Clear Skies or Stormy Weather? The FAA’s Transportation Worker Exception After Southwest Airlines v. SaxonPart Two of a Two-Part Series

Posted in: Employment Law

Editor’s Note: This article is divided into two parts. In the first part, published yesterday, the Supreme Court’s recent decision in Southwest Airlines v. Saxon is reviewed and summarized. In this second part, problems posed by the decision are considered.

4. Problems Posed

As befits a unanimous opinion, the holding in Southwest Airlines is narrow, rejecting bright lines proposed by the parties; that is, the airline industry exemption advanced by Ms. Saxon and the physical crossing borders test urged by Southwest. However, although the key facts are limited to ramp agents, the decision’s ultimate impact on arbitration depends on reading between the lines to answer several open questions.

a. The Governing Standard

Is there a clear governing standard in Southwest Airlines, or will the descriptive expressions used by Justice Thomas lead to protracted and piecemeal litigation? Granted, some of the uncertainty in the opinion is drawn from its references to passages in Circuit City. The expressions used in that case go beyond the text of Section 1, and add to or qualify the residual clause. For example, as in Circuit City, Southwest Airlines states that the exemption covers those “actively engaged” in the “flow of goods across borders” through “channels of foreign or interstate commerce.” From the decision, again from Circuit City, litigants can contend that the work at issue is, or is not, “necessary to the free flow of goods.”

But Southwest Airlines goes further, adding to confusion engendered by Circuit City’s reconstruction of the FAA’s text. For example, Justice Thomas offers as a standard for exemptions whether the work “as a practical matter is part of the interstate transportation of goods.” He also writes that a relevant consideration is whether an employee is “intimately involved” in commerce. In distinguishing previous antitrust cases, the opinion apparently would reject Section 1’s residual clause if work is “only perceptibly connected to…instrumentalities of interstate commerce,” or for matters that are merely “localized…services.”

Compounding uncertainty about the reach of the Section 1 exemption is the opinion’s reference to “wharfage” in the maritime industry. The full sentence cited by the Court extends maritime transactions to, “agreements relating to wharfage, supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce.” By a parity of reasoning, if the reference to “wharfage” in Section 1 is to be given weight as tied to commerce, the other activities in the same sentence potentially broaden the scope of work that also should be exempt from arbitration under the FAA.

Justice Thomas has, by the words used, expanded confusion dating back to Circuit City. It is doubtful that the opinion will be clarifying for litigants or lower court judges in deciding whether work, “as a practical matter,” is “intimately involved” and “actively engaged” in the “flow of goods” through “channels” of interstate commerce. Or, perhaps a court will find that work is only “perceptibly connected” to commerce, or is simply a “localized…service.”

Rather than label its decision as adopting a balancing or reasonableness test for the residual clause in Section 1, the Court has asserted that it is applying the plain text as enacted by Congress in 1925. But, as will be shown in the next section, the Court’s reading of history was highly selective.

b. The Railway Labor Act

What relevance does the Railway Labor Act (RLA) have to the transportation exemption under the FAA? An odd feature of Southwest Airlines is that it is completely silent about the RLA. Why odd? For two reasons, legal and practical.

First, a significant feature of the Circuit City decision was the majority’s reliance on the RLA, passed in 1926, to assist in understanding the FAA’s residual clause. In Circuit City, the Court also noted that the RLA was amended in 1936 to cover airline employees in addition to those working on railroads. The RLA was part of the contemporary landscape when the FAA was enacted.

Grievance and arbitration dispute resolution procedures established by the RLA were, in Circuit City, a central reason for the Court’s narrow interpretation of Section 1’s residual clause to apply only to transportation workers and not to workers in general. In Circuit City, the Court inferred that the exemption was justified in 1925 because Congress likely would reserve to itself, outside the FAA, those employees already or soon to be subject to a dispute resolution structure.

