate commerce will attempt to invoke the exemption claiming that they, too, are exempt from the FAA, the attorneys warned.
They added that the decision provides employers ammunition for curtailing these arguments based the work “actually performed” as well as the connection of that work to the flow of goods across borders. As a result, the burden of demonstrating that the “transportation worker” exemption applies falls to the worker.
Somewhat ironically, the Supreme Court’s decision heightens the importance of state law in enforcing arbitration agreements of workers who are the most connected to interstate transportation, the Seyfarth Shaw attorneys note.
“For those workers, the choice of state law will take on renewed emphasis as many states already have adopted uniform arbitration acts that do not contain transportation worker exemptions and others have a clear runway to legislate the enforceability of these agreements.”
