The Federal Arbitration Act (FAA) exempts, “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Such employment contracts are not covered by the FAA, although they may be covered by state arbitration acts. The Supreme Court’s recent decision in Bissonnette v. LePage Bakeries Part St., LLC, 601 US ___, Case No. 23-51 (April 12, 2024) interpreted the breadth of this exemption, often referred to as the transportation exemption.
The plaintiffs in this case had purchased a distributorship from Flowers Foods, Inc., the maker of Wonder Bread, among other bakery products. Their work as distributors involved picking up and delivering bakery products from a warehouse. They also found new customers, advertised, set up promotional displays, and maintained their customers’ inventories. Plaintiffs, believing they were not being paid consistent with the Fair Labor Standards Act (FLSA), filed a putative class action lawsuit. The question was whether plaintiffs could pursue their FLSA claims in court or whether the arbitration provision in the distributorship agreement required their cases to be individually arbitrated.
The district court ruled in their employer’s favor on the grounds plaintiffs were not transportation workers within the meaning of the exemption. Specifically, the district noted plaintiffs duties under the distribution agreement, described above, involved more than transportation and their “much broader scope of responsibility … belie[d] their claim that they are only or even principally truck drivers.” The Second Circuit affirmed on the alternative basis that plaintiffs were in the bakery industry, not the transportation injury. To determine the industry to which a particular plaintiff belonged, the Second Circuit would review the employer’s sales or revenue and select the industry that accounted for the most sales or revenue. The Second Circuit’s decision created a conflict with the First Circuit, so the Supreme Court took up the case to resolve the conflict.
The Supreme Court began its analysis by referring to its recent decision in Southwest Airlines Co. v Saxon, 596 USS 450 (2022). There, the Court rejected the industry approach for an approach that focused on the work of the particular plaintiff before the court. The Court noted that Saxon’s employee-by-employee approach was more consistent with the statutory language because the language of the exemption, quoted above, focused on employees rather than the industry in which they worked. The Court also expressed its concern that an inquiry into the source of an employer’s sales or revenue in each case would lead to questions of fact and mini trials prior to courts being in a position to apply the FAA: the exact problem the FAA was enacted to address.
The Supreme Court then reversed the Second Circuit because it had applied the wrong test to determine whether the FAA’s transportation exemption applied and remanded for application of the correct standard to the facts presented. The Supreme Court’s decision was unanimous and was authored by Chief Justice Roberts.