Justices clarify "transportation exception" to compelled arbitrationm law

Arbitration can be described as a private justice system that resolves legal disputes if the parties agree to that arrangement. In the employment context, the worker usually signs the arbitration agreement at the start of her employment, and if she wants to sue her employer later on, the case will be routed to JAMS or AAA, the primary arbitration services. But all kinds of non-employment disputes are also arbitrated. Anything can be arbitrated. Courts do not like it when litigants try to get around the arbitration agreement, and they will strictly enforce the Federal Arbitration Act, which provides that arbitration agreements will be upheld absent some compelling reason (such as if someone was coerced into signing the agreement). There is a major exception to the FAA, and that arose on April 12, when the Supreme Court examined the transportation exception.

The case is Bissonnette v. Le Page Bakeries. The plaintiffs distributed baked goods to retailers in Connecticut. They got into a dispute with Flowers Foods, who make the baked goods for delivery. But plaintiffs signed an arbitration agreement, which Flowers wanted to enforce so the case could proceed in arbitration, which is generally viewed as more favorable to employers than the courts. Plaintiffs wanted the case in court. After several rounds of appellate practice in the Second Circuit, which sided with Flowers and ordered the case to arbitration, the case reached the Supreme Court, which unanimously agrees with the plaintiffs that the case is not arbitrable.

The FAA has a curious exception that we call the "transportation exception." The issue is whether a transportation worker must work for a company in the transportation industry to invoke the transportation exception under the FAA. Or whether the plaintiff engages in transportation as part of his work, even if he is working for an entity that is not part of the transportation industry. The Second Circuit held the plaintiffs must work in the transportation industry, such as the airlines or a trucking company. As the Circuit saw it, the "entity would be considered within that industry if it pegs its charges chiefly to the movement of goods or passengers and its predominant source of commercial revenue is generated by that movement." The Supreme Court rejects that interpretation of the FAA.

Since the FAA does not actually define what constitutes the "transportation industry," it reviews the statute with a fresh eye, determining that the Second Circuit's interpretation needlessly complicates the statute and would require mini-trials to determine whether an entity really falls within the exception. "Extensive discovery may be necessary to explore the internal structure and revenue models of a company before deciding a simple motion to compel arbitration." The better rule, the Supreme Court says, is that in determining whether the transportation exception applies, the plaintiff need not work for a company in the transportation industry. Rather, "a transportation worker is one who is actively engaged in transportation of goods across borders via the channels of foreign or interstate commerce. In other words, any exempt worker must at least play a direct and necessary role in the free flow of goods across borders."