The Supreme Court Will Address a Circuit Split on a Federal Arbitration Act Exemption
On Friday, the U.S. Supreme Court agreed to hear a petition for certiorari to address a recent circuit court split on whether the Federal Arbitration Act §1 exemption from arbitration only applies to workers employed by companies whose primary industry is transportation.
The case is expected to decide whether the job function is determinative, or whether there is an industry requirement in the act’s carveout from arbitration. FAA §1 exempts from arbitration "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."
The petition originates from the Second U.S. Circuit Court of Appeals in the case the Court accepted today, Bissonnette v. LePage Bakeries Park St. LLC, No. 23-51. The petition has become, so far, the first arbitration case of the new 2023-2024 Supreme Court term beginning Monday, Oct. 2,, and the first involving the §1 worker exemption since the Court’s ruling in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022) (available at https://bit.ly/3RIdDp0).
The petitioners filed the case alleging that the respondents “had misclassified them as independent contractors and violated state and federal wage laws,” and that the respondent--a distribution subsidiary of Thomasville, Ga.-based Flowers Foods Inc., which bakes, among other products, Wonder Bread--decided it could withdraw its own operating expenses from its drivers’ paychecks, charge them for the privilege of working for the company, and decline to pay them overtime. . . .” Petition at 9.
The respondent had moved to compel arbitration based on a clause in the agreement between the parties, but the petitioners opposed the motion on the grounds that they were exempt under the FAA. Id.
The district court rejected the exemption argument, holding that “the plaintiffs still were not transportation workers because [the petitioners’] contract characterized them as independent businesses that performed other tasks in addition to transportation.” Id. at 10.
The decision was upheld by a split panel of the Second Circuit, but under different reasons. Bissonnette v. LePage Bakeries Park St. LLC, 49 F.4th 655 (2d Cir. 2022) (available at https://bit.ly/48wn3Kj). The appeals panel concluded that the plaintiffs were not exempt because they were in the bakery industry, not a transportation industry. Because the company’s revenue was based on sales of baked goods, the court concluded that the FAA exemption did not apply as the petitioner’s employer was not involved in the transportation industry.
Although the case was reheard by the panel after Southwest Airlines v. Saxon, the panel stuck to its view. The panel noted that courts following Saxon were instructed to “consider ‘the actual work’ a worker performs, rather than the industry in which the employer operates.”
But the majority held that Saxon's distinctions "do not come into play; those who work in the bakery industry are not transportation workers, even those who drive a truck from which they sell and deliver the breads and cakes." Bissonnette v. LePage Bakeries Park St. LLC, No. 20-1681 (amended Sept. 26, 2022) (available at https://bit.ly/45s2gVH).
The Second Circuit denied a rehearing en banc, but a dissent stated that Saxon “expressly rejects the notion . . . that the industry in which an employer operates, rather than the work that the employee does, determines whether the employee belongs to a ‘class of workers engaged in foreign or interstate commerce.”’Bissonnette v. Lepage Bakeries Park St. LLC, 59 F.4th 594 (2d Cir. 2023) (available at https://bit.ly/48wlDiX).
The petitioners in the U.S. Supreme Court argue that injecting an industry-based element into the exemption ignores the FAA’s plain text, which applies the carveout based solely on workers’ characteristics. See, e.g., Jon Steingart, “BREAKING: Justices Will Hear Bakery Distributors’ Arbitration Case,” Law360 (Sept. 29) (available at https://bit.ly/3LGI5Mq).
Indeed, in Saxon, Justice Clarence Thomas, writing for the 8-0 majority, applied a dictionary analysis to §1 and noted that seamen and railroad workers did not include the entire workforce of their respective industries, the implication being that determining if a worker is exempt under §1 must be done on a job-by-job, task-by-task analysis with the effects on interstate commerce. Russ Bleemer & R. Daniel Knaap, “Supreme Court Backs Airport Worker, Applies Federal Arbitration Act Sec. 1 Exemption,” CPR Speaks (June 6, (2022) (available here).
The petition argued that the Court should grant cert because while the Second Circuit decision was supported by an Eleventh Circuit decision also adopting an “industry requirement,” the First and Seventh Circuits rejected the idea that a transportation-industry requirement should be grafted on the FAA’s exemption. See Fraga v. Premium Retail Svcs. Inc. , 61 F. 4th 228 (1st Cir. 2023); see also Int’l Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast LLC, 702 F.3d 954, at 957 (7th Cir. 2012) (“[A] trucker is a transportation worker regardless of whether he transports his employer’s goods or the goods of a third party.”).
Furthermore, the petitioners noted that the First Circuit recently held that truck drivers for the respondent are exempt from the FAA. See Canales v. CK Sales Co. LLC, 67 F.4th 38, 40 (1st Cir. 2023).
With the cert petition granted, the circuit court split over the viability of this industry requirement will be determined. As of this posting, the case has not yet been scheduled for argument, but likely will be heard before year-end.
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