Law Alert: Supreme Court Addresses “Transportation Worker” Exemption From the Federal Arbitration Act
June 6, 2022
In a unanimous decision (8-0, with Justice Barrett recused) today, the U.S. Supreme Court clarified who qualifies as a “transportation worker” for purposes of the exemption from the Federal Arbitration Act (FAA). In Southwest Airlines v. Saxon, the Court held that an airline’s ramp supervisor, who regularly performed loading and unloading of luggage, mail, and cargo, fell within the exemption from the FAA. While the Court’s holding was limited to those who “load and unload cargo on and off airplanes that travel in interstate commerce,” the majority’s reasoning could apply more broadly to workers performing similar services in other modes of transportation.
The FAA broadly applies to contracts "involving commerce,” meaning that it governs the vast majority of arbitration agreements entered into in the U.S. However, the FAA exempts arbitration agreements that are contained in (1) contracts of employment with (2) transportation workers who are (3) engaged in interstate commerce. In New Prime Inc. v. Oliveira, decided in 2019, the Court clarified that a “contract of employment” means an “agreement to perform work,” and covers both employees and independent contractors. Today’s opinion addressed the second element, holding that the “loading or unloading of an interstate shipment by the employees of a carrier is so closely related to interstate transportation as to be practically a part of it.” With respect to the third element of the exemption, the Court refrained from addressing the different approaches taken by lower courts for determining whether a class of workers is engaged in interstate commerce, as it was not at issue in the case.
Notably, the Court rejected a broader interpretation of the exemption by Saxon, who had argued that the exemption covers virtually all employees of a company involved in interstate transportation. Instead, the Court reasoned that Saxon was a member of a class of transportation workers “based on what she does at Southwest, not what Southwest does generally.” This preserves the job-specific analysis necessary to determine whether a worker is a member of a class of workers exempt from the FAA.
Where the FAA applies, businesses benefit from more predictability with respect to the enforceability of key terms in arbitration agreements, including class waivers. That said, even if a given worker is exempt under the FAA, businesses may still pursue arbitration under state arbitration law. Some state arbitration law is more favorable than others, however, so it is wise to thoroughly analyze the validity and enforceability of your arbitration agreement under state arbitration law if your workers are likely to fall under the transportation worker exemption from the FAA.