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Supreme Court Hands Rare Victory to Employees on Arbitration Agreements

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Supreme Court Hands Rare Victory to Employees on Arbitration Agreements

Supreme Court Hands Rare Victory to Employees on Arbitration Agreements

Workers scored a rare win in the United States Supreme Court on Monday, June 6, 2022, in a decision concerning arbitration agreements and the scope of an exemption to the Federal Arbitration Act (“FAA”). 9 U. S. C. §1 et seq. Many employees sign arbitration agreements, often with no choice as a condition of employment. When faced with unlawful conduct in the workplace, these agreements force employees to forgo court and adjudicate disputes in arbitration, which is often a process skewed toward employers.

The Supreme Court’s decision on Monday is a welcome development for employees and advocates who have watched the Supreme Court expand the FAA over the past 15 years under the pretext that arbitration is supposedly more efficient and cost-effective than in-court litigation. In reality, arbitration achieves these benefits only to the extent that it destroys statutorily protected claims all together, providing a windfall to law-breakers, harming workers and consumers, and preventing law-abiding businesses from competing on a level playing field. Bryan Schwartz Law has written extensively about the pitfalls of arbitration.

The case, Southwest Airlines v. Saxon, 596 U.S. ___ (2022), concerned the application of Southwest Airlines’ mandatory arbitration provision for ramp supervisors, employees who train and supervise teams of employees who load and unload cargo. Ramp supervisors’ jobs are hands-on; they regularly load and unload cargo. Plaintiff Latrice Saxon was one such ramp supervisor, who brought a class action lawsuit against Southwest for unpaid overtime.

Southwest tried to force the case into arbitration, hoping to squelch the lawsuit before having to defend against its allegations on the merits. Ms. Saxon countered that her arbitration agreement was unenforceable under an exemption to the FAA that applies to “any class of workers engaged in foreign or interstate commerce.” 9 U. S. C. §1. The District Court compelled the matter to arbitration, and the Court of Appeal reversed.

The Supreme Court unanimously held that Ms. Saxon is exempt from the FAA in an opinion written by, to the surprise of many employment advocates, super-conservative Justice Clarence Thomas. Justice Thomas used his signature textualist approach (with copious citations to dictionaries) to determine (a) the scope of the “class of workers” to which Ms. Saxon belonged, and (b) whether the class of workers was engaged in commerce.

The Court held that Ms. Saxon is a member of a “class of workers” that includes “workers who physically load and unload cargo on and off airplanes on a frequent basis.” This outcome was a defeat for both parties. Ms. Saxon had hoped to define the relevant class of workers to include all Southwest employees, arguing that the air transportation industry as a whole is engaged in interstate commerce. Southwest, meanwhile, argued that the class of workers should include only individuals who physically accompany cargo across state or international boundaries. In reaching its determination, the Court considered Ms. Saxon’s actual work rather than her industry – rejecting Ms. Saxon’s position – and employees who load and unload cargo – rejecting Southwest’s position.

Next, the Court held that the act of loading and unloading cargo constitutes “engag[ing] in foreign or interstate commerce,” and accordingly the FAA exemption applies to Ms. Saxon. The Court’s determination hung entirely on Ms. Saxon’s frequent loading and unloading of cargo, with no consideration as to whether Ms. Saxon’s supervisory duties engage with interstate commerce. The Court contrasted Ms. Saxon’s tasks in loading and unloading airplanes – “so closely related to interstate transportation as to be practically a part of it” – with localized janitorial services for a company engaged in interstate commerce, or in-state sales of asphalt that later ends up in another state – “far more removed from interstate commerce.” Though the Court remained silent as to whether Ms. Saxon’s supervisory duties constitute engaging in interstate commerce under the FAA, advocates invoking this exemption should develop aspects of their case that demonstrate a strong nexus with interstate commerce.

The Southwest v. Saxon decision comes on the heels of the Supreme Court’s arbitration decision in Morgan v. Sundance, Inc., favorable to workers and consumers, on May 23, 2022, which reaffirmed that arbitration agreements receive no special preference of enforceability when applying standard contract principles. Bryan Schwartz Law wrote about the decision here. These surprisingly positive opinions for ordinary Americans buck the Supreme Court’s trend of enabling arbitration abuse by unscrupulous employers, while further warning that bad actors will continue to squeeze as much as they can from the FAA to escape employment obligations.

If you are subject to unlawful employment practices and would challenge an unfair arbitration agreement, contact Bryan Schwartz Law.

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