Supreme Court Expands FAA’s Arbitration Exemption to “Last-Mile” Delivery Drivers

Key Highlights

• The U.S. Supreme Court unanimously held that the FAA’s transportation worker exemption may cover last-mile delivery drivers who deliver goods that originated out of state. The exemption can apply even when the driver’s own route is entirely intrastate.
• The ruling may narrow the enforceability of arbitration agreements for employers in logistics, delivery, retail and e-commerce operations. It is likely to increase challenges by workers tied to interstate supply chains.
• Employers should review arbitration agreements covering drivers, couriers and delivery personnel in light of the Court’s continuous-movement analysis. They should also assess whether affected worker groups may require alternative dispute resolution provisions under state law.

In Flowers Foods, Inc. v. Brock, the United States Supreme Court issued a significant decision that will impact employers who utilize arbitration agreements for delivery drivers. In a unanimous ruling, the Court held that the Federal Arbitration Act’s (“FAA”) transportation worker exemption can extend to delivery drivers who deliver goods originating out of state, even if their involvement is purely intrastate. The decision continues the Court’s recent trend of closely examining the scope of the FAA’s transportation worker exemption and may have substantial implications for employers in the logistics, delivery, retail and e-commerce sectors.

Background

The FAA generally requires courts to enforce valid arbitration agreements. Section 1 of the FAA, however, exempts certain “workers engaged in foreign or interstate commerce” from coverage under the statute (the “Section 1 Exemption”).

The question decided by the Court was whether workers who complete the final leg of a delivery of goods intrastate, often referred to as “last-mile” drivers, are subject to the Section 1 Exemption of the FAA when the goods they deliver originated out of state. The worker at issue was an independent distributor who delivered goods from a warehouse in Colorado to retail outlets within Colorado. The goods, however, were shipped to the warehouse from out of state. 

The Supreme Court’s Decision

The Supreme Court concluded that the exemption may apply to last-mile delivery drivers if their work constitutes a direct part of the continuous interstate movement of goods. The Court thus declined to adopt a brightline rule that a worker must move interstate or even interact with a vehicle that moved across state lines, to fall within the Section 1 Exemption.

Rather than looking at whether the worker personally engages in interstate movement, the Court explained that the relevant inquiry should be focused on the journey of the goods themselves to determine whether they are moving in a continuous interstate stream. Still, for the Section 1 Exemption to apply, the worker must play a direct, active and necessary role in that continuous interstate movement of the goods.

What the Decision Means for Employers

The ruling is likely to increase litigation over the scope of the Section 1 Exemption and may limit the effectiveness of arbitration agreements for certain categories of transportation workers involved in distribution and delivery operations. Employers that rely on arbitration agreements should be cognizant of the fact that workers who themselves do not cross state lines can still fall within the Section 1 Exemption.

Industries potentially affected include:

• Package and parcel delivery services;
• E-commerce fulfillment and distribution operations;
• Retail delivery networks;
• Food and beverage distribution companies; and
• Third-party logistics providers.

The decision may also encourage transportation workers to challenge arbitration agreements in wage-and-hour, discrimination and other employment-related disputes where the workers are connected to interstate supply chains.

Steps Employers Should Consider

In light of the Court’s ruling, employers should consider:

• Reviewing arbitration agreements applicable to drivers, couriers and delivery personnel;
• Assessing whether particular worker groups may qualify for the Section 1 Exemption;
• Evaluating alternative dispute resolution provisions under applicable state law; and
• Reexamining litigation strategies in pending matters involving transportation-related employees.

Because the Court’s analysis focused heavily on the worker’s role within the broader movement of goods, future litigation will likely center on how closely particular job duties are tied to interstate commerce and the cross-state movement of goods. Employers should expect continued judicial scrutiny of arbitration programs involving transportation workers.

Looking Ahead

The Supreme Court’s decision represents another important development in the evolving landscape of employment arbitration. As businesses continue to rely on increasingly complex supply chains and delivery networks, courts will likely face additional questions regarding which workers fall within the Section 1 Exemption.

Employers should work closely with counsel to evaluate arbitration agreements and workforce classifications to ensure dispute resolution programs remain enforceable and aligned with current legal developments.

Contact your Polsinelli attorney for further guidance regarding the implications of this decision and other employment-related matters.