Employers in the transportation and shipping industry should keep their eyes out for the Supreme Court’s decision in Southwest Airlines Co. v. Saxon, as it may clarify—or shake up—how these industries utilize arbitration agreements.

Background

Although Southwest Airlines Co. v. Saxon began as a putative wage and hour class action lawsuit, plaintiff Latrice Saxon’s claims have yet to take off.

Ms. Saxon works for Southwest as a ramp agent supervisor. Her main job is supervising and assisting the workers who load and unload luggage onto and off planes. Although she sometimes loads and unloads luggage herself, her job does not require her to leave the airport where she works.

After Ms. Saxon sued Southwest, Southwest sought to enforce the arbitration agreement Ms. Saxon signed when she was first hired. But Ms. Saxon refused, arguing that she could not be forced to arbitrate her claims because she is a “transportation worker” who is exempt under Section 1 of the Federal Arbitration Act (FAA). The district court agreed with Southwest, but the Seventh Circuit agreed with Ms. Saxon. Now, both parties—and scores of employers and employees across similar industries—wait for the Supreme Court to decide what kinds of transportation workers fall under Section 1’s exemption.

The FAA and its “Transportation Worker” Exemption

Nearly 100 years ago, Congress passed the FAA to temper judicial hostility towards arbitration agreements. Since then, courts have routinely—though sometimes reluctantly—enforced arbitration agreements in the employer-employee context so long as the employment is linked to interstate commerce. However, Section 1 of the FAA exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” While the Supreme Court has since held that Section 1’s exemption only applies to the employment contracts of “transportation workers,” there is an open question as to the types of “transportation workers” who fall under this exemption.

In Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 119, the Supreme Court commented that the “legislative record on the [Section 1] exemption is quite sparse.” In its landmark decision on this statute, the Court was unable to point to language in either committee report addressing the meaning of the provision nor any mention of Section 1’s exclusion during debate on the FAA on the floor of either chamber of the 68th Congress.

Nonetheless, the Circuit City Court explained that Section 1’s exemption is meant to apply narrowly to certain classes of transportation workers—such as seamen and railroad employees—who serve a “necessary role in the free flow of goods.” This is, at least in part, because at the time the FAA became law, the concept of Congressional power over activities affecting interstate commerce had not developed to the extent it has since. Accordingly, the Court has analyzed the exemption and the phrase “workers engaged in foreign or interstate commerce” within the meaning the 68th Congress intended to give the phrase. In 2019, the Supreme Court held in New Prime Inc. v. Oliveira (2019) 139 S.Ct. 532, 537, that the term “worker” encompasses both employees and independent contractors but did not offer detailed guidance as to the breadth of workers encompassed under Section 1’s exemption where those workers did not cross state lines in rendering services.

Thus, employers and companies utilizing independent contractors in the transportation industry have had to navigate through a gray area, particularly where those companies operate in various circuits across the country. There is hope that the Supreme Court clarifies the limits of this exemption in the Saxon case.

Where to Draw the Line under Section 1?

Southwest contends that Section 1’s exemption should be limited to just those employees who work on a vehicle—here, a plane—as it moves goods and people across borders in foreign or interstate commerce. When the FAA was passed, Southwest points out that the term “seamen” meant only those who worked on the ship, unlike the stevedores who loaded and unloaded the ship’s cargo. Like the seamen of Section 1, Southwest alleges, the pilots and crew that fly people and goods across borders are distinct from the ramp agents and their supervisors who, like the stevedores, only load and unload the planes.

Ms. Saxon argues for a broader interpretation of Section 1’s exemption. She contends that when Congress passed the FAA, the ordinary meaning of seamen and railroad employees meant those who did the customary work of the ship or railroad—whether or not the worker was physically on the ship or train as it crossed borders. By extension, Ms. Saxon claims that she is a transportation worker because she does the customary work of the airline industry by supervising the workers who load and unload luggage onto and off of planes.

In the end, how the Court distinguishes transportation workers who are exempt under Section 1 from workers who are tangential to the transportation process may have a rippling effect across various industries.

It is anticipated that the Court will issue its decision by the end of June 2022. In the meantime, employers may want to consider having alternate strategies to implement for their dispute resolution/arbitration programs depending on the Court’s ruling.