Two days before the United States Supreme Court ruled in Bissonnette v. LePage Bakeries Park St., LLC,¹ that the Federal Arbitration Act’s (FAA) transportation worker exemption (meaning the FAA would not apply) extends beyond the transportation industry, the U.S. Court of Appeals for the Ninth Circuit addressed whether the exemption applies to “contracts of employment” between business entities. In Fli-Lo Falcon, LLC v. Amazon.com, Inc., No. 22-35818 (9th Cir. Apr. 10, 2024), the Ninth Circuit held that Section 1 of the FAA does not extend to business entities or to commercial contracts, such as the Delivery Service Partners (DSP) agreements between Amazon and its delivery service partners containing an agreement to arbitrate disputes. Thus, even where a plaintiff qualifies as a Section 1 “transportation worker,” the FAA may still require arbitration of claims where the arbitration clause resides in a contract between business entities (as was the case in Bissonnette).

In Fli-Lo Falcon, a class action dispute arose between Amazon and three of its DSPs. To join the DSP program, an individual was required to create a business entity, which then contracted with Amazon.com Inc. by executing a DSP Program Agreement containing a binding arbitration clause.  The business entities then hired multiple individuals to deliver packages to Amazon’s customers. The DSPs, as business entities, sued Amazon.com Inc. seeking damages and declaratory and injunctive relief. The district court ordered that the case be arbitrated, finding that Section 1 of the FAA did not apply to “commercial agreements between business entities for the delivery of goods.”

Section 1 (commonly known as the “transportation worker exemption”) exempts from the FAA’s coverage “contracts of employment of seamen, railroad employees, or any class of workers engaged in foreign or interstate commerce.” The “any class of workers” is often referred to as the “residual clause” of Section 1. Supreme Court litigation, including the April 12, 2024, decision in Bissonnette v. LePage Bakeries Park St., LLC, has focused on the “class of workers” or “interstate commerce” aspects of the exemption.² But as the Fli-Lo Falcon decision noted, neither Supreme Court precedent on this issue—Circuit City Stores, Inc. v. Adams, 586 U.S. 105 (2019) and New Prime Inc. v. Oliveira, 586 U.S. 105 (2019)—answered the following questions: (1) can business entities qualify as a “class of worker” engaged in foreign commerce? and (2) can a commercial contract of employment qualify as a “contract of employment”? The three-judge panel answered both questions in the negative, with one concurring judge reaching only the second question.

First, as to whether business entities qualify as a “class of worker” engaged in foreign commerce, the Ninth Circuit held that the “residual clause does not extend to business entities” like the DSPs. It reasoned that “the word ‘seamen’ and the phrase ‘railroad employees’ describe natural persons who are individual workers.” Because the residual clause is to “be afforded a narrow construction,” the Ninth Circuit concluded that it “cannot do the heavy lifting of expanding the transportation worker exemption to cover non-natural persons like the business entities” who sued Amazon.com Inc. Following the lead of the Fourth Circuit in Amos v. Amazon Logistics, Inc.,³ and noting the recent Sixth Circuit decision in Tillman Transportation, LLC v. MI Business Inc.,⁴ the Ninth Circuit held that “no business entity is similar in nature to the actual human workers enumerated by the text of the transportation worker exemption.”

Second, the Ninth Circuit held that the term “contracts of employment” in Section 1 does not extend to commercial contracts like the DSP agreements. More specifically, it stated “for a contract to be a contract of employment covered by § 1, it must have a qualifying worker as one of the parties.” The court relied on language from Circuit City and Southwestern Airlines Co. v. Saxon, 596 U.S. 40 (2022), suggesting that the “transportation workers exemption was targeted at employment contracts of workers (whether employees or independent contractors), not contracts of business entities.” The opinion also noted that plaintiffs had provided no authority that the transportation worker exemption can apply to a commercial contract between two business entities and that several district courts have held it does not. Finally, it rejected plaintiffs’ argument that Amazon.com Inc. had circumvented Ninth Circuit precedent by requiring DSPs to form corporate entities, and that “[n]othing in any law cited to us barred” Amazon.com Inc. from choosing to contract only with business entities.

In a concurring opinion, one of the three panel members agreed that the DSPs are not eligible for the transportation worker exemption because the contracts at issue are not “contract[s] for the performance of work by workers” (quoting New Prime), but rather “commercial contracts for delivery and transportation services, provided by companies that themselves employ and manage multiple workers.”  The concurring panel member concluded it was not necessary to reach the question of “whether there are any circumstances under which a business entity could qualify for the transportation worker exemption.”

Takeaways

• Three Circuits have found that business-to-business contracts are not “contracts of employment” that would exclude from FAA coverage disputes involving transportation workers frequently engaged in foreign or interstate commerce. To date, we are not aware of any district court finding to the contrary.

• In Bissonnette, the Supreme Court did not express an opinion on “any alternative grounds in favor of arbitration” raised in lower courts. It is therefore possible arbitration may still go forward since the contracts at issue were, as in Fli-Lo Falcon, between business entities. Indeed, the District of Connecticut decision compelling arbitration in Bissonnette noted that the parties had not argued the “contracts of employment” issue and expressed some doubt that it applied to business-to-business contracts.⁵

• The decision could have a significant impact on a variety of arrangements where a corporate entity is set up to perform distribution, installation, or other services (whether required by the other contracting entity or created as a liability shield).