In this age of expensive class-action litigation, many California companies have found solace in their arbitration agreements. Under certain circumstances, the enforcement of such agreements includes the dismissal of class action claims. This has largely been made possible by the Federal Arbitration Act (FAA) which requires judges to enforce a wide range of written arbitration agreements notwithstanding contrary state law. California courts have a long history of delivering rulings that attempt to narrow the scope and effect of the FAA. As one of the latest examples, the California Court of Appeal for the Fifth District held that truck drivers who complete only intrastate deliveries are exempt from the FAA because their work was part of a “continuous stream of interstate travel.”
In Nieto v. Fresno Beverage Company, Inc. (2019) 33 Cal.App.5th 274, a Fresno-based driver who delivered products for a beverage company filed a class action lawsuit against his employer alleging various wage and hour violations under California Labor Law. The employer responded by filing a petition to compel arbitration based on the written arbitration agreement the driver signed when he was hired. The employer argued that courts were required to enforce all arbitration agreements “involving” interstate commerce under the FAA, regardless of any contrary state law.
The driver argued that he was exempt from arbitration pursuant to Section 1 of the FAA, and thus should be able to maintain his class action in state court. Section 1 provides a narrow exemption from the FAA’s coverage to certain transportation workers “engaged in” foreign or interstate commerce. The employer contended that a delivery truck driver who does not personally cross state lines is, by definition, not “engaged in interstate commerce” or engaged in the movement of interstate commerce for purposes of Section 1 of the FAA, and therefore cannot qualify for the exemption.
The court sided with the driver, concluding that though the drivers’ individual deliveries were made entirely within the state of California, they were merely the final leg of a continuous journey of beverages to the employer’s warehouse from out-of-state. The Court held that “‘[i]nterstate commerce’ includes not only goods that travel across state lines but also ‘the intrastate transport of goods in the flow of interstate commerce.’” Nieto, 33 Cal.App.5th at 282-83. An actual crossing of state lines is not a necessary condition for the exemption to apply. The court cited cases like Palcko v. Airborne Express, Inc. (3d Cir. 2004) 372 F.3d 588, where the FAA exemption was applied to workers whose duties involved monitoring and directing drivers who physically delivered interstate packages, even though they weren’t driving at all. The court therefore found the driver to be a transportation employee exempt from the FAA. Consequently, the arbitration agreement was not enforced and the case was permitted to proceed as a class action in state court.
So what’s the takeaway for California employers? Given this Court of Appeals’ interpretation of the FAA, employees who facilitate the transportation of goods from out of state—as a driver, monitor, director or otherwise—are now more likely to successfully bring class actions against their employers, whether or not they signed bilateral arbitration agreements. The minimum degree of involvement required by employees in the transportation process is likely to be the subject of future litigation. In the meantime, arbitration agreements remain enforceable against employees who are not exempt from the FAA.
