The U.S. Supreme Court will hear oral arguments on March 28 in a case involving Southwest Airlines over whether airline cargo handlers are transportation workers who are not required to arbitrate employment-related disputes.
The Federal Arbitration Act (FAA) generally requires enforcement of private agreements, but exempts seamen, railroad employees or other workers engaged in foreign or interstate commerce from arbitration to limit labor strife that prevents goods movement critical to the economy. In 2001 the Supreme Court held that the exemption applies only to “transportation workers.”
The question before the court in Southwest Airlines v. Saxon is when employees don’t physically transport goods, are they engaged in commerce and exempt from arbitration?
In recent years, the Supreme Court has tended to side more often with the business community, especially with the growth of the conservative majority.
Conservative justices have historically favored enforcing arbitration and .a conservative majority has previously held that the FAA applies very broadly, while the exception under workers engaged in commerce remains very narrow, said Emilia Janisch, an attorney in the labor and employment practice at Axley Brynelson.
Latrice Saxon is a Southwest Airlines (NYSE: LUV) ramp supervisor who manages and assists workers who load and unload cargo at Chicago Midway Airport. She sued the company for failing to pay for overtime work under the Fair Labor Standards Act. She also claimed that ramp managers frequently filled in as line workers processing cargo. Unlike ramp agents, supervisors aren’t covered by a collective bargaining agreement and instead are required to arbitrate wage disputes, under their employment contract.
Saxon argued the Arbitration Act didn’t apply to her lawsuit because she was exempt.
The U.S. Court for the Northern District of Illinois agreed with Southwest and dismissed the case, determining that a transportation worker must actually transport goods, not merely handle them at one end of a network to be eligible for the exemption.
Saxon appealed to the U.S. Court of Appeals for the 7th Circuit, which reversed the ruling on the grounds that the act of loading cargo onto a conveyance to be transported interstate is itself commerce. It noted that seamen and railroad employees frequently assist with loading and unloading commercial cargo for transport in the same way ramp supervisors do for airlines. The court determined that since Saxon and fellow supervisors frequently engaged in loading and unloading, they were exempt from the Arbitration Act.
A coalition of attorneys general from 18 states this month filed a brief asking the court to uphold the appellate court decision allowing ramp workers to seek court remedies for unlawful conduct by employers. They argue that mandating confidential aribitration agreements as a condition of employment for wage and hour, discrimination and other disputes limits workers’ ability to enforce their rights. Not resolving transportation industry disputes in a transparent and public manner also makes it difficult for them to protect their economies and gather information necessary to exercise their investigatory and enforcement powers.
“The law is clear: Cargo workers are an integral part of interstate commerce and Congress never intended the FAA to apply to them,” said California Attorney General Rob Bonta in a news release this month. “Transportation workers are entitled to a robust process to resolve disputes that may arise while on the job. Public court proceedings for workplace disputes protect worker rights, help states to ensure labor laws are being followed uniformly and promote stability in industry.”
The conservative Washington Legal Foundation, siding with Southwest Airlines, responded that Congress only carved out certain classes of workers because it expected them to get their own federal arbitration law and didn’t want the FAA to disrupt those distinct methods of alternative-dispute resolution.
Unless the Supreme Court intervenes, said Airlines for America (A4A), the 7th Circuit decision will create an uneven nationwide landscape at odds with other courts that do not recognize the exemption for persons who load and unload cargo.
“The circuit disagreement creates costly confusion nationwide, especially in the commercial aviation industry. Based largely on geographic accident, airlines and employees alike will be unable to predict whether their arbitration agreements are binding under federal law. And when federal law gives way, that still leaves the question of arbitrability under state law. The result is a dizzying patchwork of rules undermining the efficiency that agreements to arbitrate are designed to promote,” the A4A brief said.
By the 7th Circuit’s reasoning, Southwest and the A4A said, aircraft maintenance technicians, customer service representatives, facility maintenance workers, baggage handlers, aircraft cleaning crews and ground vehicle mechanics would be classified as transportation workers who fall under the arbitration exemption.
E-commerce and logistics goliath Amazon, which operates its own freight airline, submitted a friend brief on Southwest’s behalf, saying the Supreme Court needs to come up with a clear test that settles the exemption clause because it applies to a wide range of transportation workers. They include delivery contractors who cross state lines and rideshare drivers who use their personal vehicles to make local deliveries within a metropolitan area for goods that originated out of state.
“For a class of workers to be exempt from the FAA, foreign or interstate commerce must be the very thing that the class of workers are engaged to do and in fact do. It must be not merely incidental to their work, but a central part of it,” Amazon stated. And that transportation must be long-range. “Classes of workers who perform local activities do not satisfy this test, and so the exemption does not apply to them.”
In their legal filing seeking a dismissal, Saxon’s attorneys argue the FAA never uses the term “transportation worker” and that the court has repeatedly found handling interstate commerce is interstate transportation. Southwest Airlines and its allies have misinterpreted the 7th Circuit Court’s ruling by arguing it applies only to the narrow category of workers who are “actively occupied in the enterprise of moving goods across interstate lines,” they said.
The airline’s argument that the decision splits with a 5th Circuit Court decision is faulty, they added, because the plaintiff in that case supervised ticketing and gate agents, not a cargo loader. Southwest’s petition shows the real concern is “that it will face greater liability in court than it would in arbitration. But [judicial review] does not exist so this court can protect companies from liability for their own misconduct. It exists to resolve important, disputed questions of law,” Saxon’s team said.
Janisch said it’s possible the court could side with Saxon in a narrow ruling that leaves open the question about who else is exempt from the Arbitration Act in the future.
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