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Supreme Court Expands Reach of Federal Arbitration Carveout (2)

June 6, 2022, 2:49 PMUpdated: June 6, 2022, 7:53 PM

A former Southwest Airlines Co. ramp supervisor falls under an exemption to arbitration requirements for transportation workers, allowing her to bring her overtime dispute in court, the US Supreme Court ruled.

The unanimous decision Monday, which settles a split among federal appeals courts, expands the reach of a Federal Arbitration Act carveout for “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Justice Amy Coney Barrett didn’t participate in the case because she penned a decision on the issue during her time on the US Court of Appeals for the Seventh Circuit.

The decision will be “very helpful in guiding courts as they approach similar questions going forward by making clear that whether a class of workers is exempt from the FAA is a textual and historical inquiry,” said Saxon’s attorney, Jennifer Bennett, a principal at Gupta Wessler PLLC.

In a statement, Southwest Airlines said the impact of the decision will “overall be minimal,” and thanked the court for clarity on not including all airline workers under the transportation exemption. The arbitration program applies only to certain employment claims from non-union workers, and those who handle cargo are typically union employees, the airline said.

Airlines for America, the US Chamber of Commerce, and several technology companies previously weighed in on the case, expressing concern that expanding the exemption would harm the transportation industry.

“The Supreme Court emphatically rejected an overly broad reading of the FAA’s transportation-worker exemption,” said Jonathan Urick, associate chief counsel with the US Chamber of Commerce Litigation Center. “This means that arbitration will remain a simpler, faster, and less expensive way for most workers and companies to settle disputes, rather than through expensive and time-consuming litigation in court.”

The case was closely watched, as litigation over the exemption continues to percolate in the lower courts, including in ongoing cases involving the gig economy and Amazon.com Inc. Such lawsuits over which types of workers qualify for the “any other class” category in the FAA exemption have persisted for more than two decades.

The justices considered whether Latrice Saxon, who handled cargo for Southwest, fell under the FAA exemption. Ruling that she does, the Supreme Court upheld a Seventh Circuit decision that included cargo supervisors as part of the interstate commerce exemption. The Fifth Circuit ruled in a separate case that loading planes doesn’t fall under the category.

Saxon sued the airline over its alleged failure to pay her and hundreds of current and former ramp supervisors time-and-a-half for their overtime work. She noted that in addition to managing workers who load and unload airplane cargo for Southwest, she and other supervisors filled in as ramp agents themselves about three times a week.

Transporting Goods

Any worker involved in transporting goods across state or international borders falls within that exemption, Justice Clarence Thomas wrote for the court. Airline cargo loaders—who move goods onto planes—are such a class of workers, he said.

“We think it equally plain that airline employees who physically load and unload cargo on and off planes traveling in interstate commerce are, as a practical matter, part of the interstate transportation of goods,” Thomas wrote. An airline worker “who loads cargo on a plane bound for interstate transit is intimately involved with the commerce,” he said later in the decision.

The high court, however, said the exemption doesn’t cover all employees of major transportation providers, which would include office workers or even website designers. But the airline looked at the transportation exemption too narrowly when it included only workers who physically move goods or people across the boundaries, such as pilots, justices said.

“The court recognized there will be difficult questions when the class of workers is more removed from actual crossings of borders, and the court left open the problem of last-mile delivery drivers,” said Imre Stephen Szalai, professor at the Loyola University New Orleans College of Law, adding that the court’s opinion will likely be used as precedent as those cases play out.

Limited Practical Effect

The Supreme Court’s decision may be limited in its practical effect, said Richard J. Reibstein, a partner at Locke Lord LLP. Even if a worker’s claims are exempt from arbitration under the federal law, companies can still compel workers into arbitration under most state arbitration laws, he said.

This has been the case in several courts, including in cases involving gig companies, in Washington, D.C., and New York.

One of the most notable aspects of the decision was the court’s rejection of Southwest’s argument in favor of a more narrow interpretation of the exemption, said Richard Silberberg, partner at Dorsey & Whitney LLP and director of the New York International Arbitration Center.

Silberberg noted that Thomas said the court was not “free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal.”

“The decision strikes a blow to employers in the transportation industry sector seeking to avoid class-action lawsuits brought by workers for violations of wage-and-hour regulations and other employment laws,” Silberberg said.

However, it would be a mistake to interpret the decision as a retreat from the court’s commitment to enforce mandatory arbitration provisions in employment agreements as a general matter, and it won’t likely be applied broadly, he said.

While the decision is narrow and leaves open questions about other industries, it also signals that the court won’t automatically buy into the employer’s position on arbitration, said Michael Foreman, director of Penn State Law School’s Civil Rights Appellate Clinic.

Sarah Rudolph Cole, a law professor at Ohio State University, pointed out that the Supreme Court “repeatedly emphasized the narrowness of its holding in a variety of ways.”

The justices’ frequent emphasis on the ruling’s narrowness suggests that the court would be reluctant to extend the FAA’s exemption to cover other types of workers who aren’t facilitating the transportation of goods across state lines nor are typically crossing those lines themselves, Cole said.

The case is Southwest Airlines Co. v. Saxon, U.S., No. 21-30, 6/6/22.

—With assistance from Robert Iafolla

(Updated with additional reporting on the potential impact of the case.)

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editor responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com, Melissa B. Robinson at mrobinson@bloomberglaw.com