Supreme Court Expands Federal Arbitration Act Exemption from ADR

The U.S. Supreme Court held this morning that there is no industry requirement for a worker to qualify as exempt from the Federal Arbitration Act. The focus in analysis for the FAA exemption is the worker's job, not his or her employer's business.

The Court's decision in Bissonnette v. LePage Bakeries Park St. LLC, No. 23-51, specifically examined whether commercial truck drivers who are not employed by a transportation company qualify as a “class of workers engaged in interstate commerce” along the same lines as “seamen” and “railroad employees” in Section 1 of the Federal Arbitration Act.

In a unanimous opinion authored by Chief Justice John G. Roberts Jr., the Court held that a transportation worker need not work in the transportation industry to be exempt from coverage under FAA §1. The opinion, however, leaves open the extent of the application of interstate commerce, as well as the definition of a transportation worker, to the lower courts--and likely, future Supreme Court decisions.

Today's opinion can be found at https://bit.ly/4avulyl.

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This decision aligns with the recent Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), a case on the FAA Sec. 1 exemption that the adversaries--original plaintiff and petitioner Bissonnette and defendant/respondent LePage Bakeries Park St. LLC (a distribution subsidiary of Thomasville, Ga.-based Flowers Foods Inc., which also was a party in the case and which bakes, among other products, Wonder Bread)--frequently cited in their filings. In Saxon, the Court did not state that the exemption had an industry requirement in its analysis of Sec. 1's so-called residual clause.

The FAA Sec. 1 exemption and residual clause state that despite the act's mandate in enforcing arbitration clauses in contracts, “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

The Feb 20 oral arguments appeared to signal today's decision; it seemed like the justices were hesitant to support the respondent companies’ industry-standard FAA requirement. This was evident in Chief Justice Roberts' comments, who expressed his belief that the industry requirement would impose a heavy burden and cause conflicts in lower courts when analyzing FAA Sec. 1.

Petitioner’s attorney Jennifer Dale Bennett, a principal in the San Francisco office of Gupta Wessler, relied on the FAA's text, which does not indicate an industry requirement, to make her argument. She said that “the word ‘seamen’ did not mean somebody who was employed by a company that sold transportation” to highlight that at no point were workers exempt based on their industry, but based on the nature of their work.

Bennett's interpretation of the FAA--in the moment and in retrospect--appears to have been more accepted among the justices than her counterpart's. Justice Brett Kavanaugh, however, challenged her interpretation because he indicated that at the Saxon oral argument, it was stated repeatedly that if a company had been shipping its own goods when the FAA was written a century ago, the Bissonnette plaintiffs wouldn’t have qualified as railway workers under the exemption. Kavanaugh explained, “There was a distinction that was made between railroads that shipped things for the public . . . and, say, a coal company's internal railroads.”

Bennett explained that Saxon, which looked at the nature of an employee’s work to decide whether they were exempt from the FAA, did not specifically cover the industry requirement issue. She also targeted the respondents’ arguments in noting that the FAA's purpose upon its 1925 enactment applied to society today, and would not warrant an industry standard requirement.

Respondents’ attorney Traci L. Lovitt, a New York partner in Jones Day, countered by relying on ejusdem generis and the context of the FAA at its creation to argue the industry standard requirement. She argued that only the FAA used “railroad employees” and “seamen”--two transportation industries--in the same statute, so the ejusdem generis canon indicates that only workers within the transportation industry should be exempt from the statute. Lovitt also explained the definition of the word “seamen,” but her definition and argument was challenged by Justices Ketanji Brown Jackson Jackson and Sonia Sotomayor, respectively. 

Although Justice Jackson agreed that transportation workers are unique and differentiated in the FAA, she said that she did not know why that would inspire a transportation industry requirement rather than having the FAA exempt all transportation workers. “I don't understand where the industry limitation is coming from,” said Jackson, adding, “That's not in the statute.”

In his opinion, Chief Justice Roberts directly addresses the respondent’s argument that ejusdem generis suggests that only workers within the transportation industry should be exempt from FAA §1. Flowers Foods claimed, as noted above, that exempting all transportation workers casts too wide a net, broadening the definitions of “seamen” and “railroad employees” beyond the statute’s intent. “That argument gets ejusdem generis exactly backwards,” according to the opinion. Roberts explains that “seamen” and “railroad employees” limit the residual clause, not the other way around. Unless those terms were removed from the statute, FAA §1 is not be as broad as Lovitt and Flowers Food suggested.

For more on the oral arguments, see Lee Williams, “Tuesday's Supreme Court Federal Arbitration Act Exemption Arguments,” CPR Speaks (February 20, 2024) (available here) The audio from the oral argument can be heard on the Supreme Court's website here. The transcript is linked on the same page (direct, here).

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Bissonnette derives from the Second Circuit, where the U.S. Circuit Court of Appeals analyzed a circuit split on whether truck drivers employed by a company outside of the transportation industry should be exempt from the FAA. The Second Circuit held that the plaintiffs were not exempt because they were in the bakery industry, not the transportation industry. For more background on the case, see Jonathan Baccay, “The Supreme Court Will Address a Circuit Split on a Federal Arbitration Act Exemption” CPR Speaks (Sep. 29) (available here).

Today’s Court decision vacates the Second Circuit opinion, with the nation's top Court sending the case back to the lower court for further inquiry.  The Roberts opinion concludes, "A transportation worker need not work in the transportation industry to fall within the exemption from the FAA provided by §1 of the Act. The Second Circuit accordingly erred in compelling arbitration on the basis that petitioners work in the bakery industry. We express no opinion on any alternative grounds in favor of arbitration raised below, including that petitioners are not transportation workers and that petitioners are not “engaged in foreign or interstate commerce” within the meaning of §1 because they deliver baked goods only in Connecticut."

Still, the case is a significant win for employees seeking to avoid arbitration by using the Sec. 1 exemption.  The finding in favor of the petitioners broadens FAA Section 1 application for workers who contract to or are employed by a business to market, sell, and distribute goods in interstate commerce. ADR professionals and litigators will be watching to see if the respondents’ predictions come true—that a decision like's today's opinion sparks more FAA Section 1 litigation.

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The author, a second-year student at the Howard University School of Law in Washington, D.C., is a full-year CPR intern as part of CPR’s consortium program with Howard Law’s ADR program.

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