U.S. Supreme Court Clarifies Application of FAA Transportation Exemption

Seyfarth Synopsis: On April 12, 2024, the United States Supreme Court ruled that an individual does not need to work directly in the transportation industry to be within the scope of the Federal Arbitration Act (FAA) exemption for transportation industry workers. The Court held that the work performed, rather than the industry of the employer, determines whether the FAA’s exemption applies. Bissonnette et al. v. Lepage Bakeries Park St., LLC, et al.

Facts

Neal Bissonnette and Tyler Wojnarowski were franchisees who owned the right to distribute packaged bakery foods for Flowers Foods, Inc. (Flowers). They brought a putative class action against Flowers, alleging violations of state and federal wage laws. Flowers moved to compel arbitration based on the contracts the distributors had signed with the bakeries, which required any disputes to be arbitrated under section 1 of the FAA. The District Court granted the motion ordering the case to arbitration. 

The Second Circuit Decision

The Second Circuit Court of Appeals affirmed the District Court’s order. The Second Circuit concluded that the exemption in the FAA for the “class of workers engaged in foreign or interstate commerce” (the “residual clause”) only applied to workers in the transportation industry—Bissonnette and Wojnarowski, however, were in the “bakery industry.”

The United States Supreme Court’s Decision

The question before the Supreme Court was whether the FAA transportation exemption is limited to workers in the transportation industry itself. In answering this question, the Supreme Court emphasized that the focus should be on the work performed by the individual, rather than the industry of the employer.

Relying on its decision in Southwest Airlines Co. v. Saxon, 596 U.S. 450, 455 (2022), the Supreme Court determined that an individual does not need to work in the transportation industry to be exempt from coverage under the FAA. The Supreme Court’s interpretation of the residual clause of section 1 was crucial to its determination. In its prior rulings, the Supreme Court concluded that the residual clause should be read in conjunction with the specific categories of “seamen” and “railroad employees” that precede it, and that the common attribute shared by these specific categories is that they are both performing transportation related work. Therefore, the residual clause is limited to transportation workers, but does not require that they work in the transportation industry in order to be exempt from the FAA.

The Supreme Court rejected the Second Circuit’s “transportation-industry” test, which focused on whether an entity’s prices were chiefly pegged to the movement of goods or passengers, and if these predominant source of commercial revenue was generated by that movement. The Supreme Court rejected this approach because it would require extensive discovery, and could lead to additional litigation, adding expense and delay to arbitration cases.

What Bissonnette Means for Employers

This decision clears the way for myriad workers to argue (not necessarily persuasively) that they fall within the exemption for transportation workers under the FAA even if their employers are not engaged in the transportation industry. As the Supreme Court puts it, an exempt worker “must at least play a direct and necessary role in the free flow of goods across borders.” However, since this exemption applies only to arbitration agreements subject to the FAA, some employers may still be able to compel arbitration under state arbitration laws.