Distributor and baking firm argue over arbitration
An issue that will be debated before the US Supreme Court is whether independent distributors of baked goods are subject to binding arbitration that is required. In recent weeks, the court has received briefs from both sides of the issue.
In this case, Flowers Foods, Inc. argues that arbitration agreements that two of its independent distributors signed are valid, while the distributors argue that the arbitration agreement is unenforceable due to a Federal Arbitration Act (FAA) provision from 1925.
The most recent in a string of instances in recent years addressing the enforceability of mandatory arbitration agreements is Neal Bissonnette et al. versus LePage Bakers Park St, LLC, et al. The US Chamber of Commerce and the baking industry as a whole have both expressed interest in and submitted papers about the Bissonnette case.
The Federal Arbitration Act’s provision that exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from mandatory arbitration is in question.
The court’s inquiry, according to petitioners Neil Bissonnette and Tyler Wojnarowski, is whether or whether drivers of commercial trucks belong to the same “class of workers engaged in commerce” as “seamen” and “railroad employees.” They are contesting rulings from the US Court of Appeals Second Circuit, which found that employees would have to be employed by the transportation industry in addition to engaging in transportation-related activities in order to be eligible for the exemption.
The petitioners identified as drivers of commercial trucks.
According to the petitioners’ Supreme Court filing, “They worked full time hauling goods for Flowers Foods, the multibillion-dollar company that manufactures Wonder Bread and other packaged baked goods found on grocery shelves throughout the country.” “Flowers sends its goods from its factories to retailers including Safeway, Walmart, and Target across state boundaries. The final portion of that route, from Flowers’ regional warehouse in Connecticut to outlets across the state, was under the petitioners’ control. The petitioners were categorized by Flowers as independent contractors. The company requested that they create shell corporations, buy the license to carry Flowers’ goods, and cover the cost of the vehicles they drove for the company. However, although while Flowers makes its drivers sign agreements that ostensibly designate them as “independent” distributors, in reality, Flowers employs these drivers, whose duty it is to transport Flowers’ products under Flowers’ supervision.
When the petitioners sued Flowers in 2019, claiming that the company had wrongly designated them as independent contractors and that it had broken both state and federal wage regulations, the arbitration issue came to light.
According to the petitioners’ filing, “They claimed that Flowers unlawfully withheld payments from their paychecks, charged them for the privilege of working for the company, and failed to pay them overtime.”
Due to the fact that the petitioners were independent companies rather than transportation employees, a district court decided against them. The requirement to work for a transportation company in order to qualify was the main emphasis of the Second Circuit’s ruling.
The petitioners argue that “nothing in the statute’s text supports adding an additional requirement that they work in an industry that pegs its charges to the movement of goods or generates its income primarily from that movement” in their appeal of the Second Circuit ruling.
Flowers disputes the petitioners’ basic facts in its reply, starting with their claim that they are “mere truck drivers.” According to Flowers, the petitioners are the owners of two Connecticut firms, Bissonnette Inc. and Blue Star Distributors Inc., “that acquired the rights to market, sell, and distribute Flowers products from Respondent C.K. Sales Co., LLC.”
In response, Flowers requested arbitration under the distribution agreement’s clause. The petitioners contend they are not subject to the Federal Arbitration Act.
Flowers refuted the petitioners’ description, stating that independent distributors buy Flowers’ products and resale them to their clients for a greater price.
According to Flowers, among other things, “independent distributors can increase their profits by selling more products in their territories, lowering expenses, or buying additional territories.” “Independent distributors may experience losses as a result of ineffective marketing campaigns, declining or closed accounts, or increased costs. Independent distributors are allowed to sell all or a portion of their territories.
According to Flowers, distributors are not obliged to provide services in person.
The corporation stated in its submission, among other things, that the FAA’s “residual provision applies only to groups of workers in the transportation industry” (i.e., workers hired by businesses that offer transportation services). As a result, the business claimed that Southwest against Saxon, an FAA lawsuit that was settled in 2022 in favor of the workers, was unrelated to the current issue.
According to Flowers, “that case involved an airline employee who unquestionably worked in the transportation industry.”
The petitioners cited Saxon as evidence, quoting Justice Clarence Thomas, who stated in the majority judgment that the FAA exemption’s application is determined by the “relevant ‘class of workers'” rather than “what the company does generally.” Latrice Saxon was an employee of Southwest who loaded and unloaded goods from
In their filings, the petitioners and Flowers cited a disagreement by the late judge Rosemary S. Pooler in the Second Circuit appeal, in which she determined that the petitioners’ “handling goods traveling in interstate commerce every day” qualifies them for the FAA exemption.
The American Bakers Association, the US Chamber of Commerce, and other groups highlighted in a brief that the FAA has “embodied Congress’s strong commitment to ensuring the enforceability of arbitration agreements” for nearly a century.
The organizations claimed that working in the transportation sector was a “common attribute” of the 1925 railroad and seafaring workers, but the petitioners do not match that description.
The groups declared, “That is enough to resolve this case.”
Examining the Supreme Court’s earlier decision, which delves deeper into the legal ramifications of the decision, the brief concluded that “where general words follow specific words in a statutory enumeration, the general words are (usually) construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.”
By examining the definition of “interstate commerce,” the panel also made a distinction between the actions of the claimants in the Lepage case and occupations like rail or maritime personnel.
“An account manager in Hill who occasionally crossed the border between Georgia and Alabama in order to deliver furniture and other items to customers, or a pizza delivery person who delivered pizza across a state line to a customer in a neighboring town, would not have been regarded as’seamen’ or ‘railroad employees,'” the groups claimed.
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When determining who may be exempt from arbitration agreements, the brief argued that the Second Circuit’s approach to the case has the “virtue” of offering “a clear, bright-line rule that is easy for workers and businesses to understand and for courts to apply.”
On the other hand, the petitioners’ view of the Section 1 exemption would greatly increase litigation over whether and when the FAA applies.
Additionally, the Independent Bakers Association submitted remarks. The IBA and its members “have a significant interest in the proper interpretation of the Federal Arbitration Act,” according to Nicholas Pyle, president of the organization.
The IBA noted in its brief that the petitioners are in the wholesale food industry, much like other distributors of baked goods, and are “not in the provision of transportation services to manufacturers or other third partners.”
According to the IBA, “their business model entails purchasing goods from producers like Flowers, claiming ownership of the goods, and then reselling them to retailers at a premium price.”
The IBA continued, “To put it simply, a transportation worker can and does make a living without buying and selling products; a wholesale distributor cannot.”