Seyfarth Synopsis: Since the Supreme Court’s decision in Southwest Airlines Co. v. Saxon, many employers have seen an uptick in plaintiffs seeking to avoid arbitration by arguing that they are transportation workers and thus not subject to the Federal Arbitration Act. But as the subsequent history in the Saxon decision makes clear, employers can—and should—consider more than just the FAA when moving to compel arbitration. Employers should also consider applicable state law, many of which laws do not have a similar transportation worker exception.
The Federal Arbitration Act (“FAA”) provides that most arbitration agreements are valid and enforceable. Section 1 of the FAA, however, provides an exception for transportation workers. That section states that the statute does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Thus, if a worker is a transportation worker engaged in interstate commerce, an employer may not rely on the FAA to compel that worker to arbitration. Just last year, in Southwest Airlines Co. v. Saxon, the Supreme Court explained what it means to be a transportation worker for the purposes of Section 1 of the FAA.
The Saxon decision’s subsequent history is a helpful reminder to employers of the ability to rely on more than just the FAA when moving to enforce an arbitration agreement. Many states have their own arbitration statutes that permit the enforcement of arbitration agreements. And many of those statutes do not have similar exceptions for transportation workers. Accordingly, as the district court’s decision on remand in Saxon demonstrates, employers may still compel transportation workers to arbitration under applicable state law, even if they may not rely on the FAA.
The Supreme Court’s Saxon Decision
Last year, in Saxon, the Supreme Court provided additional guidance on when a worker is a transportation worker engaged in interstate commerce and thus exempt from the FAA. The Supreme Court applied a two-step inquiry, first determining the relevant “class of workers” to which the plaintiff belongs, and second, determining whether that class of workers is engaged in foreign or interstate commerce. The Court concluded that the plaintiff—a ramp supervisor for Southwest Airlines who physically loaded and unloaded cargo from airplanes traveling interstate—was a transportation worker engaged in interstate commerce and thus fell within the transportation worker exemption in Section 1 of the FAA.
As a result, Southwest Airlines was not able to rely on the FAA to enforce its arbitration agreement with the plaintiff.
The District Court’s Decision on Remand
On remand, Southwest Airlines moved to compel arbitration under Illinois law. Importantly, Illinois—like most states—does not contain a transportation worker exception to its arbitration law. Accordingly, transportation workers can be compelled to arbitration under Illinois state law.
The district court found that Southwest Airlines did not waive its right to compel arbitration under Illinois law merely because Southwest Airlines had initially moved under the FAA, not state law. The court further found that Illinois law governed the arbitration agreement even though the arbitration agreement only referenced the FAA. The district court explained that “the fact that the Federal Arbitration Act doesn’t apply only means that its enforcement mechanisms aren’t available, not that the whole dispute can’t be arbitrated by enforcing the contract through another vehicle (like state law). . . . That’s true even when the contract says that the Federal Arbitration Act applies and mentions no other law.”
Accordingly, the district court compelled the plaintiff to individual arbitration and stayed the case, notwithstanding that she was a transportation worker to which the FAA does not apply.
Since the Supreme Court’s decision in Saxon, there has been an increase in plaintiffs arguing that they fall within the transportation worker exception to the FAA and, thus, that their arbitration agreements are not enforceable under the FAA. Employers should remember, however, that most states have their own arbitration statutes and many of those statutes do not have exceptions for transportation workers. Accordingly, even where an arbitration agreement is not enforceable under the FAA, it may still be enforceable under applicable state law. As such, employers should explore moving to compel arbitration under applicable state law in addition to—and in the alternative to—the FAA. Employers should do so early to avoid waiving the right to proceed under state law. And although an arbitration agreement may still be enforceable even where it does not reference state law, employers should review their agreements and expressly state in the agreements that arbitration may be compelled under both the FAA and applicable state law.