Case May Clarify Who Is Exempt from Mandatory Arbitration

​The U.S. Supreme Court recently vacated a lower court's ruling in a wage lawsuit against Domino's Pizza by ingredient delivery drivers.

On Oct. 17, the U.S. Supreme Court sent the case back to a federal appeals court for reconsideration in light of new precedent. The case, Domino's Pizza LLC v. Carmona, could further define which workers are engaged in interstate commerce and thus exempt from mandatory arbitration under the Federal Arbitration Act (FAA).

The 9th U.S. Circuit Court of Appeals previously ruled that the factor critical in determining whether the exemption applies is the nature of the business for which workers performed their activities, not the nature of the item transported in interstate commerce. It found that the delivery of interstate goods was integral to the delivery drivers' job functions and that Domino's could not mandate arbitration.

The drivers argued before the Supreme Court that the 9th Circuit's decision is in line with the new precedent of Southwest Airlines v. Saxon, a similar case involving airport baggage handlers. But that case didn't fully address the question of which transportation workers qualify for the exemption, so the Supreme Court sent the case back to the appeals court for more clarity, instead of deciding the case itself. 

"The contours of the FAA's exemption for transportation workers remains unclear," said Noah Finkel, an attorney with Seyfarth in Chicago. "If it ultimately is given a broad reading, it means a large number of workers cannot be required to bring their claims against their employer in arbitration and instead could go to court."

"By remanding the Domino's case to the 9th Circuit, the Supreme Court signaled that it would likely allow decisions by the lower federal courts to further develop the law in this area before selecting what it deems to be an appropriate case for making any further pronouncements concerning whether other groups of transportation workers are exempt from coverage under the FAA," said Richard Silberberg, an attorney with Dorsey & Whitney in New York City.

Background

The plaintiffs are a group of California drivers who deliver pizza dough, ingredients and other goods from an in-state Domino's supply center to the in-state Domino's franchisees that order goods from the supply center. In general, some of the ingredients come from other states, but these particular drivers don't cross state lines.

Domino's Pizza wanted to compel arbitration of the employees' wage and hour claims, but the employees argued that they didn't have to arbitrate, under the FAA, because they are engaged in interstate commerce.

On Dec. 23, 2021, the U.S. District Court for the Central District of California found that the drivers operate in a "single, unbroken stream of interstate commerce." It ruled in favor of the drivers. On Feb. 15, the 9th Circuit denied the pizza chain's request for a rehearing.

However, the relevant precedent changed in June, when the U.S. Supreme Court ruled in Southwest Airlines v. Saxon that a baggage-handling manager was exempt from arbitrating her overtime claims against Southwest Airlines. It found she was engaged in interstate commerce because she loaded and unloaded cargo that crossed state lines.

"At least two circuits have held that a worker must move those goods across state lines for the exemption to apply," Finkel said. "The 9th Circuit in Domino's Pizza, however, held that it was enough for a worker to be involved in the transportation of goods that, at one point, had crossed state lines and that, therefore, the FAA's exemption would apply."

In July, the U.S. Chamber of Commerce filed a "friend of the court" brief with the U.S. Supreme Court, supporting Domino's Pizza's position that its employees were not engaged in interstate commerce. "If this conflict is allowed to persist, it will generate significant litigation over whether the FAA applies to a broad and indeterminate array of workers," the business group stated. "Businesses and workers will face uncertainty over whether the FAA requires enforcement of their arbitration agreements."

The Supreme Court "has not stepped back, let alone retreated, from its long-standing position that arbitration provisions in employment agreements should be enforced like any other contract," Silberberg said. "Future carve-outs from an employee's duty to arbitrate disputes under agreements requiring the arbitration of disputes are likely to be narrow, as in Saxon."

Arbitration vs. Trial

For several reasons, employers generally prefer to resolve claims through arbitration, and many ask their workers to sign mandatory arbitration agreements when they're hired.

"It usually is considerably faster to bring a case to resolution through arbitration than through the courts and often is less expensive," Finkel explained. "Decisions also are rendered by neutral arbitrators who are knowledgeable about the law and its practical applications, rather than by jurors who usually lack a legal background and may render a verdict based on factors that should be irrelevant to the decision. Moreover, an agreement to arbitrate usually will be for only individual arbitration, so that a class or collective action cannot be brought."

Furthermore, arbitration is generally confidential, and documents submitted in arbitration are not public. Court records usually are public.

"If an employer wants to increase their chances of being able to enforce their arbitration agreements with their workers, they should make sure that those agreements are enforceable not only under the FAA, but also under any of the state arbitration acts, which usually lack the same exemption for transportation workers," Finkel recommended.

In the meantime, multistate employers may find that some of their transportation workers are eligible for the exemption, while others are not. "The test for determining those who are and those who aren't is not likely to be a bright line. Indeed, it almost certainly will be gray," said Silberberg. "HR professionals will have to await further clarity from the federal courts, and ultimately the Supreme Court, and it could be slow in arriving."