By failing to consider the text of the RLA, the Southwest Airlines opinion overlooked important statutory language that is virtually identical to the “engaged in” commerce text in the FAA’s residual clause. Section 181 of the RLA explicitly links air carriers and their employees by extending the 1926 statute to “…cover every common carrier by air engaged in interstate or foreign commerce.” What about air carrier employees? Section 181 states that the RLA, as amended, applies to “every air pilot or other person who performs any work as an employee or subordinate official of such carrier or carriers.”

In Southwest Airlines, the Court also could have supported its analysis of ramp agent work by referring to other language in the RLA that was incorporated in the airline industry amendment a decade later. Specifically, Section 151 defined “carrier” as “any company” that is “operating any equipment or facilities or performs any service” related to the “transportation, receipt, delivery, elevation, transfer in transit…and handling of property transported…by any such carrier.” Similarly, the airline amendment to the RLA tracked the original RLA by defining an employee as “every person in the service of a carrier…who performs any work of an employee or subordinate official….” Thus, all airline employees—ticket agents, ramp agents, flight attendants, pilots, mechanics—are employees engaged in interstate commerce covered by the RLA.

Adding weight to the relevance of the RLA as evidence of congressional understanding when the FAA was passed, was the Transportation Act of 1920, also relied upon in Circuit City. Section 400(3) of that legislation defined “transportation” as including, “…all services in connection with the receipt, delivery, elevation, and transfer in transit, ventilation, refrigeration or icing, storage, and handling of property transported.” In short, the Congress that enacted the FAA understood all employees working for interstate transportation companies to be engaged in interstate commerce. Therefore, all of them should be exempt from the FAA under the residual clause, whether unionized or not.

Second, as a practical matter, if the Court had addressed the RLA, questions about the scope of the FAA exemption could have been answered more easily for future litigants and courts. We know that the Section 1 transportation exemption can be broader than the RLA, as evident from the text of the residual clause (“or any other class of workers”) and from the Court’s analysis in New Prime. Yet, it would undermine both Circuit City and the RLA, as written and applied, to reject the statute as a potential basis for the exemption for all who are subject to it.

The RLA is of vital importance to the U.S. transportation system because it is the controlling labor relations statute for nearly a million workers, with broad application for railroad and for airline employees. An administrative agency, the National Mediation Board (NMB), is empowered to implement the legislation, including resolution of union representation requests and disputes over interference with employee and union rights. For the airline industry, the NMB determines appropriate employee classifications, nine at present, for union-represented bargaining units. Fleet service employees, a category that includes ramp agents, is one of the established classifications. This alone could have decided Southwest Airlines.

The Court’s failure to acknowledge the legal and historical relevance of the RLA, and its reliance on extra-textual language in construing Section 1’s residual clause, can lead to a direct conflict with matters that are reserved to the NMB, to federal and state courts ruling on RLA disputes, and to arbitrators handling CBA proceedings under the RLA. Notably, the company’s ADR Program makes no reference to the RLA or to the NMB.

What if, for example, a non-union employee who takes boarding passes at the airport gate, was fired for participating in a union organizing drive, a dispute subject to any of the forums mentioned above, and in direct conflict with the company’s ADR Program? This potential conflict is not far-fetched. Soon after Southwest Airlines was issued, the company announced that it will continue to rely on the ADR Program for its non-union staff, though not for ramp agents. The omissions in its ADR Program beg the question of how courts will harmonize the FAA and the RLA to ensure respect for both federal laws.

c. Supervisors

Applying Southwest Airlines, would it matter that Ms. Saxon was classified as a supervisor, whether or not she loaded or unloaded planes traveling interstate? Under the RLA, an individual serving as a first-level supervisor such as Ms. Saxon is considered a “subordinate official” covered by the statute. Classifications with representation rights under the RLA include several that do not directly work on planes, such as passenger service employees at ticket counters, office clerical staff, and dispatchers. If employees in those roles are within the jurisdiction of the RLA, so too are the subordinate officials who supervise them.

