High Court Rejects Industry Test for Arbitration Exemption (1)

Workers can fall under an exemption for those in interstate transportation jobs to avoid arbitrating their wage-and-hour lawsuits, even if their employer isn’t in the transportation industry, the US Supreme Court said Friday, resolving a circuit split.

The high court unanimously rejected calls from Flowers Foods Inc. and two subsidiaries to affirm a ruling from the US Court of Appeals for the Second Circuit that their baked goods delivery drivers aren’t exempted from mandatory arbitration under the Federal Arbitration Act’s transportation worker carveout because the companies are in the bakery, not the transportation industry.

The justices didn’t read an industry requirement into Section 1 of the FAA, which applies to classes of workers engaged in foreign or interstate commerce. The FAA generally favors arbitration agreements and the use of a private resolution process rather than litigation.

A transportation worker doesn’t need to work in the transportation industry to be exempt from coverage under Section 1 of the FAA, Chief Justice John Roberts wrote for the court. The Second Circuit erred in compelling arbitration on the basis that the drivers worked in the bakery industry, he said.

The high court expressed no opinion on any alternative grounds in favor of arbitration raised in the district and circuit courts, including that the drivers aren’t transportation workers or aren’t engaged in foreign or interstate commerce within the meaning of Section 1 because they deliver baked goods only in Connecticut.

Boost For Drivers

The ruling provided clarity on the classes of workers in interstate commerce who are exempted from mandatory arbitration of their legal disputes, and comes as federal courts grapple over what classes of workers should fall under the arbitration exemption.

The inquiry has big implications for the gig economy, especially. If companies can’t invoke arbitration agreements to keep drivers’ employment classification cases out of court, the foundation of their business model could be upended.

Friday’s ruling revived Neal Bissonnette and Tyler Wojnarowski’s proposed class action accusing Flowers Foods of misclassifying them as independent contractors, depriving them of minimum wage, overtime pay, and other legal protections otherwise afforded to employees under state and federal wage laws.

The petitioners deliver baked goods such as Wonder Bread and Tastykake under distribution agreements with Flowers Foods and subsidiaries Lepage Bakeries Park Street LLC and CK Sales Co.

The defendants argued that the drivers signed an arbitration agreement covering their claims. The FAA doesn’t apply to contracts of employment for transportation workers.

The full Second Circuit declined to rehear the divided three-judge panel’s ruling on the dispute in February 2023, setting up a circuit split three months later when the First Circuit—in a similar wage dispute involving another set of Flowers Foods drivers—rejected adding an industry requirement.

Flowers Foods separately filed a petition for the justices to review the First Circuit outcome.

Representatives for the parties didn’t immediately respond to requests for comment.

Gupta Wessler LLP and Lichten & Liss-Riordan PC represent the workers. Jones Day and Ogletree, Deakins, Nash, Smoak & Stewart PC represent Flowers Foods.

The case is Bissonnette v. LePage Bakeries Park St. LLC, U.S., No. 23-51, 4/12/24.