By R. David Gallo
The U.S. Supreme Court issued an arbitration-related decision on June 6, 2022. In Southwest Airlines Co. v. Saxon, No. 21-309, the Court weighed in on the scope of the Federal Arbitration Act’s Section 1 exclusion of certain employment contracts.
Summary. FAA Section 2 makes “valid, irrevocable, and enforceable” an agreement to arbitrate in “any maritime transaction or a contract evidencing a transaction involving commerce.” 9 U.S.C. § 2. However, per Section 1, the FAA does not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. An arbitration agreement in any such employment contract is not enforceable under the FAA.
Southwest concerned Ms. Saxon, an employee of the airline, whose employment contract required arbitration on an individual basis (i.e. no courts and no class actions allowed). Despite this arbitration provision, she filed wage and hour claims against Southwest in court on behalf of a putative class of her coworkers. When Southwest sought to dismiss the court case and compel arbitration under the FAA, Saxon argued that, as an employee who loads and unloads cargo, she is a member of the “class of workers engaged in foreign or interstate commerce” whose contracts fall outside the FAA. The district court disagreed with Saxon, the Seventh Circuit Court of Appeals reversed, and the Supreme Court granted cert.
Justice Thomas, writing for a unanimous court (minus Justice Barrett, who did not participate), relied almost entirely on a textual analysis of the FAA, meaning that the Court analyzed words and phrases like “worker” “engaged in … commerce,” “seaman,” and “railroad employees” (and even “wharfage”) to determine whether airline cargo loader/unloader best fits inside or outside Congress’ attempt (in 1925) to exclude a certain group of employment contracts from the FAA.
The Court ruled that one who loads and unloads cargo for an airline is a worker engaged in foreign or interstate commerce whose contract is excluded from the FAA’s general mandate that arbitration agreements be enforced. The Court declined Southwest’s invitation to apply the Section 1 exemption only to pilots and others whose role (like “seamen”) includes physically crossing state and national boundaries. The Court also rejected Saxon’s argument that the Section 1 exclusion applies to all employees of the airline, reasoning that this would encompass workers not engaged in interstate commerce, like “those who run the Southwest credit-card points program.”
The Court left open certain questions that may need to be resolved in future, borderline cases. For example, the Court relied on the fact that Saxon, a supervisor of cargo loaders, also loads cargo herself. The Court did not decide whether supervising cargo loaders, by itself, would make Saxon a worker “engaged” in “interstate commerce.” This and other contours of Section 1 will likely still need to be resolved by the courts in the future.
Discussion. It is not surprising that the Court relied on the text of the FAA and ignored the rich legislative history that led to the passing of the FAA. Courts are typically cautious, and a textual analysis of a statute is arguably a “safer” approach than is an analysis of legislative history. (Safer = easier for lower courts to replicate and (somewhat) less vulnerable to subjectivity.) But in this blog, where I have no power to declare the law of the land, I can be less cautious.
The FAA was drafted and championed by a group of lawyers and businessmen. The weight of the historical record shows that these drafters were primarily focused on improving dispute resolution between merchants involved in interstate and international trade. The breadth of disputes to which the FAA now applies would surprise them (but may or may not trouble them). This is important context for the FAA’s Section 1 exclusion of certain employment contracts.
In Southwest, the Court essentially asked: What subset of employees did Congress choose to carve out of the FAA? It makes sense to approach a statutory exclusion in this way. But the more accurate question might have been: What subset of employees did Congress believe might be pulled into the FAA, if not for the Section 1 exclusion?
While the drafters were lobbying Congress to pass the FAA, concerns about the new bill’s impact on labor came mostly from two sources: Andrew Furuseth, the president of the International Seamen’s Union, and C.O. Bailey, a prominent attorney who represented many large railroad companies.* This is not surprising. Seamen and railroad employees likely constituted the vast majority of the workers engaged in some form of interstate commerce in 1925. In response to the concerns about labor relations, the drafters added the Section 1 exclusion to the draft bill.*
One of the primary drafters and proponents of the FAA, Charles Bernheimer, wrote that, after the addition of the new Section 1 exclusion, “all industrial [i.e. labor] questions have been eliminated.”* Likewise, another major proponent explained during a Congressional hearing in 1923 that, “it is not intended that [the FAA] shall be an act referring to labor disputes, at all. It is purely an act to give merchants the right or privilege” to arbitrate their differences, but “if your honorable committee should feel there is any danger” of the FAA applying to labor disputes, the Section 1 exclusion should take care of that concern.*
What does that tell us? It appears that the drafters believed excluding “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” was tantamount to excluding those employment contracts that might inadvertently become subject to this new bill aimed at supporting arbitration of commercial disputes between merchants. In other words, perhaps they sought to exclude all employment contracts by drafting an exclusion to address the only employment contracts that had been brought to their attention as the ones prone to being swept up in the FAA. While technological, social, and legal developments after 1925 have dramatically expanded the idea of “interstate commerce,” it is quite possible that, in 1925, the drafters thought they had excluded “interstate” employment contracts, as most employment contracts would have been decidedly local (i.e. intrastate) at the time.
At the same time, the drafters could have easily excluded “all employment contracts.” For some reason, they chose not to. Perhaps the drafters purposely drafted the Section 1 exclusion narrowly to appease particular special interests, leaving the remainder of employment contracts subject to the FAA. As a result of this textual and historical uncertainty, the Court’s approach in Southwest seems sound, even though it necessarily ignores some highly relevant legislative history.
* Imre S. Szalai, Outsourcing Justice: The Rise of Modern Arbitration Laws in America (2013)
About the author:
David Gallo specializes in business litigation and arbitration. Prior to moving to Atlanta, David studied under leading arbitration practitioners and scholars at Columbia Law School, practiced litigation and arbitration at two AmLaw 100 firms in New York, and taught arbitration at Fordham Law School.
About the Arbitration Blog
This blog is a user-friendly resource for businesses and individuals who find themselves faced with issues involving arbitration. Perhaps you want to include an arbitration clause in your contract, or you are being asked to sign a contract with an arbitration clause. Maybe a dispute has arisen and you want to begin arbitration proceedings but you are not sure whether your arbitration clause covers the dispute (hint: it usually does). Perhaps you received a subpoena for documents in connection with an arbitration in which you are not otherwise involved. This blog provides you with answers to simple questions and will help you ask the right questions when confronted with more complex issues.
Among other topics, we cover how to draft an arbitration clause and what to expect in arbitration proceedings. We discuss the differences and similarities among arbitrations governed by Georgia law, federal law, and international law. We explore—in layman’s terms, whenever possible—the Georgia Arbitration Code, the Federal Arbitration Act, transnational law, and decisions from Georgia’s state courts, Georgia’s federal district courts, the U.S. Court of Appeals for the Eleventh Circuit, the U.S. Supreme Court, and foreign tribunals. We provide toolkits and checklists you can use to navigate everyday arbitration issues. We discuss the various contexts and industries in which we have handled arbitration issues for our clients, including:
- Breach of Contract
- Closely Held Company Shareholder Disputes
- Earn Out Disputes
- Executive Separation/Severance
- Franchise Disputes
- Mergers and Acquisitions
- Real Estate
- Trusts and Estates
- Vendor/Supplier Disputes
- Trusts and Estates
We are available and eager to discuss your arbitration issues with you.
Attorneys at Krevolin & Horst with extensive arbitration experience: