The Federal Arbitration Act (FAA) provides employers with wide discretion to require that disputes with employees be subject to mandatory arbitration rather than proceeding through the court system. Many employers favor arbitration because it avoids what they view as biased or arbitrary jury decisions. Last Friday in a unanimous decision, the U.S. Supreme Court found that an exception to the FAA applies more broadly than interpreted by a federal appellate court.

Bissonnette v. LePage Bakeries Park St. LLC involved a claim by distributors who delivered products for a multibillion-dollar company that makes baked goods. The distributors claim that they were actually misclassified employees, entitled to overtime and other legal protections. The defendant attempted to use arbitration agreements signed by the drivers to prevent a class action federal court lawsuit. The plaintiffs noted that the FAA contains an exception from its provisions mandating arbitration, for workers involved in interstate transportation. The Second Circuit Court of Appeals determined that this exception applies only to companies that are engaged in the transportation industry, regardless of the work performed by the individual subject to the arbitration agreement. Because the plaintiffs in this case worked for a bakery, the FAA exemption did not apply.

The Supreme Court disagreed, reversing the Second Circuit and remanding the case for further proceedings. The court noted that the FAA exemption refers to the workers’ jobs and not the business’ industry. Practically, focusing on the defendant’s industry would place federal courts in the difficult position of having to classify companies’ businesses. If the worker’s job involves interstate transportation, the FAA exemption applies regardless of how the company makes money.

Companies with workers involved in interstate transportation could still draft arbitration agreements that comply with applicable state law requirements for enforceability. However, this case makes clear that FAA preemption of laws prohibiting arbitration of claims will not apply to workers whose jobs involve interstate transportation.

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