The High Stakes of Arbitration and Interstate Commerce

The question whether workers are considered interstate transportation workers, thereby exempt from federal arbitration requirements, has been a hotly debated issue before the U.S, Supreme Court.

In December, the high court granted Southwest Airlines' petition for certiorari to review whether a cargo loader is exempt from arbitration under Section 1 of the Federal Arbitration Act. The Section 1 exemption applies to "contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce."

Southwest is challenging a March 2021 Seventh Circuit decision finding ramp agent supervisor Latrice Saxon at Chicago Midway International Airport was exempt from arbitration as an interstate transportation worker who handled items that moved across long distances. She had filed a proposed Fair Labor Standards Act class action alleging Southwest failed to pay ramp supervisors for overtime work. Southwest failed to pay ramp supervisors for overtime work.

Like Saxon, who worked within the confines of one state, so-called last-mile drivers, who often execute the final leg of delivery journeys, are also caught in this battle of interpreting interstate commerce.

These issues are so contested because of the high stakes for workers, said Hugh Baran, an attorney for worker-side firm Kakalec Law PLLC.

"It's the question of whether workers are going to have the fair opportunity to present their claims collectively before judges and juries," he said, "or be forced into these private secret arbitrations."

Interstate Goods or Interstate Workers

A major point of tension among definitions of interstate transportation work is whether the analysis should hinge on the goods or the workers.

The First Circuit in Bernard Waithaka v. Inc. et al. in July 2020 and the Ninth Circuit in Rittmann v. Amazon in August 2020 ruled that last-mile drivers are part of the flow of interstate commerce and are consequently exempt from the FAA.

The Eleventh Circuit took a different view in Hamrick v. Partsfleet LLC et al. , ruling that the FAA's exemption may be "directed at what the class of workers is engaged in, and not what it is carrying," according to the panel's June opinion.

The panel stopped short of determining whether the drivers fit the exemption and sent the case back to the lower court for further deliberation.

For Rafael Nendel-Flores, a member of management-side firm Clark Hill PLC, the exemption analysis should be narrowly focused on whether the worker crossed state lines.

"Just the mere fact that they happen to pick up a widget at a rail yard or at a distribution center that originated somewhere else shouldn't make them a transportation worker engaged in interstate commerce," he said.

One of Nilan Johnson Lewis’s shareholders, Pablo Orozco, asserted that it’s all the more important to look at the statutory language to guide the exemption analysis.

Orozco said the word "engaged" is more precise than "involved in" or "affecting" interstate commerce and that the examples of workers — seamen and railroad employees — that precede the phrase "any other class of workers" in Section 1 are telling.

"Railroad employees and seamen, those are people who the core function of their job is to move goods across state lines," he said. "Arguably, the type of job that a railroad person does is very different than the type of job that an Uber driver does. One is actually engaging in moving one product … across state lines, the other one isn't."

Baran said one of the best analyses of what it means to be engaged in something comes from Islam v. Lyft Inc. in New York federal court.

U.S. District Judge Ronnie Abrams said the FAA does not say how much interstate commerce a worker must be involved in to determine whether they are "engaged in" interstate commerce, according to a March 2021 decision.

She also shut down the idea that "crossing state lines must be the primary, daily function of a class of transportation workers in order to bring that class within the ambit of the Section 1 exemption."

Judge Abrams offered a parallel example, writing that federal district judges would say that they are engaged in criminal trials despite the fact that their work concerns primarily civil actions and most criminal cases plead out.

Baran said that is a better, more common-sense approach to understanding what it means to be engaged in something.

"The various cases that are trying to put a percentage or a number on how much sort of interstateness makes you engaged in interstate commerce, I think, are kind of missing the point," he said.

Getting Over the Threshold

The FAA's purpose also has bearing on how it should be applied.

In this case, the FAA is not a remedial statute created to remedy wrongs done to workers, Orozco said, and instead is simply a statute that requires enforcement of arbitration agreements.

"Congress' and the federal court's strong policy towards arbitration agreements, the fact that it's not a remedial statute, I think, both counsel interpreting the FAA in a way that favors arbitration, not in a way that favors carving out from arbitration," Orozco said.

Another threshold question is whether employer coverage under the FAA trickles down to workers, Nendel-Flores said.

A plaintiff may make a threshold showing that the employer is engaged in interstate commerce, Nendel-Flores said, and then the question becomes whether certain categories of workers are then exempt.

"You could be a company where you're covered by the FAA, but not all of your workforce is going to be," he said. "There could be portions of your workforce that are exempt from the FAA, even though you as an entity are covered."

Baran said that the Waithaka and Rittman cases properly recognized that the first step in an analysis is to determine whether the FAA is even implicated. Part of the challenge is that some courts feel bound by the idea that the FAA embodies a liberal policy in favor of arbitration, he said.

"That policy doesn't apply if the FAA doesn't apply, if someone is exempt from the FAA," Baran said. "So there shouldn't be that policy sort of tipping the scales in favor of finding that someone is covered when they're not covered."

The Exception Swallowing the Rule

A flurry of briefs were filed with the Supreme Court in the Southwest case in recent weeks, and the high court will hear oral arguments on Monday, March 28.

Nendel-Flores said he expects the high court to rule narrowly that workers must cross state lines to meet the exemption because a broader interpretation would be too all-encompassing, and the exemption could swallow the rule.

"Is the intent really to carve out anybody who delivers anything?" he said.

The FAA was enacted in 1925, well before companies like Amazon and Uber disrupted an already globalized economy, making an interpretation that focuses on workers instead of goods all the more logical, Orozco said.

"In what universe is a worker involved in an activity that doesn't involve goods that have traveled in interstate commerce?" he said.

Baran said he sees progress in the bipartisan initiative behind the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which was signed into law by President Joe Biden on March 3.

"That new law doesn't cover all causes of action, but it's a huge step forward," Baran said. "It shows the direction of the laws really moving away from this regime of forced arbitration that we unfortunately still are currently living with."

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