Supreme Court Explains Limits to Arbitration Exceptions to Court Litigation

A majority of employees in the U.S. are now covered by individual arbitration agreements prohibiting them from bringing lawsuits in court and also prohibiting the bringing of class or collective actions. There has been a slow but steady increase in the use of such individual arbitration agreements, as employers believe they are quicker, cheaper, more private, with the limitation of class actions in them another big plus. Such employers believe the best way to avoid a "runaway jury" is not to have a jury at all, but leave the legal employment issues up to an arbitrator. 

A few months ago, Congress passed a law limiting mandatory arbitration agreements as to allegations of sexual harassment or assault. The U.S. Supreme Court recently clarified a second limitation on such arbitration agreements. The Federal Arbitration Act, a vehicle used for most arbitration agreements, has an exemption for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." On June 6, 2022, the Supreme Court ruled that the exemption applies to specific classes of workers, and that employees who frequently load and unload cargo on and off airplanes that travel in interstate commerce belong to a class of workers engaged in foreign or interstate commerce to which the exemption applies, and therefore such workers are not subject to the provisions of the Federal Arbitration Act. On the other hand, the Court rejected an argument that the provision exempts virtually all employees of major transportation providers. Southwest Airlines Co. v. Saxon, No. 21-309 (2022). 

Editor's Note: The transportation worker exemption is a narrow exception to the general principle that allows employers to make it a condition of employment that workers agree to mandatory arbitration of workplace disputes. Complicated issues will still remain as to whether Uber drivers and certain other categories of workers are subject to this exemption from the Federal Arbitration Act. Even if the Federal Arbitration Act is not applicable, however, employers may be able to use similar concepts under their state arbitration laws to enforce individual arbitration agreements. Wimberly & Lawson would be pleased to provide sample arbitration agreements or advice in whether such agreements should be used.

This is part of our July 2022 Newsletter.

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