Unanimous SCOTUS Decides Southwest: Goes with the Flow on “Engaged” in Interstate Commerce

The Supreme Court has decided Southwest Airlines Co. v. Saxon, No. 21-309, ruling unanimously that the Federal Arbitration Act (“FAA”) section 1 exemption of “workers engaged in foreign or interstate commerce” includes classes of workers who are part of the flow or stream of interstate commerce, and that there is no FAA requirement that these individuals actually cross state lines.

We reported in December 2021 that the Supreme Court had granted Certiorari in four cases involving arbitration, among them Sundance. Specifically, the Court on December 10 agreed to review Saxon v. Southwest Airlines Co., 993 F.3d 492 (7th Cir. 2021). We covered this case in detail in SAA 2021-47 (Dec. 16) and in a feature article, After a Lull in 2021, a Busy Year Ahead Arbitration-wise for SCOTUS, 2021:48 Sec. Arb. Alert 1 (Dec. 23, 2021). We borrow from our past coverage to provide below a thumbnail sketch of the issues involved.

Case Below: The Extent of the FAA Section 1 Exemption

FAA section 1 exempts from the Act: “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” As we have reported many times, there is a clear Circuit Court split on whether the FAA section 1 exemption embraces only workers actually moving goods or people in interstate commerce or is to be construed more broadly to cover a class of workers whose  are part of the “flow” or “stream” of interstate commerce. In the underlying case, a unanimous Seventh Circuit held:

“The act of loading cargo onto a vehicle to be transported interstate is itself commerce, as that term was understood at the time of the Arbitration Act’s enactment in 1925. Airplane cargo loaders, as a class, are engaged in that commerce, in much the way that seamen and railroad employees were, and Saxon and the ramp supervisors are members of that class. It therefore follows that they are transportation workers whose contracts of employment are exempted from the Arbitration Act.”

Issue Before SCOTUS

The question presented in the August 23 Petition is: “Whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.”

The Oral Argument

The oral argument took place March 28.  Justice Coney Barrett did not participate; while there was no explanation about her absence, we think it was because she authored the Opinion in Wallace v. Grubhub Holdings, Inc., 970 F.3d 798 (7th Cir. 2020). The unanimous Wallace Court had rejected the drivers’ argument that the FAA section 1 carveout covered workers moving goods that had in the past been transported in interstate commerce but who themselves did not regularly move goods or people in interstate commerce. The case was referred to several times during the argument. The oral argument discussion featured repeated references to: drayage; seamen; stevedores; and wharfage. There were also frequent mentions of Circuit City Stores v. Adams,532 U.S. 105 (2001) (FAA section 1 exemption for “workers engaged in interstate commerce” applies only to transportation workers) and New Prime Inc. v. Oliveira, 139 S.Ct. 532 (2019) (FAA section 1 covers independent contractors, not just “employees”). The discussion focused more on the narrow question of airline baggage handlers, and seemed to be saving for another day the broader issue of “last mile” or Uber/Lift drivers (spoiler alert: that turned out to be the case). Based on the questions from the pro-arbitration wing Justices, it seemed to us that a narrow “stream” or “flow” of FAA section 1 engaged in interstate commerce ruling is in the offing (spoiler alert: that turned out to be the case).

Unanimous SCOTUS: We Go with the Flow

The unanimous Opinion in Southwest was authored by Justice Thomas. That he would be the writer was perhaps foreshadowed. We had said our coverage: “In the spirit of the upcoming Passover holiday, Justice Thomas asked four questions.” In an 11-page Opinion he writes:

“Latrice Saxon works for Southwest Airlines as a ramp supervisor. Her work frequently requires her to load and unload baggage, airmail, and commercial cargo on and off airplanes that travel across the country. The question presented is whether, under §1 of the Federal Arbitration Act, she belongs to a ‘class of workers engaged in foreign or interstate commerce’ that is exempted from the Act’s coverage. We hold that she does.” The Opinion adds: “Thus, any class of workers directly involved in transporting goods across state or international borders falls within §1’s exemption. Airplane cargo loaders are such a class…. Put another way, transportation workers must be actively ‘engaged in transportation’ of those goods across borders via the channels of foreign or interstate commerce.”

But crossing state lines is not required…

Narrow Decision

The Court makes clear that its holding is narrow, declining to adopt arguments proffered by each party based on the ejusdem generis principle (ed: we had to look up that one, too. It means: “where general words or phrases follow a number of specific words or phrases, the general words are specifically construed as limited and apply only to persons or things of the same kind or class as those expressly mentioned.”). For example, the Justices reject Saxon’s assertion that “class of workers” includes: “all airline employees who carry out the ‘customary work of the airline, rather than cargo loaders more specifically.” Says the Opinion:

“We therefore reject Saxon’s argument that §1 exempts virtually all employees of major transportation provider.” Likewise, the Court was unpersuaded by Southwest’s argument that: “Only workers who physically move goods or people across foreign or international boundaries—pilots, ship crews, locomotive engineers, and the like—are ‘engaged in foreign or interstate commerce.’” Also, the Justices eschew taking on broader issues: “We recognize that the answer will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders. Compare, e.g., Rittmann v. Amazon.com, Inc., 971 F. 3d 904, 915 (CA9 2020) (holding that a class of ‘last leg’ delivery drivers falls within §1’s exemption), with, e.g., Wallace v. Grubhub Holdings, Inc., 970 F. 3d 798, 803 (CA7 2020) (holding that food delivery drivers do not). In any event, we need not address those questions to resolve this case.”

No ”Arbitration Quartet” but Maybe a “No Arbitration Quartet”?

We had in past coverage wondered out loud if SCOTUS was setting up another “Steelworkers Trilogy” scenario, in which the Court six decades ago simultaneously decided three landmark arbitration cases involving the United Steelworkers. The three cases, United Steelworkers v. American Manufacturing Co., 363 U.S. 564 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); and United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960), were all heard the same week (April 27-28, 1960), and the decisions were all announced seriatim on the same day (June 20, 1960). “Is SCOTUS planning a redux with the ‘Arbitration Quartet’?, we mused. We thought we had our answer with the decision in Morgan v. Sundance Inc., No. 21-328, in that there would not be a simultaneous release of four arbitration-centric decisions. But there might be a different meaning. As our readers know, the Supreme Court on May 23 decided Morgan, ruling unanimously that there is no prejudice requirement under the FAA for a court to find a waiver of arbitration rights. Thus far, the decisions in Sundance and Southwest have limited the reach of the FAA. Left to be decided are ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401, and AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518; 18 USC 1782 (discovery in foreign arbitration); and Viking River Cruises, Inc. v. Moriana, No. 20-1573 (FAA preemption of California’s PAGA). Perhaps we will end up with four “no arbitration” rulings? We don’t think so, but time will tell.

(ed: *For an excellent analysis of this decision, see Supreme Court Backs Airport Worker, Applies Federal Arbitration Act Sec. 1 Exemption, and Sends Employment Dispute to Court in the June 6 CPR Blog. **This squib was published June 7 in our blog.)

This article first appeared on the Securities Arbitration Alert Blog, here.

George Friedman

George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA…