SCOTUS Unanimous: Last Mile Exempt §1 FAA

Last week, the U.S. Supreme Court issued a decision in Flowers Foods, Inc. v. Brock, U.S. Sup. Ct. No. 24-935, 608 U.S. ___ (May 28, 2026) regarding the Federal Arbitration Act (FAA) and the question of whether someone can qualify as a worker under the §1 exemption if they never cross state lines and never interact with vehicles that do. Typically, the FAA requires courts to enforce many private arbitration agreements, but it also provides that “nothing” in the law shall be used to compel arbitration in disputes involving the “contracts of employment” of any class of workers “engaged in . . . interstate commerce.” 9 U.S.C. §1. The Supreme Court’s latest decision eliminates one of the many arguments that have been raised to counteract the interstate arbitration exemption under the FAA. In recent years, SCOTUS addressed the scope of §1’s exemption no fewer than three times. In each case, they rejected efforts to cabin its reach. First, in New Prime Inc. v. Oliveira, 586 U.S. 105 (2019), they held that the “contracts of employment” §1 embraces include contracts governing independent contractors, not just employees. Then, in Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), they held an airline worker who loaded and unloaded cargo fit within §1’s exemption, even though she did not fly planes or otherwise cross state lines. Finally, in Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246, 249 (2024), they held that a worker can fall under §1 whether employed in the “transportation industry” or some other, so long as their work “play[s] a direct and necessary role in the free flow of goods across borders.” In the instant mattter, they clarified that independent contractors and employees that make “last mile” deliveries as part of a “continuous journey” of goods from one state to another are exempt from arbitration under §1 of the FAA covering interstate transportation workers, even if all of the distributor’s services are intrastate. The Court stated such workers “can sometimes be direct, necessary, and active participants in moving goods ‘from … points in one state’ to ‘points in another state’ without crossing state lines or interacting with vehicles that do.” See more here-- https://tinyurl.com/52rvabua and https://tinyurl.com/mj39rvtf

SCOTUS - Second Unanimous Arbitration Opinion

This month, the Supreme Court of the United States handed down its second unanimous opinion on arbitration. In New Prime Inc. v. Oliveira, which arose out of an employment dispute between a trucking company and driver, the Court found while the Federal Arbitration Act (FAA) authorizes a court to compel arbitration if parties agreed to arbitrate, the statute also defines the agreements to which it applies. Before a court enforces an agreement to arbitrate, it must first ensure the agreement is one the FAA authorizes courts to enforce. Specifically at issue was whether an exception to the rule in the FAA that obligates courts to enforce arbitration agreements that involve interstate commerce applied. Section I of the FAA exempts contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce from arbitration. The opinion explains while a private agreement may be crystal clear and require arbitration of every question under the sun, that does not necessarily mean the FAA authorizes courts to stay litigation and send the parties to an arbitral forum. In this instance, companies engaged in interstate or foreign transportation should take notice that a trucker’s status as an independent contractor no longer protects the company’s arbitration agreement with him or her under the FAA. Interestingly, despite a conservative majority, the justices chose to interpret the FAA in a way that likely expands worker’s rights. Justice Gorsuch, who authored the opinion, did not deny the vigor of the court’s embrace of a liberal federal policy favoring arbitration agreements. However, in this case, the text seemed clear enough to persuade all of the justices to reject the claim for arbitration. See commentaries here-- https://bit.ly/2Gdqhb2 and https://bit.ly/2CvAxro and opinion here-- https://bit.ly/2CyEpbd

SCOTUS of Just 8 Consider Arbitrability

This week, a U.S. Supreme Court of just eight justices will hear New Prime Inc. v. Oliveira including the matter of whether a dispute over applicability of the Federal Arbitration Act's (FAA) Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause. Importantly, this case may resolve whether such applicability of the FAA is a question for the arbitrator or the judge. Several of the Supreme Court’s recent cases suggest that an arbitrator’s authority includes not only resolving of the dispute, but also determining the extent to which any particular dispute falls within our authority as arbitrators. Interestingly, retired Justice Kennedy was one of five justices commonly in the majority when arbitration cases were decided by a 5-4 vote. An even panel of justices must now decide how activity in this case, which involves an exception from the FAA for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce," will be determined. The underlying facts concern individuals who drive the trucks carrying goods consigned to trucking companies documenting drivers as independent contractors rather than employees. For example, if that exception does not apply, then long-haul truck drivers are back in the conventional domain of the FAA. The actual text of the FAA, however, does not exempt all transportation “employees.” Rather, it exempts “contracts of employment” of transportation employees. Oral argument is scheduled October 3rd. See more here-- https://bit.ly/2OZyZec and https://bit.ly/2HVjWiB and https://bit.ly/2OteZDM

