Circuit clarifies transportation exception to Federal Arbitration Act

The Second Circuit first issued a ruling in this case in May 2022, holding that the plaintiffs were not able to invoke the transportation exception to the Federal Arbitration Act in their overtime claim under the Fair Labor Standards Act. The Supreme Court a few weeks later issued a ruling in a different transportation exception case, which prompted the plaintiffs' lawyer in this case to petition the Second Circuit to reconsider the case. The Second Circuit reconsiders the case, but the plaintiffs still lose.

The Federal Arbitration Act says that courts must honor arbitration clauses, including those governing employment relationships. So the arbitration clause that an employee signs with management on her first day of employment means she cannot sue the company in court for discrimination or other claims. One exception to that is the "transportation industry" exception. We have few cases that interpret that exception. This is one of them.

The case Bissonette v. LePage Bakeries Park St., LLC, issued on September 26. Plaintiffs deliver baked goods to stores and restaurants by truck. They claim the defendant denied them overtime pay and other wage and hour violations in violation of the Fair Labor Standards Act and Connecticut law. They want to sue in federal court, however, and not submit to arbitration. The common wisdom is that court is a more favorable forum for plaintiffs than arbitration. Management wants the case sent to arbitration. Plaintiffs claim the transportation industry exception allows them to sue in court. The district court granted defendants' motion to compel arbitration, and the Court of Appeals affirms in a divided vote.

While the FAA says transportation workers are not required to arbitrate, the Supreme Court has never defined what that phrase means. Under the FAA, employment contracts are not subject to arbitration involving "seamen, railroad employees and any other class of workers engaged in foreign or interstate commerce." The class of workers encompassed by the residual clause is "transportation workers." As the Second Circuit sees it, the two examples in the FAA, seamen and railroad employees "locate the 'transportation worker' in the context of a transportation industry." In Erving v. Virginia Squires Basketball, 468 F.2d 1064 (2d Cir. 1972), the Second Circuit said the FAA exclusion is limited to workers involved in the transportation industry. That is still good law, the Court of Appeals says. 

The holding: "an individual works in a transportation industry if the industry in which the individual works pegs its charges to the movement of goods or passengers, and the industry's predominant source of commercial revenue is generated by that movement." Under this interpretation, plaintiffs are in the baking industry, not the transportation industry or the trucking industry. While they drive the baked goods to stores and restaurants, these places are paying for the baked goods, not the transportation that brought the baked goods to these locations. 

 

After the Second Circuit issued its initial holding in May 2022, the Supreme Court issued Southwest Airlines v. Saxon, 142 S. Ct. 1783 (2022), which held that not everyone who works in the transportation industry can invoke the transportation exception, as the courts must consider "the actual work that the members of the class, as a whole, typically carry out," which means in other words, "what the worker 'frequently' does for the employer." The plaintiff in Saxon was able to invoke the transportation exception under the FAA. But not everyone who works for the airlines can invoke the exception, and the holding in Saxon is not so far-reaching that it can change the result in Bissonette, the Second Circuit holds, because "those who work in the bakery industry are not transportation workers, even those who drive a truck from which they sell and deliver the breads and cakes." This means the original decision in Bissonette stands, and the plaintiffs must go to arbitration, not court.