A Look at Saxon v. Southwest Airlines and Related Cases

Section 1 of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The majority of courts gave the residual clause of section 1 a narrow reading. To be exempt, a class of workers must be actually engaged in the movement of goods in the same way that seamen and railroad workers are. In Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the Supreme Court considered whether section 1 exempts all employment contracts or only those contracts involving “transportation workers.” The Court held that the exemption applies only to “transportation workers.” The Court did not define what constituted a “transportation worker.”

In New Prime Inc. v. Oliveira, No. 17-340 (U.S. 2019), the Supreme Court considered whether the section 1 exemption applied only to contracts that established an employer-employee relationship. The Court held that employment contracts with independent contractors engaged in foreign or interstate commerce are exempt from arbitration under section 1.

The Facts in Saxon v. Southwest Airlines

Latrice Saxon began work with Southwest Airlines as a unionized ramp agent at Chicago Midway International Airport. All employees as a condition of employment were required to have their fingerprints scanned by a biometric timekeeping device. As a ramp agent, Saxon loaded and unloaded cargo from airplanes headed across state or country lines. In accordance with the union’s collective bargaining agreement, an adjustment board resolved labor-related disputes involving unionized employees. In November 2016, Southwest promoted Saxon to the position of a nonunionized ramp supervisor. She was required to execute an agreement that she would individually arbitrate certain employment-related disputes in accordance with the Employment Arbitration Rules of the American Arbitration Association (AAA). In her new position, she trained, assisted, and supervised ramp agents. She estimated that she filled three full-time shifts per week as a ramp agent when Southwest was short on workers. In May 30, 2019, she quit.

A Related Case: Crooms v. Southwest Airlines

In 2019, Saxon and three other ramp supervisors (Crooms, Lopez, and Stephan) filed a putative collective action involving union and nonunion members against Southwest. Crooms v. Southwest Airlines Co., 459 F. Supp. 3d 1041 (N.D. Ill. 2020). They alleged Southwest had collected their fingerprints but failed to comply with the Illinois Biometric Information Privacy Act (BIPA), 740 Ill. Comp. Stat. 14/1 et seq. Three months after they filed suit, the Seventh Circuit issued its decision in Miller v. Southwest Airlines Co., 926 F.3d 898 (2019). The plaintiffs in Miller were also unionized ramp agents working for Southwest at Midway Airport. They also alleged violations of BIPA. The Seventh Circuit dismissed their case, ruling that the Railway Labor Act, 45 U.S.C. §§ 151 et seq., required unionized workers to bring their BIPA claims before an adjustment board. “The necessity of interpreting the collective bargaining agreement meant that federal court was the wrong forum” because there was “no room for individual employees to sue under state law.”

Southwest requested dismissal of the Crooms case, relying heavily on the recent decision in Miller and the fact that all four plaintiffs had signed AAA arbitration agreements. The Crooms plaintiffs challenged the dismissal motion, arguing that under section 1 of the FAA, as “transportation workers engaged in foreign or interstate commerce,” they were exempt from the FAA’s coverage.

Impact of the District Court Decision in Saxon v. Southwest Airlines

In its decision, the Crooms court noted that “[f]the second time in this case, there is a precedent that is squarely, eerily on point.” In Saxon v. Southwest Airlines Co., No. 19-cv-0403 (N.D. Ill. Oct. 8, 2019), Saxon, one of the plaintiffs in Crooms, had filed a putative collective action against Southwest under the Fair Labor Standards Act. Saxon demanded unpaid overtime from working as a ramp supervisor at Midway Airport. When Southwest moved to dismiss based on an arbitration agreement, Saxon argued that the section 1 exemption applied. In his decision to dismiss the Saxon case, district court Judge Dow held that merely working in a transportation-adjacent industry or position—without being engaged in transporting or handling goods or directing those who do—is not enough to qualify any employee as a “transportation worker.” “Workers who transport goods intrastate as part of an interstate Pony-Express style network may be transportation workers, but those who merely handle those goods at one end or the other are not.”

In reliance on the decision in Saxon, the district court in Crooms determined that the section 1 exemption did not apply. The court ordered three of the four plaintiffs, Lopez, Saxon, and Hill, to present their BIPA claims before an adjustment board in accordance with the collective bargaining agreement and the Railway Labor Act. The court ordered the fourth plaintiff, Crooms, to arbitrate his BIPA claims before an AAA arbitrator. According to the court, “if it were not for the [Railway Labor Act], the other three plaintiffs would be headed to arbitration, too.”

