March 11, 2024 SCOTUS Ruling Could Impact Massive Amount of Companies

A large number of companies could increase litigation due to an upcoming U.S. Supreme Court ruling.

By John Amabile, Debbie Edney, and Jonathan Crotty

The U.S. Supreme Court is set to rule in a case that could “harm businesses and workers and burden courts,” according to the U.S. Chamber of Commerce. The case, Bissonnette v. LePage Bakeries Park St, will directly impact the cost of litigation for manufacturers and other companies involved in interstate commerce — and could broaden the net of companies caught up in that litigation.

At issue is the “residual” exemption to the Federal Arbitration Act (FAA) that allows “any other class of workers engaged in foreign or interstate commerce” to avoid arbitration, notwithstanding their agreement to a contractual arbitration clause. As we wrote in an earlier Industry Today article, the U.S. Supreme Court addressed the issue less than two years ago in Southwest Airlines Co. v. Saxon, unanimously ruling that Saxon, in loading and unloading cargo onto a plane traveling to a different state, qualified as an interstate transportation worker. That meant the arbitration agreement she signed could not be enforced by her employer under the FAA.

The case before the Supreme Court now is a follow-up that could involve “some very difficult line-drawing problems,” as Justice Samuel Alito put it at oral arguments in late February. The issue presented, which was wrestled with at oral argument, is whether the FAA’s exemption only applies to individuals working for a company in the transportation industry or whether the key fact is simply their individual job duties. In other words, can truck drivers who work for a food company avoid arbitration, as the drivers in this case argue?

Potential Impact

If the court answers yes, “the number of workers who are going to be exempt and the number of companies who are going to have to deal with this is massive,” Justice Brett Kavanaugh said during oral arguments. The attorney representing the food company gave several examples of what that could mean: 

“In the past five years, you’ve had cases against Domino’s franchisees,” Traci Lovitt told the justices, “So you’re bringing [into the exemption] every franchise restaurant, which is why the restaurant industry group filed on our behalf. You’re bringing in the medical industry… because they need to get their products very quickly from one place to another. You’re bringing in basically the entire food industry… You’re now bringing in every retail industry.”

And as you may already be thinking, that would also bring in many workers from manufacturing and other industrial companies. 

This result would largely gut the FAA as it applies to employment disputes, which for nearly 100 years has allowed businesses to keep these disputes out of court. Businesses often prefer arbitration because it generally is faster and (sometimes) cheaper than litigation. Perhaps more importantly, requiring the arbitration of employment disputes is a useful tool in preventing class action claims. If workers across industries can begin claiming a broader exemption from the FAA, businesses will likely see a flood of class actions. 

Such a ruling would be an ironic result from a court that has repeatedly protected and elevated arbitration in recent years. However, the court has also often taken a textualist view of cases, where the justices rely on the plain text of the laws they are interpreting. It will be interesting to see how the justices navigate those two trends in their eventual ruling.

State vs. Federal Law

Toward the end of oral arguments, Justice Sonia Sotomayor asked a question in line with an idea we proposed in our last Industry Today article. If the contracts require arbitration in state courts, “those arbitration agreements have to be honored, correct?”

Lovitt replied that, although that was the food company’s position in the lower court, federal appeals circuits are now split on the question. This could be another key issue for companies to watch, as those wishing to avoid a broadened interstate commerce exemption could consider grounding their arbitration agreements in state law rather than the FAA. For example, companies in Georgia and the Carolinas could choose to have their employment arbitration obligations enforced under one of those states’ laws.

Final Takeaway

As a final point, it is worth noting that the Supreme Court’s ruling in this case is unlikely to be the last word on the FAA’s “residual” exemption. There was also debate at oral argument over whether this case is even appropriate to decide where the line should be for defining when an individual works in interstate commerce regardless of industry, such as those who deliver products the “last-mile.” For now, if the justices rule in the food company’s favor, they are likely to limit their ruling to a first hurdle for courts to consider as these claims continue to play out: whether the worker must be employed in the transportation industry.

If the Supreme Court does take that more-limited approach, the business community will likely face additional class actions by employees and independent contractors until the justices or Congress provide more clarity.

John Amabile, Debbie Edney, and Jonathan Crotty are attorneys at Parker Poe in Atlanta, Georgia; Washington, DC; and Charlotte, North Carolina.

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