U.S. Supreme Court: Workers Who Transport Goods Are Exempt from FAA, Regardless of Industry

The U.S. Supreme Court on April 12, 2024, decided Bissonnette v. LePage Bakeries Park St., LLC. The central issue revolved around the Federal Arbitration Act (FAA) and its applicability to workers engaged in interstate transportation. The FAA exempts "transportation workers" engaged in foreign or interstate commerce.

The two petitioners had entered into distributor agreements with Flowers Foods Inc., a company responsible for producing and distributing bakery products across the nation. The petitioners' responsibilities were to pick up baked goods from local warehouses and distribute them to stores and restaurants. They were compensated based on the difference between acquisition and selling prices. Although they could sell noncompetitive products, their primary work involved distributing Flowers' goods full-time. The distributor agreements included an arbitration agreement mandating that any disputes be resolved through binding arbitration under the FAA.

The critical question before the Supreme Court was whether these distributors qualified as "transportation workers" exempt from arbitration under Section 1 of the FAA. The U.S. Court of Appeals for the Second Circuit had previously ruled that the plaintiffs did not qualify as transportation workers because they did not work for a company specifically in the transportation industry; rather, the company was in the baking industry.

In a brief, unanimous opinion by Chief Justice John Roberts, the Supreme Court vacated and remanded. It held that the plaintiffs need not work in the transportation industry to fall within the "transportation worker" exemption from arbitration. The Court clarified that the FAA's exemption applies to those workers who are "actively engaged in transportation of goods across borders via the channels of foreign or interstate commerce" or "at least play a direct and necessary role in the free flow of goods across borders."

Implications for Employers

The Supreme Court's decision has significant implications for employers, particularly those utilizing workers involved in interstate transportation:

• Clarity on FAA Exemption. The ruling clarifies that to be exempt from the FAA, a class of workers actively engaged in interstate transportation does not necessarily need to be employed by a company exclusively in the transportation industry. Employers must recognize that even if their workers are not directly employed by a transportation company, they may still fall within the FAA's exemption if their primary duties involve interstate movement of goods.
• Risk Mitigation for Employers. Employers should exercise caution when classifying workers as independent contractors. Employers must evaluate whether their workers' roles intersect with transportation of goods across state lines and consider the FAA's implications when drafting employment and independent-contractor agreements. Employers may also consider whether to rely on state arbitration laws as an additional or alternative way to ensure the enforceability of their arbitration clauses.
• Industries Particularly Affected. Although the Court's opinion is expressly about how any industry may be using FAA-exempt transportation workers, its effects will be felt most strongly by companies that regularly deliver, ship or distribute physical goods across state lines. Those industries include traditional delivery and transportation services, but may also include the healthcare, retail, restaurant and hospitality industries.

The Court's unanimous decision reinforces the need for employers to carefully assess the nature of their workers' duties, especially when those duties involve transportation across state lines. Employers should seek legal guidance to navigate the complexities of contractor and employment agreements and the FAA to avoid potential disputes and ensure the enforceability of their arbitration clauses.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.