April 12, 2024

Federal Arbitration Act’s Interstate Commerce Exemption Applies Outside the “Transportation Industry”

In a unanimous opinion, the Supreme Court held today that the Federal Arbitration Act’s (“FAA”) exemption for any “class of workers engaged in foreign or interstate commerce” is not limited to workers whose employers are in the “transportation industry.”

The Facts

Neal Bissonnette and Tyler Wojnarowski were franchisees who distributed products for Flowers Foods Inc. (“Flowers”), a producer and marketer of packaged bakery foods, including Wonder Bread. Flowers baked and packaged the products and sent them to a warehouse in Waterbury, Connecticut. Bissonnette and Wojnarowski picked up the products from the warehouse and distributed them to local shops in Connecticut. 

To secure their distribution rights, Bissonnette and Wojnarowski had to sign Distributor Agreements with Flowers, which incorporated arbitration agreements requiring “any claim, dispute, and/or controversy” to be arbitrated under the FAA.

Bissonnette and Wojnarowski later sued Flowers for various wage-and-hour claims under state and federal law. Flowers moved to compel arbitration under the FAA. Bissonnette and Wojnarowski opposed, arguing that they fell within the following exemption in section 1 of the FAA: “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” (Emphasis added.) 

The district court granted Flowers’ motion, and the Second Circuit Court of Appeals affirmed. The Second Circuit reasoned that the interstate commerce exemption only exempts from the FAA’s coverage “workers involved in the transportation industries.” Because, as the court found, Bissonnette and Wojnarowski’s “commerce is in breads, buns, rolls, and snack cakes—not transportation services,” the exemption did not apply and the case had to be compelled to arbitration.

The Decision

On appeal, the question the Supreme Court faced was whether a transportation worker must work for a company in the transportation industry to be exempt under section 1 of the FAA. The Court held that “there is no such requirement.” In a brief opinion, the Court explained that section 1 “focuses on ‘the performance of work’ rather than the industry of the employer,” and that the statute “says nothing to direct courts to consider the industry of a worker’s employer.” 

On a practical level, the Court questioned the feasibility of determining whether an employer is in the transportation industry: “The application of such a test . . . would often turn on arcane riddles about the nature of a company’s services. Does a pizza delivery company derive its revenue mainly from pizza or delivery? Do companies like Amazon and Walmart—which both sell products of their own and transport products sold by third parties—derive their revenue mainly from retail or shipping?”

The Court did not ultimately decide whether Bissonnette and Wojnarowski were in fact covered by the interstate commerce exemption. Having answered the “transportation industry” question, it remanded the case to the lower courts to determine whether arbitration should still be compelled.

Practical Implications

The landscape of employment arbitration seems always to be in flux. For example, Congress is currently debating (again) the Forced Arbitration Injustice Repeal Act (“FAIR Act”), which would prohibit mandatory pre-dispute employment arbitration agreements (not unlike California’s failed effort to do the same in AB 51). Employers who administer arbitration agreements must stay up to date on these developments and, when necessary, revise their agreements accordingly. Failing to do so could result in a form agreement that is no longer enforceable.