SUPREME COURT NARROWS THE APPLICATION OF THE FEDERAL ARBITRATION ACT

Monday, July 11 2022 13:44 Written by  Patricia Collins

Reprinted with permission from the June 23rd edition of The Legal Intelligencer. (c) 2021 ALM Media Properties. Further duplication without permission is prohibited.

The United States Supreme Court narrowed the application of the Federal Arbitration Act (“FAA”) in its June 6, 2022 opinion in Southwest Airlines Co. v. Saxon, 596 U.S. ____ (2002). The case, along with the earlier case New Prime Inc. v. Oliveiri, 556 U.S. ____ (2019) , represents the narrowest narrowing of the Supreme Court’s broad holding in Epic Systems Corp. v. Lewis, 284 U.S. ____ (2018). In Southwest Airlines v. Saxon, the court answered the narrow question of whether an employee employed as a “ramp supervisor” fell within the Federal Arbitration Act’s exemption of “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”, concluding that the workers did fall within the exemption. The case does not presage a trend towards narrowing the application of the Federal Arbitration Act, and instead demonstrates that the Court intends to encourage honoring arbitration agreements by insisting on a textual and precedential approach to the FAA.

Saxon was employed as a ramp supervisor at Southwest Airlines at Chicago Midway International Airport. At the beginning of her employment, she signed an employment agreement agreeing to arbitrate wage disputes individually. As a ramp supervisor, Saxon’s job was to train and supervise teams of ramp agents. Ramp agents are employees who physically load and unload baggage, airmail and freight. Occasionally, ramp supervisors assist ramp agents in loading and unloading cargo. Saxon filed a putative class action of ramp supervisors against Southwest, alleging violations of the Fair Labor Standards Act (“FLSA”). Southwest moved to dismiss, citing Saxon’s employment agreement which required arbitration pursuant to the FAA. Saxon argued that the ramp supervisors were exempt from the FAA pursuant to the exemption for “workers engaged in foreign or interstate commerce.” The United States District Court for the Northern District of Illinois dismissed the case, agreeing that the exemption did not apply. The United States Court of Appeals for the Seventh Circuit reversed, finding that the loading of cargo to be transported interstate is “itself commerce.” The Seventh Circuit’s holding conflicted with an earlier decision of the United States Court of Appeals of the Fifth Circuit. The Supreme Court granted certiorari and found that Saxon belong to a “class of workers engaged in foreign or interstate commerce”, and was exempt from arbitration.


The Supreme Court cautioned that in applying the exemption, courts should consider the actual work performed by the members of the class. The analysis requires the court to review what the employee “actually does at Southwest, not what Southwest does generally.” The Court found that it was uncontested that Saxon, and the other members of the class, frequently load and unload cargo to be transported across state lines. The Supreme Court, in an analysis dependent on the text of the statutes, found that “any class of workers directly involved in transporting goods across state or international borders falls within” the exemption, and that cargo loaders fall within such a class.

The Court specifically discounted arguments from each side of the dispute. The Court rejected Saxon’s argument that the “class of workers” exempted should include all airline employees who carry out the customary work of the airline. The Court rejected this as too broad a reading, as it would then include employees who run credit-card points programs, or design Southwest’s website from the FAA. The Court also rejected Southwest’s argument that the relevant class of workers should be defined as “only workers who physical move goods or people across foreign or international boundaries.” The Court specifically rejected that a narrow reading of the exemption was necessary in order to serve the FAA’s “proarbitration purpose”, relying instead on the “plain text” of the exemption.

In so doing, the Court cited its opinion in New Prime Inc. v. Oliveira, where the Court likewise decided that an employee’s contract with New Prime fell within the exemption, and affirmed an order finding that the matter was not subject to arbitration. New Prime was engaged in interstate trucking, and employed Oliveira as a driver. New Prime classified Oliveira as an “independent contractor”. New Prime insisted on the application of the FAA, and argued that Oliveira did not fall within the exemption because he was an independent contractor and not an employee. The Court rejected this argument, relying instead on the “plain meaning” of the phrase “contracts of employment” at the time the FAA was enacted.

The Court’s opinions in Southwest Airlines v. Saxon and New Prime Inc. v. Oliveira demonstrate the Court’s intention to apply the exemption for workers in interstate and international commerce broadly, despite the Court’s recent cases demonstrating an intention to enforce the FAA. In Epic Systems v. Lewis, the Court held that arbitration clauses in employment agreement are enforceable under the FAA even if they result in waiver of the right to bring a class or collection action under the FLSA or the National Labor Relations Act. Interestingly, Justice Gorsuch in that opinion chided Justice Ginsburg for focusing on “policy” rather than “precedent” and the text of the statute in her dissent.

While the Court’s opinion in Southwest Airlines v. Saxon represents a rare victory for employees in the current Supreme Court jurisprudence, it is consistent with the Court’s admonitions in Epic Systems, that is, at least in this context, the Court will look to precedent and the text of the FAA and its exemptions, and not underlying policy, in determining when the FAA applies. It will be interesting to see if this textual and precedential approach will continue. For practitioners, the challenge remains - how will employers and courts balance the application of the FAA against the right to bring collective and class action cases under the FLSA and other employment statutes.

Patricia Collins is a Partner and Employment Law Chair with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation and health care law. Patricia Collins can be contacted at 215.230.7500 ext. 126.

 

Last modified on Wednesday, August 03 2022 19:15
Patricia Collins

Patricia Collins

Patty has been practicing law since 1996 in the areas of Employment Law, Health Care and Litigation, with extensive experience in advising employers and health care providers as well as complex litigation in federal and state courts. Patty’s knowledge of employment law includes the Employee Retirement Income Security Act; federal and state employment discrimination laws, and employment contracts and wage claims.

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