The U.S. Court of Appeals for the First Circuit has ruled that baked goods distributors alleging they were misclassified as independent contractors are not required to arbitrate their claims, finding that they fall within the transportation worker exemption set forth in Section One of the Federal Arbitration Act.

United States Court of Appeals

SUMMARY: (court decision – opens in PDF)

“This is the latest in a line of cases calling for interpretation of section 1 of the Federal Arbitration Act (‘FAA’). Section 1 exempts from the FAA’s purview ‘contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.’ 9 U.S.C. §1. Considering the arguments and evidence before it, the district court denied defendants’ motion to dismiss or, in the alternative, to compel arbitration under the FAA. In so doing, the district court found that plaintiffs, who distribute baked goods along routes in Massachusetts, fit within the section 1 exemption. Defendants, whose baked goods plaintiffs distribute, request reversal on several grounds, some of which they presented to the district court and others of which they did not. …

“Resolving this case requires interpreting section 1 of the FAA, which exempts ‘contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce’ from the FAA’s general command that arbitration agreements be enforced. 9 U.S.C. §1. This exemption is ‘afforded a narrow construction’ under which it applies only to ‘contracts of employment of transportation workers.’ Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 118–19 (2001). In addition, ‘[t]o be “engaged in” interstate commerce, a class of workers “must at least play a direct and ‘necessary role in the free flow of goods’ across borders.” That is, the class of workers “must be actively ‘engaged in transportation’ of those goods across borders via the channels of foreign or interstate commerce.”’ Fraga [v. Premium Retail Servs., Inc., 61 F.4th 228, 237 (1st Cir. 2023)] (citations omitted) (quoting Sw. Airlines Co. v. Saxon, 142 S. Ct. 1783, 1790 (2022)). …

“On appeal, defendants make four arguments why the section 1 exemption does not apply to plaintiffs. First, that plaintiffs are not ‘engaged in’ interstate commerce because their deliveries occur entirely within the borders of Massachusetts, and the baked goods’ prior interstate journey to Massachusetts is insufficient to bring plaintiffs’ intrastate transportation within the channels of interstate commerce. Second, that plaintiffs’ primary responsibilities are those of business owners, not transportation workers. Third, that plaintiffs do not themselves have ‘contracts of employment’ with defendants, as that term is used in section 1, because the Distributor Agreements were signed on behalf of T&B and not plaintiffs personally. And fourth, that plaintiffs necessarily cannot qualify for the section 1 exemption because they do not work in the transportation industry. …

“Having found two of defendants’ arguments waived, we address the merits of defendants’ remaining arguments, beginning with the contention that plaintiffs do not fit within the section 1 exemption because the business for which they do their work is not in the transportation industry. This contention does not survive our recent analysis in Fraga of how to determine whether a worker belongs to a class of transportation workers. Fraga reiterated Saxon‘s holding, based on the text of section 1, that the inquiry trains ‘on what [the worker] does at [the company], not what [the company] does generally.’ … Simply put, ‘workers who do transportation work are transportation workers.’ … So we held that an employee of a retail services company may qualify as a transportation worker for purposes of section 1, based on the work that she actually performed. … So, too, here. We look to what work plaintiffs do, not what defendants do generally. …

“That brings us to defendants’ remaining preserved challenge to the district court’s ruling: that plaintiffs’ responsibilities are those of a business owner, rather than those of a transportation worker. This argument runs smack into the facts as found by the district court — each plaintiff spends a minimum of fifty hours per week driving their delivery routes to deliver goods. There is no evidence in the record to suggest that this finding comes anywhere close to clear error. …

“… Workers who frequently perform transportation work do not have their transportation-worker status revoked merely because they also have other responsibilities. … Here, plaintiffs frequently deliver goods in trucks to stores. So they are transportation workers, even though they may also be responsible for other tasks associated with running a distribution business. …

“Here, plaintiffs deliver goods in trucks to stores for at least fifty hours every week. They therefore belong to a class of workers who frequently deliver goods in trucks to stores. Defendants offer no reason why that class is not a class of transportation workers. And plaintiffs’ additional membership in a class of workers who own companies that distribute products for defendants does not remove them from the class of workers who deliver goods — just as the Saxon plaintiff’s membership in a class of workers who supervise cargo loading did not remove her from the class of workers who physically load cargo.”