Supreme Court Preview: An Airline and an Employee Will Argue Over the Reach of an Exclusion from the Federal Arbitration Act

By Russ Bleemer

The U.S. Supreme Court reconvenes Monday morning to hear oral arguments in the third of four arbitration matters before the justices in a nine-day period.

Southwest Airlines Co. v. Saxon, No. 21-309, may have the biggest impact on workers of any of the cases.  It presents a Federal Arbitration Act Sec. 1 question:

Whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.

The distinction of whether a worker is operating in interstate commerce has a knotty history.  A restrictive reading could eliminate a workplace dispute arbitration obligation for many employees nationwide. An expansive reading could eviscerate employment agreement dispute resolution clauses.

The Court hasn’t been sympathetic to workers avoiding arbitration.  But the view isn’t categorical. A notable exception is the three-year-old FAA Sec. 1 case, New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (available here), in which an 8-0 opinion by Justice Neil Gorsuch held that an independent contractor—a long-haul truck driver—was exempt from arbitration because there was no employer-employee relationship.

FAA Sec. 1 defines the statute’s application to maritime transactions and commerce. The section ends noting that “nothing [in the statute] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Southwest Airlines likely will require a similar textual analysis of the so-called Sec. 1 residual clause–which New Prime needed for “contracts of employment”–on “interstate commerce” characteristics.

The Court has interpreted the law to mean that the exception from FAA application is only for transportation workers “engaged in” interstate commerce. Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu).

Original plaintiff Latrice Saxon, now the Supreme Court case respondent, is a “Ramp Agent Supervisor for Southwest Airlines who occasionally loads and unloads passenger baggage from airplanes,” according to Southwest Airlines’ cert petition, which is available at the docket link above.

Saxon works at Chicago’s Midway Airport. She filed a class-action suit against her employer for overtime she contended that the employees were owed under the Fair Labor Standards Act.

The Seventh U.S. Circuit Court of Appeals in the case (available at https://bit.ly/3rRA8Ln) held that the plaintiff was a transportation worker, and therefore exempt from the FAA, and didn’t have to arbitrate. Southwest Airlines requires all workers who aren’t covered by collective bargaining agreements to arbitrate workplace disputes, according to court papers.

Noting a circuit split, Southwest Airlines appealed, and the nation’s top Court agreed to decide whether the local worker was FAA-exempt, which suggests the examination of the plaintiff’s work in relation to interstate commerce.

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That’s the key inquiry for the amicus filings on both sides. The briefs supporting petitioner Southwest Airlines echo the carrier’s position seeking to have a narrow FAA Sec. 1 definition and define being “engaged in foreign or interstate commerce” as meaning moving goods or people across borders. Southwest Airlines and the amicus parties want the Seventh Circuit decision reversed.  Joining the petitioner are six amicus briefs, from the

  • The U.S. Chamber of Commerce and the National Association of Manufacturers;
  • Lyft Inc.;
  • Uber Technologies Inc.;
  • Amazon.com;
  • Washington Legal Foundation, a conservative, free-market think tank and public interest law firm (which notes that “The FAA contains a discrete exemption, in § 1, for a few categories of transportation workers. Congress included the exemption not to excuse these classes of workers from arbitration, but merely to enable them to arbitrate through other congressionally created channels. The respondent here is not subject to an alternative channel of this sort; she just wants to avoid arbitration altogether. She seeks to gut the federal policy in favor of arbitration by expanding the § 1 exemption far beyond its proper bounds.”), and
  • Airlines for America, an 86-year-old trade association, which discusses FAA Sec. 1 but also emphasizes the benefits of arbitration for the airline industry.