Uber Arbitration Agreements Upheld

Last week, the Ninth Circuit Court of Appeals in the case of Mohamed v. Uber Technologies, Inc. overturned a District Court’s ruling which originally found Uber’s arbitration agreements to be unenforceable. Last year, the District Court held Uber's arbitration agreements were unconscionable due to the inclusion of a waiver of claims brought under California’s Private Attorneys General Act (“PAGA”). The decision invalidated nearly 250,000 arbitration agreements between Uber and independent drivers, allowing the case against Uber to proceed as a class action in civil court. Uber appealed the decision, arguing that the District Court should have simply severed the PAGA waiver pursuant to a severability provision, rather than invalidating the entire agreement. The Court of Appeals agreed with Uber, ruling that the PAGA waivers be severed from the arbitration agreements and the agreements are otherwise enforceable. The Ninth Circuit dismissed the trial judge's reasons for declaring parts of the arbitration agreement unenforceable as artificial. The appeals panel found the lower court judge also ignored Ninth Circuit precedent, erroneously applying a California Supreme Court decision that itself cited a relevant Ninth Circuit decision. This lastest decision will allow Uber drivers to pursue their PAGA claims in court, but will allow Uber to compel individual arbitration on all other claims. Uber had agreed to a $100 million settlement, which the trial court rejected last month, calling it unfair and inadequate. See more on here-- http://bit.ly/2cB6ylD and full decision-- http://bit.ly/2cnJaco

Arbitration to the Main Stage

In an action by several exotic dancers and entertainers against the operators of Rachel’s Adult Entertainment and Steakhouse in West Palm Beach, a federal judge granted a the strip club’s motion to compel arbitration in a Fair Labor Standards Act (FSLA), finding the entertainers' objections to agreements they signed unpersuasive or incorrect. Plaintiffs sought unpaid wages, claiming they were misclassified as independent contractors and that defendants failed to pay them a proper minimum wage and overtime as workers. Enforcement of the arbitration clause had been objected to because it was asserted all pages were not provided to dancers when they signed the agreements, which they claimed was under duress. Others argued they did not understand the arbitration clause due to language barriers. However, testimony given at an evidentiary hearing was deemed not fully credible by U.S. District Judge Robin Rosenberg. The club provided evidence that the documents were prepared by a third party who routinely stapled the pages together before delivering them. “The court can discern no credible basis for defendants or agents of defendants to choose to extract signature pages for certain dancers, and not others,” Judge Rosenberg wrote. “Thus, the court concludes that plaintiffs must rise or fall together. Either defendants systematically engaged in a pattern of practice of removing signature pages at the time of execution or defendants did not.” She also found the dancers’ claim of duress was without merit because the defendants provided evidence that no one was penalized for asking for more time to read the documents. “Florida law also places a strong duty on signatories to read the contents of the contract before signing,” wrote the court. Apparently, language barrier claims were exaggerated and mostly raised by a claimant who provided substantial testimony in English. The judge further stated that FLSA claims are routinely arbitrated, that the plaintiffs’ counsel had recently moved for arbitration on FLSA claims in an analogous case, that the arbitrator has the authority to sever portions of the agreement that are invalid or unenforceable, and that the Eleventh Circuit has held that when an arbitration agreement invokes the rules of the American Arbitration Association (AAA), as this one does, then it is clear the arbitrator is expected to determine if the agreement is valid. See more on story here-- bit.ly/1TvUgLm and case-- Monteverde et al. v. West Palm Beach Food and Beverage LLC, case number 9:15-cv-81203, U.S. District Court for the Southern District of Florida