The Federal Arbitration Act (“FAA” or the “Act”) establishes the enforceability and primacy of contracts that call for the resolution of disputes to be submitted to and decided by arbitration. Section 1 of the Act, however, provides that it shall not “apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”. On June 6, 2022, the United States Supreme Court issued a unanimous decision written by Justice Thomas concerning the meaning of this section.

In Southwest Airlines Co. v. Saxon, the Supreme Court held that a Southwest Airlines supervisor who supervises a team of Southwest employees who load and unload cargo, but who also frequently helps to load and unload cargo alongside the employees she supervises, belongs to a class of workers engaged in interstate commerce. Thus, the supervisor, Latrice Saxon, who had agreed with Southwest to arbitrate wage disputes on an individual basis, is exempt from coverage under the Act, and she is free to pursue a collective action in a court of law under the Fair Labor Standards Act.

In its ruling, the Supreme Court rejected interpretations of the FAA exemption proposed by both parties. Saxon had proposed that the exemption apply to all airline employees, but the Court found that was too broad. Southwest proposed that the exemption apply only to workers who physically move goods or people across foreign or international boundaries, which the Court reasoned was too narrow.  Instead, the Court considered the words of the exemption as they are defined in dictionaries, it applied canons of statutory interpretation, it scrutinized the judicial context in which the case arose, and it then concluded that workers who frequently load and unload cargo on and off airplanes are exempt from the FAA’s coverage.

The Court felt it unnecessary to look beyond the facts of the case to consider on a broader basis the scope of the exemption, and acknowledged that its ruling leaves unanswered questions such as whether the exemption will apply to workers whose duties are “further removed” from the channels of interstate commerce or the actual crossing of borders, or whether “last leg” delivery drivers are covered by the exemption. The Court did make three references to workers whose activities are within the “flow” or “free flow” of goods across borders and thus are covered by the exemption.

The scope of this exemption is a matter of great significance to both employers and workers. Among other reasons, employees who have signed arbitration agreements generally may not bring class actions, and they may not have their disputes decided by juries; rather the decision makers will be selected by the parties, and the risks of huge “runaway” jury verdicts are avoided. Consequently, employee claims that must be resolved through arbitration are generally much less appealing to plaintiffs’ lawyers and in many instances are likely to be settled quickly or not even pursued. At worst, arbitrable claims are generally more susceptible to reasonable settlements. Arbitration proceedings are also likely to be far less expensive than court proceedings and are typically concluded much sooner than are court actions.

If you have any questions regarding the Southwest decision, or concerning arbitration agreements in general, please feel free to contact Merritt Bumpass, Jon Scandling or any of Frantz Ward’s Labor and Employment attorneys.