SCOTUS Broadens FAA Transportation Industry Exemption

This month, The U.S. Supreme Court decided a case about franchisees who transported packaged baked goods, including Wonder Bread, from a warehouse and distributed them to local shops. The distributors contracted with Flowers bakery which incorporated arbitration agreements requiring “any claim, dispute, and/or controversy” to be arbitrated under the Federal Arbitration Act (FAA). They later sued Flowers for wage-and-hour claims under state and federal law. Flowers moved to compel arbitration under the FAA. The Franchisees argued that they fell within an exemption in Section 1 of the FAA: “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The federal district court granted Flowers’ motion, and the Second Circuit Court of Appeals affirmed. The Second Circuit reasoned that the interstate commerce exemption only exempts from the FAA’s coverage “workers involved in the transportation industries,” not breads, buns, rolls, and snack cakes. SCOTUS held that “there is no such requirement,” explaining that Section 1 “focuses on ‘the performance of work’ rather than the industry of the employer,” and that the statute “says nothing to direct courts to consider the industry of a worker’s employer.” The Second Circuit decided that an entity would be considered within the transportation 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.” But SCOTUS said that test would often turn on arcane riddles about the nature of a company’s services. For example, does a pizza delivery company derive its revenue mainly from pizza or delivery? Extensive discovery might be necessary before deciding a motion to compel arbitration, adding expense and delay to every FAA case. That “complexity and uncertainty” they said would result in litigation the statute seeks to avoid. See more here-- https://tinyurl.com/2yyykup5 and opinion here-- https://tinyurl.com/yc53j85p