The US Supreme Court’s recent decision not to opine on whether local delivery drivers are transportation workers exempt from mandatory arbitration agreements in employment disputes is forcing lower federal courts to grapple with the scope of the carveout.
The Federal Arbitration Act, which generally favors arbitration over litigation, contains an exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
The justices in June decided Southwest Airlines Co. v. Saxon, which held that the exemption covers airplane cargo loaders, allowing them to pursue wage-and-hour lawsuits in court. But Saxon explicitly side-stepped the driver issue, and the justices last week again passed on resolving it when they vacated a US Court of Appeals for the Ninth Circuit ruling that Domino’s Pizza LLC ingredient delivery drivers qualify for the carveout.
Instead, the justices asked the appeals court to take a second look at the case in light of Saxon, to the disappointment of legal observers. The lack of clarity will only drag employers further into costly litigation and undermine the benefits of arbitration, they said.
Disparate court rulings on whether local delivery drivers qualify for the FAA’s arbitration exemption have big implications for the gig economy in particular.
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“It is a continuing quest, no matter what side you’re on, whether you represent an employee or company, to figure out how the law applies,” said John B. Lewis, a labor and employment partner at Baker & Hostetler LLP. “As someone who advises companies about compliance and who’s exempt and who isn’t, this leaves gaping holes.”
“I’m disappointed that the court didn’t try to give more guidance because the two end results are more litigation and appeals,” Lewis added.
Courts Already Split
The Supreme Court’s 2001 decision Circuit City Stores, Inc. v. Adams held that the FAA exemption should be read narrowly to apply only to “transportation workers.” But the court hasn’t provided much guidance on what types of workers actually qualify, attorneys said.
The heart of the current disputes concerning local delivery drivers turns on whether they are transportation workers engaged in interstate commerce when they don’t cross state lines themselves.
By remanding the Domino’s case, the Supreme Court signaled it “would likely allow decisions by the lower federal courts to further develop the law in this area before selecting what it deems to be an appropriate case for making any further pronouncements concerning whether other groups of transportation workers are exempt from coverage under the FAA,” said Dorsey & Whitney LLP partner Richard Silberberg.
Such uncertainty about the law’s scope “can lead to several years of wasteful litigation,” said Imre Szalai, a Loyola University New Orleans law professor who has written extensively about arbitration.
“Uncertainty in arbitration law undermines the potential value of arbitration as a quick, cheap form of dispute resolution,” he said. “Such extensive litigation regarding the uncertainties in US arbitration law is counterproductive.”
The Ninth Circuit said the fact the Domino’s drivers didn’t cross state lines “does not change the outcome,” considering the company’s direct involvement “in the procurement and delivery of interstate goods” from start to finish.
That holding hinges on the appeals court’s August 2020 ruling in Rittmann v. Amazon.com Inc., which said “last mile”
The Fifth Circuit reached the opposite decision in Lopez v. Cintas Corp. when it concluded that a local delivery driver for business supply company
A split Second Circuit held in Bissonnette v. LePage Bakeries Park St., LLC, that baked goods delivery drivers aren’t covered by the exclusion because they work in the bakery industry and not the transportation industry. A South Carolina federal court reached a similar conclusion in O’Bryant v. Flowers Foods Inc..
The First Circuit also is reviewing a similar dispute concerning local delivery drivers.
The conflicting decisions only further muddy the legal landscape and cause confusion if there’s no urgency from the high court to clarify this emerging legal controversy, attorneys said.
That confusion is reflected in attorneys’ differing views over whether the Second Circuit’s second take on its Bissonnette decision—issued in September after Saxon—aligns with the Supreme Court’s decision. The appeals court both times concluded the baked goods drivers weren’t exempt from arbitration.
The appeals court majority’s narrow view of transportation workers conflicts with Saxon because the Supreme Court instructed courts to examine the type of work these workers do—not the industry they’re in—when determining whether they fall under the arbitration carveout, said Hugh Baran of Kakalec Law PLLC. The dissenting judge made a similar argument, he noted.
The majority also “took the employer at face value that they’re merely a bakery company,” and most of their source of revenue isn’t from the transportation of goods, he said. “That is actually a factual question” that calls for further probing, Baran maintained.
But Jennifer Dickey, associate chief counsel at the US Chamber Litigation Center, which filed amicus briefs in both the Saxon and Domino’s cases in support of the companies, said the Second Circuit decision follows the Saxon analysis.
“The key takeaway is a common sense one that industries that are not in the transportation industry are going to be treated differently for purposes of deciding where there’s a transportation class of workers,” she said.
But the Second Circuit’s industry-based view still left open whether the arbitration exemption applies to employees of major retailers who transport goods intrastate within a larger, interstate transportation network, Lewis said.
“So yeah, there are a lot of unanswered questions,” he said.
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