Voluntary arbitration agreements involving federal law are enforced under the Federal Arbitration Act (FAA). Section 1 of the FAA exempts certain classes of workers, however, from the enforcement of arbitration. The U.S. Supreme Court recently resolved a federal circuit court split over whether employees who load cargo for the transportation of goods are engaged in commerce and exempt from arbitration under Section 1.
FAA and Section 1 Exemption
The FAA, enacted in 1925, favors arbitration to resolve employment disputes. Congress limited the FAA under Section 1, exempting seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce from arbitration.
In 2001, the Supreme Court held that Section 1 applies only to “transportation workers.” It also explained, however, that any such exempted worker must play at least a direct and necessary role in the flow of goods across state or international borders.
As a Southwest Airlines ramp supervisor, Latrice Saxon’s job duties included supervising, training, and assisting ramp agents responsible for loading and unloading commercial cargo from airplanes. Specifically, ramp supervisors frequently performed the duties of ramp agents as part of their employment.
Saxon filed suit against Southwest Airlines for failing to pay ramp supervisors for overtime work under the Fair Labor Standards Act (FLSA). Southwest asked the court to halt the lawsuit, asserting that arbitration was required under the FAA. In response, she argued ramp supervisors are workers engaged in foreign or interstate commerce and thus are exempt from the FAA under Section 1.
Path to Supreme Court
The United States District Court for the Northern District of Illinois agreed with Southwest, dismissed the case, and instructed the parties to resolve the dispute through arbitration. Specifically, the district court reasoned that “merely handling goods” wasn’t sufficient. Rather, a worker must be involved in “actual transportation” to fall within the Section 1 exemption to the FAA.
On appeal, the U.S. 7th Circuit Court of Appeals (whose rulings apply to Illinois, Indiana, and Wisconsin employers) considered whether Saxon was a transportation worker under Section 1. It found that ramp supervisors, such as Saxon, are cargo loaders, who are engaged in the actual transportation of goods. As such, they are engaged in commerce and are exempt from the arbitration requirement under Section 1.
The 7th Circuit’s decision conflicted, however, with a previous decision by the 5th Circuit. To resolve the conflict, the Supreme Court agreed to hear the case.
Supreme Court’s Decision
The Supreme Court first considered how to define the relevant class of workers. Saxon argued that all airline employees constituted a class of workers covered under Section 1. In contrast, Southwest asserted the relevant class consists of only workers engaged in day-to-day interstate commerce.
Agreeing that the FAA requires “performance of work,” the Court held that Saxon is a member of a class of workers based on the work she performs for Southwest, not based on the industry. Thus, the Court held Saxon is a member of a class of cargo loaders.
Next, the Court considered whether the class of cargo loaders are actually engaged in foreign or interstate commerce that falls under the Section 1 exemption. It defined “engaged in commerce” as being directly involved in transporting goods across state or international borders. The Court relied on its previous definition of “transportation workers” to include a class of workers that plays a direct and necessary role in the flow of goods. It concluded cargo loaders clearly demonstrate this exact central feature of a transportation worker.
The Court rejected Saxon’s argument that all airline employees constitute a class exempt under Section 1, concluding the exemption specifically applies to workers engaged in commercial activity, not just employees in a general industry. It also rejected arguments from Southwest that Section 1 applies only to workers who physically travel to transport goods or people across borders. Further, Southwest’s argument that the Court should err on the side of fewer Section 1 exemptions to satisfy the pro-arbitration purpose of the FAA was also rejected by the Court.
Ultimately, the Court held Saxon belongs to a class of workers engaged in foreign or interstate commerce, to which the Section 1 exemption applies. Thus, she is exempted from arbitration under the FAA. Saxon v. Southwest Airlines Co., No. 21-309 (June 6, 2022).
Section 1 exemptions from the FAA are rare. Certain classes of workers who perform a direct or necessary role in the flow of goods, however, fall squarely within the category of workers Section 1 intends to exempt from arbitration. You should be mindful that employees who play a direct role in interstate or foreign commerce, even if they don’t physically transport goods, may be exempt from arbitration under Section 1. If you have concerns about whether an employment dispute may be exempt from arbitration, you should consult with a qualified attorney.
This article, slightly modified to note recent updates, was featured online in the Wisconsin Employment Law Letter and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.