Supreme Court Ruling Ramps Up Opportunities For Certain Workers To Challenge Arbitration Agreements Under Federal Law

Seyfarth Synopsis: As we previously reported, employers generally have found success when the United States Supreme Court takes up questions about the arbitrability of workplace disputes. The unanimous decision in Southwest Airlines Co. v. Saxon bucks that trend, holding that those who load cargo onto airplanes engaged in interstate travel are exempt from the Federal Arbitration Act (FAA). The Court’s fact-specific decision, however, rejects any bright-line test. As such, it leaves room for employers looking to enforce their arbitration agreements under federal law and opens the door to future litigation regarding whether workers are actually “engaged in interstate commerce” when they do not cross borders to perform their work.

Background

Latrice Saxon worked at Midway International Airport in Chicago as a ramp supervisor for Southwest Airlines. She filed suit against the company in federal court, alleging that Southwest Airlines failed to pay overtime wages to Saxon and others. Saxon, however, previously had agreed to submit any disputes over wages to an arbitrator who would decide them in arbitration on an individual basis. Accordingly, the company moved to dismiss the lawsuit and to compel arbitration under the FAA.

Saxon resisted the motion to compel, arguing that her work placed her outside the scope of the FAA. More specifically, she cited Section 1 of the FAA, which provides that the statute does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

The district court sided with Southwest Airlines, reasoning that ramp agents and supervisors are responsible for the handling of goods but not responsible for the transportation of those goods across state lines. The Seventh Circuit reversed that decision, holding that “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce” as the term was understood when the FAA was enacted. The Seventh Circuit’s decision put it in conflict with an earlier decision by the Fifth Circuit, and the Supreme Court took the case to resolve the split.

What Did The Supreme Court Hold?

In a unanimous 8-0 decision (Justice Barrett recused), the Supreme Court agreed with the Seventh Circuit’s holding that ramp agents and supervisors who physically loaded cargo onto airplanes traveling across state lines are subject to the FAA’s transportation worker exemption.

The Court reached its conclusion through a two-step analysis. First, the Court defined “the relevant ‘class of workers’ to which Saxon belongs.” Next, the Court “determine[d] whether that class of workers is ‘engaged in foreign or interstate commerce.’”

Defining the Relevant Class of Workers As “Airplane Cargo Loaders”

Saxon urged the Court to take an expansive view of this issue and to decide it based on her employer’s industry - air transportation. The Court expressly rejected this sweeping approach, noting that the FAA refers to “workers,” not “employees” or “servants,” which suggests that the meaning of who is covered turns on the performance of work.

The Court held that this inquiry is not directed at the nature of the employer’s business but directed at the actual work that the members of the class typically carry out. In other words, “Saxon is ... a member of a ‘class of workers’ based on what she does at Southwest, not what Southwest does generally.”

The Court concluded from the record before it that Saxon and other ramp supervisors physically loaded and unloaded cargo on and off airplanes on a frequent basis.

Defining Whether “Airplane Cargo Loaders” Are Engaged in Interstate Commerce

The Court next considered whether the class of airplane cargo loaders to which Saxon belonged was “engaged in foreign or interstate commerce” and found its answer in a decision issued nearly a century ago:

We have said that it is “too plain to require discussion 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.” Baltimore & Ohio Southwestern R. Co. v. Burtch, 263 U. S. 540, 544 (1924). We think it equally plain that airline employees who physically load and unload cargo on and off planes traveling in interstate commerce are, as a practical matter, part of the interstate transportation of goods. They form “a class of workers engaged in foreign or interstate commerce.”

Applying that decision here, the Court concluded that “one who loads cargo on a plane bound for interstate transit is intimately involved with the commerce (e.g., transportation) of that cargo.”

Having concluded that “Saxon frequently loads and unloads cargo on and off airplanes that travel in interstate commerce,” the Court held that she satisfied the transportation worker exemption in Section 1 of the FAA.

The ruling does not disturb mandatory arbitration of certain types of disputes arising under collective bargaining agreements pursuant to the Railway Labor Act.

What About Other Classes of Workers?

While the Court agreed that “airplane cargo loaders” are engaged in interstate commerce, it acknowledged that the distinction may not always be clear:

We recognize that the answer [whether the class of workers are engaged in foreign or interstate commerce] will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders.

While the Court did not offer a bright-line test to help draw such distinctions in the future, it provided a few guideposts.

First, the Court noted that, although the FAA does not define “transportation worker,” any such worker must at least be “actively engaged” in the “free flow of goods across borders” via the “channels of foreign or interstate commerce.”

Applying these criteria, the Court noted that cargo loaders exhibit these central features of a transportation worker because they “load[] cargo on a plane bound for interstate transit” and, when they engage in such activity, “there [can] be no doubt that [interstate] transportation [is] still in progress.”

Second, the Court offered some examples of work that would not satisfy the exemption. It noted that workers who make intrastate sales of asphalt are not engaged in interstate commerce merely because the product is later used to build interstate highways. Similarly, the Court stated that workers who supply localized janitorial services to a corporation engaged in interstate commerce do not satisfy the exemption because they do not perform activities “within the flow” of interstate commerce.

In a footnote, the Court acknowledged that two Circuits recently issued decisions involving workers who carried out duties “further removed from the channels of interstate commerce or the actual crossing of borders.” It referred to the Ninth Circuit’s decision finding “last leg” delivery drivers within Section 1’s exemption and the Seventh Circuit’s decision finding food delivery drivers outside Section 1’s exemption. Although its opinion appeared to signal agreement with the holdings in those cases, the Court stated only that it “need not address those questions to resolve this case.”

Implications For Employers

Employers avoided the worst case scenario that some had feared -- a holding that the transportation worker exemption applies to all employees who work for employers engaged in the transportation industry. Instead, the Court issued a fact-specific decision that focused on application of the transportation worker exemption to a worker directly engaged in loading cargo for transport across borders.

Companies should anticipate that other workers who are less directly involved in the flow of interstate commerce will attempt to invoke the exemption claiming that they, too, are exempt from the FAA. The burden of demonstrating that the “transportation worker” exemption applies falls to the worker, and the decision in Saxon provides employers ammunition for curtailing these arguments based the work “actually performed” as well as the connection of that work to the flow of goods across borders.

Further, the Court’s decision heightens the importance of state law, potentially through uniform arbitration acts in effect in many states that do not contain a transportation worker exemption, in enforcing arbitration agreements of workers most connected to interstate transportation. For those workers, the choice of state law will take on renewed emphasis.