A U.S. Supreme Court decision in favor of an employee, in a closely watched employment law case involving arbitration clauses in employment contracts, was a divergence from the Court’s tendency in recent years to favor arbitration. Instead of a company or industry wide exemption for mandatory arbitration, courts must instead use a fact-specific test focused on actual job duties of employees.

Southwest Airlines moves a lot of cargo. In 2019, Southwest carried the baggage of over 162 million passengers to domestic and international destinations. To move that cargo, Southwest employs “ramp agents, who physically load and unload baggage, airmail, and freight. It also employs “ramp supervisors,” who train and supervise teams of ramp agents. Frequently, ramp supervisors step in to load and unload cargo alongside ramp agents.

Latrice Saxon, was a ramp supervisor for Southwest Airlines at Chicago Midway International Airport.. Saxon came to believe that Southwest was failing to pay proper overtime wages to ramp supervisors, and she brought a putative class action against Southwest under the Fair Labor Standards Act of 1938.

Because Saxon’s employment contract required her to arbitrate wage disputes individually, Southwest sought to enforce its arbitration agreement and moved to dismiss.

In response, Saxon claimed that ramp supervisors were a “class of workers engaged in foreign or interstate commerce” and therefore exempt from the Federal Arbitration Act’s coverage. 9 U. S. C. §1.

The District Court disagreed, holding that only those involved in “actual transportation,” and not those who merely handle goods, fell within §1’s exemption.

The United States Court of Appeals, Seventh Circuit. reversed. It held that “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce, as that term was understood at the time of the [FAA’s] enactment in 1925.- 993 F. 3d 492, 494. The Seventh Circuit’s decision conflicted with an earlier decision of the Fifth Circuit. See Eastus v. ISS Facility Services, Inc., 960 F. 3d 207 (2020).

The U.S. Supreme Court agreed to hear the case to resolve the disagreement. It held in a unanimous 8-0 decision in Southwest v Saxon – 21-309 (June 2022) that Saxon belongs to a “class of workers engaged in foreign or interstate commerce” to which §1’s exemption applies. However, the Supreme Court rejected the contention that all airline workers are exempt from the FAA and instead used a fact-specific test focused on actual job duties.

The parties dispute how to define the relevant “class of workers.” Saxon argues that because air transportation “as an industry” is engaged in interstate commerce, “airline employees” constitute a “‘class of workers’” covered by §1.

Southwest, by contrast, maintains that §1 “exempts classes of workers based on their conduct, not their employer’s,” and the relevant class therefore includes only those airline employees who are actually engaged in interstate commerce in their day-to-day work.

The Court of Appeals rejected Saxon’s industry wide approach, as did the U.S. Supreme Court.

The FAA speaks of “workers, “not “employees” or “servants.” The word “workers” directs the interpreter’s attention to “the performance of work.” Thus Saxon belongs to a class of workers who physically load and unload cargo on and off airplanes on a frequent basis.

The parties dispute whether that class of airplane cargo loaders is “engaged in foreign or interstate commerce” under §1. The Supreme Court held that it was.

To be “engaged” in something means to be “occupied,” “employed,” or “involved” in it. “Commerce,” meanwhile, includes, among other things, “the transportation of . . . goods, both by land and by sea.” Airplane cargo loaders are such a class.

Taken together, these canons showed that §1 exempted only contracts with transportation workers, rather than all employees, from the FAA.

SCOTUS Exempts Airline Cargo Loaders from Mandatory Arbitration