The U.S. Supreme Court is currently considering two significant cases under the Federal Arbitration Act (FAA) that – taken together– could materially affect when arbitration agreements are enforceable and which courts may enforce arbitration decisions. While arbitration remains a favored dispute‑resolution tool for many businesses and employers, these cases highlight that its scope is limited and may turn on technical – but consequential – jurisdictional and worker‑classification issues.
These cases warrant close attention from businesses, especially those that utilize employment arbitration agreements, those with delivery or logistics‑adjacent workforces, or those with multi‑state operations.
Flowers Foods, Inc. v. Brock (FAA “Transportation Worker” Exemption)
In Flowers Foods, Inc. v. Brock, the Supreme Court is considering whether local delivery drivers who never cross state lines – but who deliver goods that traveled in interstate commerce – are exempt from the FAA’s coverage under the statute’s so‑called “transportation worker” exemption.
The FAA generally requires courts to enforce arbitration agreements. Thus, if employees sign valid agreements requiring them to arbitrate disputes with their employer, then the FAA requires courts to make such employees prosecute claims against their employers through private arbitration, as opposed to through litigation in court. However, Section 1 of the Act excludes “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” If a worker falls within that exemption, the FAA does not apply, and any arbitration agreement such an employee signed would be unenforceable.
The case currently before the U.S. Supreme Court arises from a dispute involving Flowers Foods, a national baked‑goods company, and a local delivery driver. Although the driver worked entirely within one state, the U.S. Court of Appeals for the Tenth Circuit held that the driver was nonetheless part of a “continuous interstate journey” because the goods were baked out of state and shipped across state lines before final delivery. On that basis, the court ruled that the driver was exempt from the FAA and, therefore, the case would have to be litigated in court; it was not subject to mandatory arbitration.
The Supreme Court has agreed to review that decision. If the Supreme Court affirms that decision, the impact could extend well beyond the food industry. Employers may find that entire categories of workers – such as delivery drivers, route sales representatives, and certain gig‑economy workers – are no longer subject to FAA‑based arbitration agreements, even if their work is primarily local.
This would be particularly significant for employers that rely on arbitration agreements to limit class and collective actions, resolve wage‑and‑hour disputes, manage misclassification risk under federal and state wage-and-hour laws, or control litigation costs.
Without the FAA, enforceability of arbitration agreements may depend on state arbitration laws, which vary widely and are often less favorable to employers.
This decision could narrow arbitration coverage at precisely the time when employment litigation risk is increasing. An adverse decision from the U.S. Supreme Court would be particularly concerning to employers with delivery‑focused or logistics‑adjacent workforces, even those whose employees have signed mandatory arbitration agreements and work entirely in one state.
Jules v. André Balazs Properties (Federal Court Jurisdiction After Arbitration)
In Jules v. André Balazs Properties, the Supreme Court is addressing a more technical question regarding the power of federal courts overseeing private arbitrations. When a federal court initially has jurisdiction over a case and stays it pending arbitration, does that court retain jurisdiction to later confirm or vacate the arbitration award if no independent basis for federal jurisdiction exists at that later stage?
Many employers assume that if a case starts in federal court, it will end in federal court, even if arbitration occurs in the middle. That assumption is now in question.
In the 2022 case of Badgerow v. Walters, the Supreme Court held that federal courts may not automatically “look through” an arbitration dispute to find federal jurisdiction when confirming or vacating an arbitration award. Instead, the federal court must have an independent jurisdictional basis on the face of the application to enforce an arbitration decision.
In the case currently before the Supreme Court, the plaintiff asks whether a case that was merely stayed (not dismissed) pending arbitration can rely on a federal court’s original jurisdiction as a kind of “jurisdictional anchor” for post‑arbitration enforcement of an arbitration decision.
The outcome of the current case will affect the enforceability – and thus, finality – of arbitration awards. If the Supreme Court rules against continued federal jurisdiction, employers and businesses that prevail in arbitration may be forced into state court to confirm arbitration awards. In the process, such entities might lose the perceived advantages of federal‑court uniformity, predictability, and procedural safeguards. Such uncertainty would be challenging for employers and businesses that use arbitration as a risk‑management tool.
What These Cases Mean Together
These cases underscore that arbitration remains an effective litigation risk management tool – but not an all-powerful one. Employers and businesses, particularly those that operate in the transportation and logistics industries, should pay close attention to how these cases play out as the outcomes could affect how reliable arbitration agreements will be moving forward.
The Court will hold oral argument in both cases in March and should issue decisions by June. We will continue to monitor these cases closely and provide updates as the Supreme Court issues its decisions.
Barley Snyder’s Employment, Alternative Dispute Resolution, and Transportation, Logistics & Trade groups assist employers and businesses with the strategic use and enforcement of arbitration agreements as well as managing litigation risk. For guidance tailored to your organization’s needs, please contact the Hon. David Ashworth (ret.), David Freedman, or any other member of our team.
