From JDSupra, Richard Reibstein discusses how two federal Circuit Courts arrived at different conclusions as to whether baked goods distributors were interstate commerce transportaion workers (and exempt from the Federal Arbitration Act (FAA)). Richards writes:
SPLIT IN CIRCUITS: BAKED GOODS DISTRIBUTORS ARE/ARE NOT INTERSTATE COMMERCE TRANSPORTATION WORKERS. Six months ago, the U.S. Court of Appeals for the Second Circuit held that distributors for a national baked foods company were not exempt from arbitration under the FAA’s exemption for interstate transportation workers, as we reported in an October 2022 blog post. Last month, a different federal appellate court reached the opposite conclusion when the U.S. Court of Appeals for the First Circuit affirmed a district court’s decision that distributors for the same baked foods company and its subsidiaries, which use a “direct-store-delivery” (DSD) delivery system “to get its products on the shelves of grocery stores,” satisfied the interstate transportation worker exemption from arbitration under the FAA. In the most recent case, two distributors brought an action for unpaid wages, overtime compensation and other damages allegedly arising from their classification as independent contractors. The distributors claimed that they were misclassified as ICs in violation of Massachusetts employment laws. The plaintiffs signed Distributor Agreements with the company that included arbitration clauses and granted them rights to distribute the company’s baked goods along certain routes. The distributors purchased the baked goods from the company and then resold the goods to stores along their routes. In reaching its decision, the appeals court rejected the company’s argument that the arbitration exemption under the FAA does not apply because the distributors’ primary responsibilities were those of business owners, not transportation workers. The court rejected that argument and focused on the plaintiffs’ actual work, not the company’s business generally, and concluded that workers do not need to be “‘primarily’ devoted to transportation” to qualify for the exemption. Instead, the First Circuit stated that workers “who perform transportation work ‘frequently’ are transportation workers.” The First Circuit based its decision on the plaintiffs’ affidavits that they worked 50 hours a week “driving delivery routes” and another 20-30 hours per week “supervising other drivers.” Separate and apart from the implausibility of these allegations, the affidavits evidently did not address the fact that most DSD distributors focus their time and attention on their main responsibility of making and promoting sales in the stores, including ordering products and effectively placing and rotating the goods on the shelves and displays to of the stores to which the distributors sell the baked goods. The allegations also did not note that while some distributors may have to drive substantial distances to some stores, others drive short distances. Thus, apart from the fact that the First Circuit’s decision is at odds with the decision by the Second Circuit on the same issue, the precedential value of this decision is questionable if it is based on factual assertions that are inconsistent with what typically transpires in the DSD industry. Canales v. CK Sales Co., No. 22-01268 (1st Cir. May 5, 2023).