Judge Bemoans Mandatory Arbitration’s Role in Worker Wage Cases

US Supreme Court precedent allowing employers to shunt wage-and-hour claims to arbitration absent certain exceptions “effectively eviscerates years of hard-fought Congressional protections for American workers,” a federal judge said.

Display merchandisers who work for Premium Retail Services Inc. aren’t frequently engaged in interstate commerce, so they don’t qualify for a transportation worker exemption to the Federal Arbitration Act, Judge William G. Young said Tuesday, adding that “Congress is not impotent” to change the rules around which claims can stay in court.

The Supreme Court, which in 2022 expanded the transportation worker carveout’s reach in Southwest Airlines Co. v. Saxon, is set to take another look at who falls under the exemption after granting bakery distribution workers’ petition for review in Bissonnette v. LePage Bakeries Park St. LLC in September.

Sara Fraga previously worked for Premium Retail and sued in May 2021, alleging the merchandising company stiffed her and others in a would-be Fair Labor Standards Act collective and proposed state-law class on minimum wage and overtime.

Young in 2022 denied Premium Retail’s motion to dismiss, but the First Circuit sent the case back for another look earlier this year, ruling that the district judge should have done more factfinding to decide once and for all whether the transportation worker exemption applies.

A worker’s ability to qualify for the carveout partially depends on whether they’re engaged in interstate commerce. Fraga’s duties include receiving, sorting, and preparing display materials shipped to her home in Massachusetts from outside the state, but she failed to show she performed those tasks with “anywhere near the frequency” of workers in other cases where courts have applied the exemption, Young’s latest opinion said.

Transporting the sorted and prepared display materials to local stores is an “essential last step” in those goods’ interstate transportation chain, but it isn’t analogous to local deliveries of interstate commercial goods in other cases, the opinion said.

“Such an analysis is flawed” because it “risks morphing an incidental aspect of the Merchandisers’ job into the central characterization of it,” Young said. The commercial goods here—the products the display materials are advertising—are things the merchandisers “never transport,” and although their “advertising work is important,” it isn’t so closely tied to the interstate transportation of the commercial goods as to be a part of it,” the judge added.

Arbitration’s ‘Sad Irony’

“And so the courthouse doors close, barring Fraga and the class of merchandisers she seeks to represent,” Young said. The arbitration agreement blocks workers from pursuing class claims outside of court, “further impairing her chances for relief,” he added in a footnote.

It’s been two and a half years since Fraga filed her case, with multiple judicial opinions, a two-day evidentiary hearing, hundreds of pages of exhibits, and the potential for yet more appeals, Young said. But “none of this extensive judicial activity has addressed the merits of this dispute” because the Supreme Court blocked lower courts from “any meaningful role” in determining most worker claims when there’s “an employer-imposed mandatory arbitration agreement,” the opinion said.

The “sad irony” is that without all of the fighting over arbitration and a possible exemption, Fraga’s “case would long since have been resolved,” Young said. It’s “simply a ‘myth’ that arbitration is either faster or cheaper than a well-run federal district court” where workers can go before a jury, he added.

A bipartisan Congressional majority already took action to end forced arbitration in cases of sexual harassment, Young said. He questioned whether wage theft, racial bias, and disability discrimination are “just as deserving of the access to courts and juries” and concluded that those are policy issues beyond his power to address.

Foley Hoag LLP represents Premium Retail. Berger Montague and Block & Leviton LLP represent Fraga.

The case is Fraga v. Premium Retail Servs. Inc., 2023 BL 441322, D. Mass., No. 1:21-cv-10751, arbitration ordered 12/5/23.