Supreme Court Expands Scope of FAA’s Transportation-Worker Exemption

On May 28, the US Supreme Court issued a unanimous decision in Flowers Foods, Inc. v. Brock, holding that a worker who transports goods on an intrastate leg of an interstate journey may qualify for the Federal Arbitration Act’s (FAA) transportation-worker exemption under Section 1 — even if that worker never crosses state lines and never interacts with a vehicle that does.

Of note, the opinion, authored by Justice Neil Gorsuch, represents the Court’s fourth recent decision rejecting efforts to narrow the scope of Section 1’s exemption.

The Court’s Trend Towards an Expanded Section 1 Exemption

In New Prime Inc. v. Oliveira¹, the Court unanimously held that Section 1’s exemption covers independent contractors, not just traditional employees, rejecting the argument that contracts of employment should be read narrowly to encompass only formal employer-employee relationships. In Southwest Airlines Co. v. Saxon², the Court refused to limit the exemption to workers who physically accompany goods across state lines, holding that airline cargo loaders who load and unload freight bound for interstate transit are engaged in foreign or interstate commerce within the meaning of Section 1. Most recently, in Bissonnette v. LePage³, the Court rejected the requirement that a worker must be employed in the transportation industry to qualify for the exemption, holding that the statutory text contains no such industry-specific limitation.

Facts and Background of Flower Foods

Flowers Foods, one of the nation’s largest producers of packaged baked goods, relies in part on franchisees who purchase distribution rights to Flowers’ products within specific geographic territories. Angelo Brock, a franchisee serving the Denver area, picks up Flowers’ products from a warehouse in Colorado and delivers them to local retail stores — all without leaving the state.

When Brock sued Flowers alleging violations of federal and state wage-and-hour laws, Flowers moved to compel arbitration pursuant to Brock’s distribution agreement. The district court denied the motion and the Tenth Circuit affirmed, reasoning that Brock belonged to a class of workers engaged in interstate commerce and therefore fell within the FAA’s Section 1 exemption from compelled arbitration.

The High Court’s Rationale

The Supreme Court affirmed the Tenth Circuit’s decision and rejected Flowers’ proposed bright-line rule that a worker must either cross state lines or interact with a vehicle that does in order to qualify for the Section 1 exemption. The Court examined the ordinary meaning of the relevant statutory terms at the time of the FAA’s enactment. “Interstate commerce” was understood to encompass the transportation of property “between or among the several states … or from or between points in one state and points in another state.”⁴ The Court reaffirmed that Section 1 requires a “direct,” “necessary,” and “active” role in moving goods across borders, but held that this standard does not dictate Flowers’ proposed bright-line rule.⁵

The Court also drew on a long line of Commerce Clause precedents, most prominently, The Daniel Ball, 10 Wall. 557 (1871), in which the Court held that a steamer operating entirely within Michigan was “engaged in commerce between the States” because it transported goods destined for, or originating from, other states. In that case, the Court emphasized that “[t]he fact that several different and independent agencies are employed in transporting the commodity, some acting entirely in one State, and some acting through two or more States, does in no respect affect the character of the transaction.”⁶

Notably, however, the Court expressly declined to resolve several issues that remain subject to circuit-level disagreement. These include whether the Section 1 exemption applies when the worker’s contractual relationship is structured through an independently operated business entity rather than a direct employment relationship, and whether a worker’s taking of title to goods before reselling them to end customers defeats the exemption.

Takeaways

Companies that rely on distribution networks, franchise models, or last-mile delivery arrangements should consider the following steps in light of Flowers Foods:

Audit existing arbitration agreements with distribution and delivery workers. The Court’s decision makes clear that a worker need not cross state lines to fall within the FAA’s transportation-worker exemption. Companies should identify any workers — including franchisees, independent contractors, and last-mile delivery drivers — who transport goods that originated out of state or are destined for out-of-state locations, even if the workers themselves operate entirely intrastate. Warehouse stops and staging points do not end interstate commerce, but roles sufficiently removed from interstate transport remain outside the exemption.
Review dispute-resolution provisions holistically. Given the continued expansion of Section 1’s reach across New Prime⁷, Saxon⁸, Bissonnette⁹, and now Flowers Foods, companies should consider whether their dispute-resolution strategies — including forum-selection clauses, jury-waiver provisions, and alternative mechanisms — remain effective for the workforce segments most likely to be affected.