Supreme Court’s Arbitration Ruling Invites Even More Lawsuits (Correct)

The US Supreme Court’s decision last week reviving a proposed wage-and-hour class action by baked goods delivery drivers sets the stage for more judicial showdowns over which classes of workers are subject to mandatory arbitration agreements.

The justices unanimously ruled April 12 that a worker who engages in foreign or interstate commerce doesn’t need to be employed by a company in the transportation industry to be exempt from the Federal Arbitration Act, which favors handling disputes in private arbitration rather than in court. The law contains a specific carveout for transportation workers.

Bissonnette v. LePage Bakeries Park St., LLC, authored by Chief Justice John Roberts, vacated a 2022 US Court of Appeals for the Second Circuit ruling that drivers who deliver baked goods for Flowers Foods Inc. and two subsidiaries don’t fall under the FAA’s transportation worker exemption and, therefore, can’t pursue their wage-and-hour claims in court.

The companies are in the bakery industry, not the transportation industry, and so the carveout doesn’t apply, the lower court held.

The ruling is a blow to retail giants like Amazon.com Inc. and Walmart Inc.—which are facing similar claims in court that they’re misclassifying workers as independent contractors rather than employees—that hire drivers but don’t provide transportation services. Amazon and other business groups had urged the Supreme Court to side with the bakery company.

The Supreme Court resolved a circuit split on the industry issue but left open several other legal questions related to the drivers’ qualification for the exemption, including whether they’re transportation workers or if they engaged in interstate commerce, employment attorneys said.

It follows two recent arbitration cases that yielded similar victories for workers as the court continues to chip away at open questions on the extent of the FAA’s exemption.

In 2019, New Prime Inc. v. Oliveira held that the exemption applies to independent contractors, while the court ruled last year in Southwest Airlines Co. v. Saxon that airplane cargo loaders qualify for the exemption because their involvement with transporting goods across state or international borders falls within its parameters.

Now, the Bissonnette decision has also teed up the issue of whether last-mile delivery drivers and app-based passenger drivers qualify for the transportation worker carveout, said Michael Palmer, a managing partner and co-chair of Sanford Heisler Sharp LLP’s wage and hour practice group. Both matters are being hotly litigated in the lower courts.

Additional areas that will invite litigation over the exception include the actual amount of transportation one needs to be engaged in and “and at what point are goods no longer traveling through interstate” commerce, Palmer said.

These “are harder questions the decision left open,” and will have a more sweeping impact on the exemption inquiry, said David N. Cinotti, a partner at Pashman Stein Walder Hayden PC.

Pro-Worker Movement

None of these questions were before the Supreme Court for determination this time around, but Friday’s ruling illustrates how the FAA’s scope is being developed fragmentarily, Palmer said.

Over the past few years, the court has shifted away from its previous pro-arbitration stance by adopting a more comprehensive approach to the types of workers whose claims are exempt from arbitration mandates, he said.

“We’re starting to see a little bit of a pullback. I don’t think that it is by any means a repudiation of its prior stance that arbitration should be favored, which is still the dominant view of the Supreme Court,” Palmer said. “But there’s some recognition that while arbitration may be favored, there are limits, and those limits are within the act itself.”

The Bissonnette ruling wasn’t sweeping because Saxon already held that the FAA exemption inquiry must focus on whether the workers’ job duties render them transportation workers, Cinotti said. “It clearly follows, and it was just an application of Saxon,” he said.

The ruling does provide some fodder for employment misclassification lawsuits from drivers whom distributors contract with to bring their products to the market across state lines, Palmer said.

However, Patrick Bannon, a partner at management-side firm Seyfarth Shaw LLP, is skeptical that the ruling will have significant implications for these types of misclassification cases.

It does “give employers one less argument to make” when seeking to enforce an arbitration agreement, Bannon said. “Obviously, it’s always good for an employee when they overcome one less argument.”

“But the worker who wants to be in court, not arbitration, still has to show that they’re actively engaged in the transportation of goods,” he said. “So I don’t think the Supreme Court is looking to make this into a broad exemption. And I think the Supreme Court will keep it pretty tight.”

An important lesson for employers is to exercise caution when classifying workers as independent contractors, Bannon said.

Traci L. Lovitt, a Jones Day appellate practice leader who argued the case for the bakery, told Bloomberg Law in a statement that while she’s “disappointed” with the justices’ decision, they “expressed no opinion on Flowers’ alternative arguments favoring arbitration.”

“We maintain that our arbitration agreements are enforceable and will continue to defend the use of arbitration to efficiently resolve disputes,” Lovitt said.

Counsel for the drivers didn’t respond to a request for comment.

Decision Foreseeable

Many court watchers weren’t surprised by the ruling, particularly in light of the skepticism the justices expressed at February’s oral argument concerning the bakery company’s assertion that the FAA exemption contemplated a requirement that the employer be engaged in the transportation industry.

Adopting such a requirement would have required the Supreme Court “to take a significant step back from the broad pronouncement that it made in Saxon despite the absence of any textual hook in” the FAA for doing so, said Richard Silberberg, co-chair of Dorsey & Whitney LLP’s international arbitration and litigation group.

At oral argument, Justice Sonia Sotomayor also referred to the possibility that an employer could move to compel a transportation worker to arbitrate under state law, he noted.

The opinion ultimately didn’t address this issue, but Silberberg said compelling arbitration under state law still “remains a potentially viable option for an employer in circumstances” where the employee is found or is likely to be exempted from the federal mandate.

“However, the circumstances under which the state law option is available remain uncertain in the absence of further judicial guidance,” he said.

The case is Bissonnette v. LePage Bakeries Park St., LLC, 2024 BL 125373, U.S., No. 23-51, 4/12/24.