The GigReporter

A case from the United States District Court for the District of Connecticut has proven the continuing viability of the argument that business-to-business relationships are not subject to the Federal Arbitration Act’s transportation worker exemptions. It also serves as a primer on some important features of federal appeal procedures.

Silva, et al. v. Schmidt Baking Distribution, et al., No. 3:23-cv-01695, is a misclassification/wage-and-hour case where the plaintiffs allege they were misclassified employees compelled to pay substantial sums for territorial distribution rights and subject to the defendants’ control in the conduct of their delivery businesses. The distribution agreements at issue included mandatory arbitration provisions, and the defendants moved to compel arbitration relying on the Federal Arbitration Act (“FAA”).

The FAA requires enforcement of arbitration agreements but includes an exemption for the contracts of employment of transportation workers, which the United States Supreme Court has held can include independent contractors. However, the contours of what constitutes a “contract of employment” has not been well-defined, and here the parties disputed whether the distribution agreements qualified, as the plaintiffs entered into them through corporate entities. The District Court examined other decisions considering whether business-to-business contracts can qualify as exempt contracts of employment, found that “several lower courts have reached this question and uniformly answered it in the negative”, concluded that the plaintiffs were not exempt transportation workers, and compelled the parties to arbitrate in an order dated May 2, 2024. This result shows how important it is to hire through corporate entities and use a third-party administrator such as SCI, whose agreements will not qualify as contracts of employment.

Afterward, the plaintiffs sought leave to appeal, a necessary step because the FAA allows for appeals as of right from orders denying a motion to compel arbitration, but not from ones granting such a motion. (See 9 USC § 16). Instead, appeals from an order granting arbitration are subject to the default federal rules for non-final appeals.

Generally, an appeal may only be taken from a final judgment. Most non-final, or interlocutory, orders are not immediately appealable by default, although they are considered incorporated into final judgments and the higher courts may consider issues with them on appeal from a final judgment. Some types of interlocutory orders are made appealable by specific statutory exemption, but for others there is also a catchall provision in 28 USC § 1292(b), allowing federal district judges to certify an interlocutory order for appeal, after which the appropriate Court of Appeal may decide to hear it.

Section 1292(b) has three requirements: The order must (1) involve a controlling question of law (either possibly determining the entire outcome of the litigation or involving an important precedential question), (2) as to which there is substantial ground for difference of opinion (either conflicting authority or a hard question of first impression), and (3) the appeal may advance the ultimate termination of the litigation, by shortening the time to trial or the length of trial. Unsurprisingly, the Silva defendants have argued in opposing the plaintiffs’ motion for certification that an appeal from this order compelling arbitration does not meet any of these criteria. The defendants the plaintiffs’ moving papers have largely misstated the question of business-to-business contracts to try to connect their case to other distinct issues. The motion for certification remains pending.