There are seven amicus filings backing respondent/original plaintiff Latrice Saxon in asking the Court to uphold the Seventh Circuit and retain the ruling that her Chicago-based transportation work was a part of interstate commerce and she is therefore exempt under FAA Sec. 1 from arbitration in her employment agreement. The briefs are from

  • The National Employment Lawyers Association, whose members focus on representing individual workers;
  • The American Federation of Labor and Congress of Industrial Organizations–the AFL-CIO;
  • The American Association for Justice, a trial lawyers’ professional organization;
  • A brief on behalf of 17 states, their attorneys general, and the District of Columbia;
  • Public Justice, a Washington, D.C., nonprofit law firm, consumer advocacy group, and left-leaning think tank;
  • The National Academy of Arbitrators and the National Association of Railroad Referees, whose brief states, “It may appear puzzling that organizations of professional arbitrators oppose petitioner’s proposal to increase the use of arbitration under the FAA, but it is not. Amici’s position is grounded in their fundamental fidelity to the institution of arbitration, to a clear understanding of Congress’ legislative intent . . ., and to judicial precedent,” and
  • Three legal historians who maintain that the Court has recognized that Congress enacted the FAA Sec. 1 exemption “to avoid unsettling then-established dispute-resolution schemes covering workers like ‘railroad employees’ under Title III of the Transportation Act of 1920 and ‘seamen’ under sections 25-26 of the Shipping Commissioners Act of 1872,” regardless of whether the transportation workers crossed state lines in their employment, relying on Circuit City reasoning. The professors are James Pope, Rutgers Law School, Newark, N.J.; Imre Szalai, Loyola University New Orleans College of Law, and Paul Taillon, University of Auckland, in Auckland, New Zealand.

The parties’ and the amicus briefs are available on the Supreme Court’s docket page, linked at the top of this article.

* * *

While Southwest Airlines may have the biggest direct impact on workers of the 2021-2022 Supreme Court caseload, it isn’t alone in its arbitration consequences. Four of the six matters before the U.S. Supreme Court involve employment cases at their core, though often arcane legal points have brought them to the Court and will be the focus of the decisions, as well as in the two arguments still to be heard. The effect of the opinions could have a profound effect on workplace disputes . . .  or boost Congressional efforts to change arbitration in Congress. (See report on the recently signed-into-law Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 and the push for further reforms on CPR Speaks here.)

In addition to Southwest Airlines,  on Nov. 2 the Court heard Badgerow v. Walters, No. 20-1143, which awaits decision. The case focuses on the limits of state court jurisdiction and the reach of federal court jurisdiction over the provisions of the Federal Arbitration Act.  The case was brought by a financial services employee against her bosses and company for harassment and other workplace claims.  More on the November argument on CPR Speaks here.

Last Monday, the Court examined a suit by a former Taco Bell employee who claimed that the franchise company had waived its right under her employment agreement to arbitrate their wage dispute.  The original plaintiff was contesting an Eighth U.S. Circuit Court of Appeals decision that found for the company because the employee had not been prejudiced by the company’s conduct.  The former employee challenged the prejudice requirement and asked the Court to focus on the company’s actions. The case of Morgan v. Sundance Inc., No. 21-328,  is expected to be decided before the current Court term ends in June; more on the argument earlier this week on CPR Speaks here.

Next Wednesday’s Viking River Cruises v. Moriana, No. 20-1573, focuses on the relationship between the FAA and California’s Private Attorneys General Act. The Court will likely revisit its extensive history on federal preemption of state laws.

The PAGA law enables an individual employee to seek a court judgment for breach of California labor laws as a “private attorney general” on behalf of the state of California. Thousands of cases have been filed under the law and, many employers say, skirt employment agreements requiring arbitration for workplace disputes. For background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

* * *

A preview and an analysis of the 2021-2022 Supreme Court arbitration docket can be found at Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK.

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A live audio stream of Monday’s argument will be available at the Court’s home page, here. Archives of recordings and transcripts for cases this term, including the three arbitration cases argued so far, are available on the Court’s website here.

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The author edits Alternatives to the High Cost of Litigation at altnewsletter.com for CPR.

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