Ninth Circuit Ruling Clarifies “Transportation Worker” Arbitration Exemption

August 3, 2023 Advisory

Last month, in Carmona v. Domino’s Pizza, LLC, the Ninth Circuit Court of Appeals held that in-state delivery drivers who delivered out-of-state products from a California warehouse to franchise locations within California were exempt from the Federal Arbitration Act (FAA) under the “transportation worker” exemption. The decision follows last year’s Supreme Court ruling in Southwest Airlines Co. v. Saxon, where the Court held that “ramp agents” who frequently loaded and unloaded airplane cargo belonged to the “class of workers engaged in interstate commerce” and were therefore exempt from the FAA.

The Supreme Court initially agreed to hear Carmona after the Ninth Circuit previously affirmed a district court ruling denying Domino’s motion to compel arbitration. The district court ruling rested solely on the Ninth Circuit’s decision in Rittmann v., Inc., where it was found Amazon delivery drivers who transported goods from warehouses to in-state customers were transportation workers engaged in interstate commerce and therefore not subject to the FAA.

After granting certiorari, the Supreme Court decided Saxon, which considered whether airplane cargo loaders and ramp supervisors who frequently loaded and unloaded airplane cargo belonged to a “class of workers” engaged in interstate commerce exempt from the FAA’s coverage. In finding these workers exempt, the Court focused on the actual work carried out by the workers, holding the critical question was whether the workers were actively “engaged in transportation” of goods in interstate commerce and played a “direct and necessary” role in the free flow of goods across borders. The Court rejected Southwest’s argument that the cargo workers themselves must cross state lines to be engaged in interstate commerce.

In light of Saxon, the Supreme Court then vacated and remanded Carmona to address whether drivers making solely in-state deliveries of goods ordered by in-state customers from an in-state warehouse were a “class of workers engaged in foreign or interstate commerce” subject to the transportation worker exemption.

On remand, the Ninth Circuit again affirmed the district court’s order, finding the drivers delivering ingredients from Domino’s warehouses to California franchisees for the “last leg to their final destination” were engaged in interstate commerce under Section 1 of the FAA. The Ninth Circuit reasoned that a pause in the journey of goods at the warehouse did not remove them from the stream of interstate commerce where the goods were inevitably destined from the outset for the franchisees. It further found “no clear conflict between Rittmann and Saxon and nothing in Saxon that undermined the panel’s prior reasoning.”

While Domino’s attempted to distinguish Rittmann on the grounds that, unlike Amazon customers, its franchisees do not order goods until after they have arrived at the warehouse, the Ninth Circuit found the argument unpersuasive, stressing the issue is not how the purchase order is placed, but whether the goods remain in the stream of commerce. Because Saxon is neither inconsistent nor irreconcilable with Rittmann, the Court affirmed the order denying arbitration.

If you have questions regarding your company’s arbitration policy, please reach out to your regular Armstrong Teasdale lawyer or one of the authors listed below.

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