Here’s some good news for the Final-Mile Industry. The 9th Circuit’s recent decision in Fli-Lo Falcon, LLC v., Inc., No. 22-35818, 2024 U.S. App. LEXIS 8614 (9th. Cir. April 10, 2024) determined the Federal Arbitration Act (FAA) exemption for Transportation workers does not apply to businesses that have commercial contracts with transportation workers. This is good news for logistics brokers wanting to rely on arbitration agreements made with master contractors or found in third-party administrator contracts.

In Fli-Lo, three delivery service partner (DSP) companies contracted with Amazon to provide local delivery services, hiring their own individuals to perform this work; when the DSPs sued Amazon over various alleged misrepresentations, Amazon moved to compel arbitration based on a mandatory arbitration clause in the DSP Agreement. The DSPs argued this case fell under the transportation worker exemption, but the trial court disagreed and compelled arbitration. On appeal the Ninth Circuit affirmed.

The opinion first states that the transportation worker exemption cannot apply to corporate entities. Based on the statutory text, the panel concluded that the exemption was meant only for individual workers, and business entities that hire their transportation workers do not qualify. As none of the plaintiffs were transportation workers, they were not subject to the exemption. (The opinion stated several times that the plaintiffs each hired their own workers but did not make clear how important that was to the outcome.)

The panel also found the commercial contracts at issue here were not “contracts of employment” for the purpose of the FAA. The United States Supreme Court had found that this term encompassed any contract to perform work by workers, but the DSP Agreements in this case required performance of services by a business entity. The panel thus concluded that the exemption cannot apply to a commercial contract between businesses, even where, as the DSPs alleged here, one party required them to operate as business entities.

There are two takeaways for logistics brokers wishing to rely on arbitration agreements. First, dealing with service providers operating as a business entity is more of a must; it may be the case that truly single-person operations could still be considered individual transportation workers even when operating as a company, but in all other cases it seems dealing through a corporation or limited liability company will provide safer harbor from the FAA exemption. Second, the courts were inclined to narrowly define “contracts of employment”. SCI’s agreement is not a “contract of employment” with the individual so it stands to reason SCI’s arbitration agreement should be held up as well – at least in the 9th circuit.

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