Saxon’s Appeal of the District Court Decision in Saxon v. Southwest Airlines

On appeal, the parties agreed that Southwest’s business of flying passengers and their baggage was interstate or foreign commerce within the meaning of section 1—a point that Southwest had disputed in the district court. Saxon v. Southwest Airlines Co., No. 19-3226 (7th Cir. Mar. 31, 2021). The court discounted Saxon’s argument that the section 1 exemption included all airline employees. The exemption applied only to airline employees actively occupied in the enterprise of moving goods across foreign or interstate lines. Saxon’s uncontested estimate that she and other ramp supervisors covered three full ramp agent shifts per week confirmed that she spent a significant amount of time physically loading baggage and cargo onto and unloading baggage and cargo from planes destined for, or returning from, other states and countries. The court concluded that actual transportation was not limited to the precise moment either goods or the people accompanying them crossed state or country lines. Loading cargo onto and unloading cargo from a vehicle so that it may be moved across state or country lines is “actual transportation” and those who physically performed that work were engaged in commerce for purposes of the section 1 exemption.

In its decision, the Seventh Circuit panel conducted an in-depth examination of prior court holdings regarding the class of workers covered by the enumerated categories of “seamen” and “railroad employees.” This comparison further supported the court’s “conclusion that a ramp supervisor fell within the residual clause” of section 1. The court also addressed the Fifth Circuit’s minority decision in Eastus v. ISS Facility Services, Inc., 960 F.3d 207 (5th Cir. 2020). Heidi Eastus supervised and assisted gate agents who placed baggage on conveyors for security scanning and loading by others onto planes for movement across states and countries. Eastus assisted with the physical loading of baggage onto the conveyor as needed. The Fifth Circuit rejected the multiple factor test enunciated by the Eighth Circuit. See Lenz v. Yellow Transp., 431 F.3d 348 (8th Cir. 2005). Applying the reasoning of the majority, the Fifth Circuit held that Eastus was not directly involved in the transport of goods across state or country lines. Contrasting the decision in Eastus, the Seventh Circuit determined that airplane cargo loaders, such as Saxon, are “essential” “in a way distinct even from other airline employees,” such as Eastus, who did not directly load baggage onto airplanes.

Finally, the Seventh Circuit examined cases arising under the Federal Employers Liability Act, 45 U.S.C. §§ 51–60. Those cases identified three classes of workers who are engaged in interstate or foreign commerce: first, those who physically travel across state or country lines, such as pilots; second, workers engaged in the intrastate leg of an interstate journey, such as delivery drivers; and, third, workers so closely related to interstate transportation as to be practically part of it, such as cargo loaders.

Having determined that airplane cargo loaders are essential to the movement of goods across state or country lines, the court determined the section 1 exemption applied. The Seventh Circuit reversed the district court’s judgment compelling arbitration and remanded for further proceedings. Southwest appealed to the Supreme Court.

The Supreme Court’s Unanimous Decision in Saxon

Because the Seventh Circuit’s decision in Saxon conflicted with the earlier decision of the Fifth Circuit in Eastus, the Supreme Court granted certiorari to resolve the circuit split. On June 6, 2022, the Court determined that workers who load cargo onto and unload cargo from airplanes traveling across state or international boundaries are directly engaged in interstate commerce and therefore are exempt from arbitration under the residual clause of section 1 of the FAA. Southwest Airlines Co. v Saxon, No. 21-309. Rejecting Saxon’s industrywide approach to what constitutes a “transportation worker,” the Court focused its analysis on the type of work performed. To be exempt from arbitration under the residual clause of section 1, a “worker must at least play a direct and necessary role in the flow of goods across borders.” “Activities far more removed from interstate commerce than physically loading cargo directly on and off an airplane headed out of State” may not have the necessary nexus to qualify for exemption under the residual clause. Ramp supervisors who, like Saxon, frequently load and unload cargo are exempt from the FAA’s scope under section 1.

Conclusion

Commentators have noted that the decision in Saxon might open the door to future litigation regarding whether additional classes of workers are directly engaged in interstate commerce. For example, Saxon “frequently” performed work necessary to the flow of goods across borders. What about workers who infrequently perform similar duties? What duties qualify as being “necessary” to the flow of interstate goods? Are intrastate workers handling or transporting commercial goods that previously moved across state or international borders covered by the exemption? Does it matter what a worker transports, such as people instead of goods? Employers might want to evaluate job duties to determine if there is the “necessary nexus” to interstate or foreign commerce.

If there are any doubts about whether the section 1 exemption applies to a class of workers, employers might want to provide for the application of state law. Many states have enacted the Uniform Arbitration Act (UAA) after its initial adoption by the National Conference of Commissioners on Uniform State Laws in 1955. The UAA does not contain an exemption for “transportation workers.” Arbitration agreements exempted under section 1 of the FAA may be enforceable under the UAA or another state law.