The prospect for conflict over supervisor status and the FAA is evident as well in collective bargaining relationships, even if, as at Southwest, ramp agent supervisors are not unionized. The CBA for Southwest’s ramp agents addresses supervisory work by permitting those employees, “to assist, direct, train, evaluate agent performance and support the operation by managing and directing the workforce.” Not surprisingly, disputes over supervisors performing bargaining unit work have prompted CBA arbitration proceedings.

How will courts resolve conflicts between FAA arbitrations under the company’s ADR Program and CBA arbitration proceedings, or federal court proceedings, if, for example, a supervisor’s job is at issue? Will some supervisors be subject to the FAA, but not others, regardless of status under the RLA?

Beyond industries and classifications covered by the RLA, questions arise about the characterization of supervisors generally. Under New Prime, the FAA exemption extends not just to employees, but to “workers,” as were the independent contractor truckers in that case. Presumably, a similar perspective applies to supervisors, or even higher level managers, in any field of interstate transportation, including trucking and buses, assuming as well that the individuals satisfy the “class of workers” and “engaged in” commerce standards construed in Southwest Airlines, whatever those ultimately turn out to be.

d. The Gig Economy

What will be the impact of Southwest Airlines on the so-called gig economy, including drivers for ride-hailing companies such as Uber and Lyft, and those making deliveries for Amazon and others? In amicus briefs filed by those companies, they urged the Court to rule that minimal or incidental interstate travel is insufficient to trigger the Section 1 exemption. The Court declined to address the gig economy issue, although it provided an important footnote in discussing whether such drivers are a “class of workers” exempt from the FAA. The footnote stated that “the answer will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders.” The footnote continued by citing two divergent appellate decisions, Rittman v., Inc., and Wallace v. Grubhub Holdings, Inc. A reader can fairly ask, how often and how long must a driver cross state lines, or travel to and from airports, or haul goods coming from another state, to be exempt under the FAA?

Another gig economy issue may unfold from Justice Thomas’s repeated reference to the FAA’s Section 1 exemption in connection with the movement of “goods.” What about passengers? Courts have not been of one mind on this issue. The distinction between goods and people not only is missing from Section 1, but it is counter to the baggage handling work of ramp agents, an aspect of the job Justice Thomas confirmed. By linking Ms. Saxon’s work to baggage, a passenger-related feature of the business, future litigants can reason that the movement of people, as well as goods, is a relevant aspect of the transportation exemption. With hundreds of thousands of people or more, working in gig economy enterprises, we can expect a steady stream of cases parsing the Court’s language in Southwest Airlines.

e. State Law

What happens if the FAA does not apply to a dispute because of the transportation worker exemption? Arbitration under state law still might be compelled, assuming the underlying agreement allows for a proceeding under state law if enforcement under the FAA is unavailable. A state law alternative may be available by the express terms of an agreement, or if a contract provision regarding the FAA is inapplicable or is severed from the balance of the agreement. The range and type of state law proceedings are beyond the scope of this review, but practitioners will be analyzing these considerations in future cases. Why so?

Apart from the FAA, virtually all states have arbitration laws. However, these laws vary in scope and content; for example, how will class and collective actions be governed? Applying Supreme Court precedent for the FAA, an employee’s arbitration agreement can include a waiver of class or collective actions based on the preemptive impact of the FAA. But state law may differ if FAA preemption is inapplicable, leaving class or collective actions intact depending on the circumstances in a case. Indeed, when state law governs, arbitration may be barred by statute that otherwise would be preempted by the FAA. Significant procedural differences also arise, as in how arbitration is enforced, when state law applies and not the FAA.

Southwest Airlines, a decision that initially appears to be straightforward and narrow, leaves in its wake a range of problems for determining how and when to apply to FAA’s transportation worker exception.

Barry Winograd, an arbitrator and mediator, is a past president of the National Academy of Arbitrators, and also has served on the adjunct law school faculty at the University of California, Berkeley, and the University of Michigan. The author was counsel of record for an amici filing by the Academy and the National Association of Railroad Referees in Southwest Airlines v. Saxon.

Posted in: Employment Law

Tags: Arbitration, SCOTUS

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