Since 2019, we have been tracking the decisions struggling to interpret the scope of the Federal Arbitration Act (FAA) Section 1 exemption for transportation workers. In other words, we’ve looked at who qualifies as a transportation worker “actually engaged in the movement of goods in interstate commerce,” as Circuit City Stores Inc. v. Adams, 532 U.S. 105, 119 (2001) defined it, without explaining the definition.

Now Judge Beth Labson Freeman of the Northern District of California has applied the transportation worker definition in a class action case in which a former mail sorter for UPS Mail Innovations, Inc. (UPSMI) sued UPSMI and Staffmark Investment, LLC (Staffmark), a staffing agency, with five class action claims and a representative claim under the California Private Attorneys General Act (PAGA). Five of those claims related to failure to provide meal periods, rest breaks, wages and improper practices involving that conduct. In response, Staffmark and UPSMI sought to compel arbitration of the individual claims, to dismiss the class claims and to stay the PAGA claims. Judge Freeman ultimately rejected Tracee Sheppard’s argument that she was a transportation worker exempt from the FAA, granted the motions to compel arbitration, dismissed the class claims and remanded the PAGA claim to state court. Sheppard v. Staffmark Investment, LLC, No. 20-cv-05443 (N.D. Cal. Feb. 23, 2021).

Application of the FAA Section 1 Exemption

In the Feb. 23 Order, the court probed the application of the exemption to a worker who “neither physically transports goods herself nor [works] closely with those who do.” Indeed, Sheppard’s role for UPSMI involved only processing and sorting packages received at the center.

The FAA exemption covers “seamen, railroad employees or any other workers engaged in foreign or interstate commerce.” Judge Freeman applied existing case law to that language and the facts of the case. Sheppard admitted her job did not involve her interaction with transportation drivers but only “sorting packages in the warehouse in preparation for further transportation.” Thus, the judge concluded that while Sheppard “may have been working for an employer in the transportation industry” that “does not determine her eligibility for the FAA Section 1 exemption given her lack of connection to the actual delivery drivers.”

The Sheppard Order illustrates some of the difficulties in applying the exemption to those with a connection to transportation who do not physically transport packages or work closely with those who do. In some respects, the analysis is similar to that engaged in by the Fifth Circuit in Eastus v. ISS Facility Services, Inc., 960 F.3d 207 (5th Cir. 2020), which we blogged about on June 1, 2020. There, the Fifth Circuit concluded that a manager who oversaw airline ticketing and gate agents at an airport was not covered by the exemption. Some nuanced distinctions have to be analyzed in these transportation-related cases.

Equitable Estoppel Covers UPSMI

Another issue that keeps arising is whether a non-signatory defendant can enforce an arbitration agreement against a signatory plaintiff. The ability to enforce the arbitration agreement is a matter of state contract law. See Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 631-32 (2009). In California, a non-signatory entity can compel arbitration under the doctrine of equitable estoppel when the plaintiff’s claims are “based on the same facts and inherently inseparable” from those against a signatory. See Murphy v. DirecTV, Inc., 724 F.3d 1218, 1229 (9th Cir. 2013). The Sheppard Order found the California appellate decision in Garcia v. Pexco, LLC, 11 Cal. App. 5th Cir. 782, 217 Cal. Rptr. 3d 793, 796-7 (Cal. Ct. App. 2017), persuasive because its facts were “nearly identical” to Sheppard. In Pexco, the plaintiff worked for a staffing agency and entered into an employment agreement with an arbitration provision. While the plaintiff was on assignment at Pexco, events occurred causing the plaintiff to sue both the staffing agency and Pexco. The California appellate court found that the plaintiff’s claims against the staffing agency and Pexco were subject to arbitration, since they were “untimely founded in and intertwined with his employment relationship with [staffing agency], which is governed by the employment agreement compelling arbitration.”

In Sheppard, the plaintiff’s claims against Staffmark all were based on the assignment to UPSMI, and she claimed both entities were her joint employers. She referred to both as “Defendants” as well. So the court found Sheppard’s claim should be governed by the arbitration agreement.

Finally, the court dismissed Sheppard’s individual and class action claims but remanded the PAGA claim to state court.

Bottom Line

The FAA’s exemption for certain transportation workers needs to be applied carefully and will not prevent the arbitration of claims of employees of transportation companies who are not sufficiently involved in the actual transportation of goods.