The U.S. Supreme Court, in a unanimous 8-0 decision by Justice Clarence Thomas in Southwest Airlines v. Saxon, has rejected an employer argument that arbitration can be compelled under the Federal Arbitration Act for any employee who does not cross interstate or foreign borders.(See:  Justice Amy Coney Barrett did not participate in the case.  Prior to her nomination to the court, she had served on the Seventh Circuit panel that heard the initial appellate argument.

The decision considers a federal lawsuit under the Fair Labor Standards Act initiated by a ramp agent supervisor at Midway Airport in Chicago.  As a ramp agent, the employee regularly loads and unloads planes that travel throughout the U.S. and abroad, but does not herself cross state lines.  In countering the suit, the company sought to compel arbitration pursuant to an arbitration agreement she had been required to sign.

The plaintiff objected to arbitration relying on an exemption in Section 1 of the FAA that excludes “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  This exclusion is known as the transportation worker exemption, as established by the court in Circuit City v. Adams, 532 U.S. 105 (2001).  The company argued that only employees who cross interstate or foreign borders qualify for the Section 1 exemption.  The District Court agreed and ordered arbitration.  The Seventh Circuit reversed and the high court granted review.

The Supreme Court ruling affirmed the Seventh Circuit, concluding that the FAA does not apply to the plaintiff in this case because her actual physical work shows she is directly “engaged in” channels of interstate commerce, as is the ramp agent class generally.  As the opinion states, “…airline employees who physically load and unload cargo on and off planes traveling in interstate commerce are, as a practical matter, part of the interstate transportation of goods.” When the exemption applies under the FAA, as in this case, the employee might still have to arbitrate a claim if applicable state arbitration law does not exempt her or him.

In the court’s ruling, it declined to rule, as plaintiff proposed, that the FAA exemption applies to all airline industry employees.  In this respect, while the court noted that the FAA text at issue expressly excludes “railroad employees,” the court reasoned that this language is ambiguous in terms of extending Section 1 to all airline employees regardless of their border-crossing activity.  The court also observed that the Section 1 exclusion for “seamen” suggests that the exemption might apply to a subset of airline employees, such as ramp agents in this case, but not as an industry-wide measure.

In construing the Section 1 exemption, the court did not determine when an employee would be so removed from the flow of commerce that as to not qualify for the exemption, making FAA enforcement warranted.  This limitation, explained in footnote two of the decision, is of particular relevance in the so-called gig economy involving employees such as those who drive for Uber and Lyft, or those who deliver goods for Amazon and other entities.  Those companies contributed amicus briefs in the proceeding urging the court to refrain from a broad reading of the interstate commerce text in Section 1 that would cover all drivers, even those with minimal connection to cross-border work.  More litigation can be expected to determine the parameters of the transportation worker exemption.

Barry Winograd was the counsel of record on the amicus brief submitted by the National Academy of Arbitrators, which urged the result reached by the court.  The NAA was joined as amici by the National Association of Railroad Referees. The court, however, did not refer to the focus of amici on the Railway Labor Act as providing guidance for excluding airline and railroad employees.  Nevertheless, while not addressing the RLA, the court’s performance-oriented “engaged in” standard is likely to prompt arguments tied to RLA experience in lower court cases that will now apply the decision.

Under the RLA, Section 181 would be relevant as it includes language virtually identical to that in Section 1 of the FAA, stating:  “All of the provisions of subchapter I of this chapter except section 153 of this title are extended to and shall cover every common carrier by air engaged in interstate or foreign commerce, and every carrier by air transporting mail for or under contract with the United States Government, and every air pilot or other person who performs any work as an employee or subordinate official of such carrier or carriers, subject to its or their continuing authority to supervise and direct the manner of rendition of his service.” (Emphasis added.)

[Barry Winograd, the author of this case note, is a member of the NAA and is an arbitrator and mediator. Matthew Finkin, also an NAA member, assisted on the brief.]

This summary was written by Lise Gelernter.