United States: The Long And Winding Road: Ninth Circuit Exempts Last-Leg Drivers From Arbitration Under The Federal Arbitration Act

Seyfarth Synopsis: The Ninth Circuit recently extended the scope of which transportation workers are exempt from arbitration under the Federal Arbitration Act ("FAA"). In Carmona Mendoza v. Domino's Pizza, LLC, – F.4th –, 2023 WL 4673469 (9th Cir. 2023), the Court held that last-leg drivers who transport goods within a state are nevertheless engaged in interstate commerce, and therefore exempt from arbitration under the FAA, when the goods originate out of state and are unaltered.

Carmona is the latest stop in a journey that has seen courts liberally interpret "interstate commerce" to encompass intrastate transportation.

Last-Leg Drivers In Domino's Supply Chain

Carmona involves the supply chain for Dominos' Pizza franchises. As the Court explains, Domino's buys ingredients across the country and then delivers them to a local supply center – here, in California.

At the supply center, Domino's reapportions, weighs, and packages the ingredients but does not otherwise alter them. After this intake, Domino's drivers then perform the "last leg" of delivery by transporting the now-packaged ingredients from the supply center to local franchisees within the state.

Procedural History

In Carmona, three last-leg drivers in California brought a putative class action against Domino's, alleging wage-and-hour violations under state law.

Domino's moved to compel arbitration but the district court denied, finding that the drivers were exempt from the FAA under 9 U.S.C. § 1 ("Section 1") as members of a class of transportation workers "engaged in foreign or interstate commerce."

In 2021, the Ninth Circuit affirmed the denial. But in 2022, the U.S. Supreme Court granted certiorari, vacated, and remanded for reconsideration in light of Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022). Saxon held that Section 1 exempted from the FAA "workers who physically load and unload cargo on and off airplanes." 142 S. Ct. at 1789.

The Ninth Circuit (Again) Holds That Domino's Last-Leg Drivers Are Exempt From Arbitration

On July 21, 2023, the Ninth Circuit again affirmed the district court's denial of Domino's motion to compel arbitration. The Court's decision was driven by Saxon and Rittmann v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020).

In finding Section 1 exempt cargo workers, the Supreme Court in Saxon examined whether they are actively "engaged in transportation" of goods in interstate commerce and play a "direct and necessary role in the free flow of goods across borders." 142 S. Ct.at 1790. The Court specifically rejected the argument that the cargo workers must themselves cross state lines to be engaged in interstate commerce. It also emphasized that the inquiry focuses not on the employer's business but rather on "the actual work that the members of the class . . . typically carry out." Hence, the mere fact that an employer is engaged in interstate commerce does not necessarily mean that every employee is likewise engaged in interstate commerce. For example, janitorial workers are not exempt simply because they clean the local offices of an international shipping company. Id. at 1792.

Saxon expressly declined to address the continued validity of Rittmann, which held that delivery drivers who transported goods from Amazon warehouses to in-state consumers were exempt from the FAA under Section 1. Although Rittmann found that "nature of the business for which a class of workers performed their activities" was a "critical factor" in the Section 1 analysis, its analysis ultimately focused on the work actually performed by the class of workers at issue. Ultimately, Rittmann concluded that because the Amazon goods shipped in interstate commerce were not transformed or altered at the warehouses, the entire journey represented one continuous stream of commerce.

Finding no clear conflict between Saxon and Rittmann, the Ninth Circuit applied Rittman to hold that Domino's last-leg drivers, much like their Amazon counterparts, were engaged in interstate commerce because they transported unaltered goods in one continuous journey.

The Court Rejects Efforts To Distinguish Rittmann

Domino's efforts to distinguish Rittmann were unsuccessful.

Domino's first argued that Rittmann does not control because franchisees do not order the ingredients until after they arrive at the supply center. Citing Supreme Court precedent, the Ninth Circuit rejected this argument and stressed that the timing of an order is not dispositive of whether goods remain in the stream of interstate commerce.

Rather, the key inquiry is whether the drivers "operate in a single, unbroken stream of interstate commerce that renders interstate commerce a central part of their job description." As a result, a "pause in the journey of the goods at the warehouse alone remove them from the stream of interstate commerce."

Domino's next argued that the stream of interstate commerce ended at the supply center because good were repackaged there, citing A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).

But the Court distinguished Schechter on grounds that it involved chickens slaughtered at a poultry plant and then delivered to local buyers. By contrast, the ingredients at issue were unaltered from the time they arrive in the supply center until they are delivered to franchisees. In other words, the ingredients were not transformed.

Conclusion

Carmona is a cautionary case not just to franchises but to any sort of business – particularly online retailers – that relies extensively on nationwide supply chains and transportation. Carmona diverges from cases from other Circuits and may conflict with Saxon, so it is possible that the Supreme Court may weigh in on the expansive application of the transportation worker exemption in Rittman and Carmona.

In the meantime, employers can expect to encounter difficulty in compelling claims by employees, who may not ever cross state lines, to arbitration. Borders, as the cases show, are sometimes not so clear.

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