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Ninth Circuit:
Warehouse Worker Qualified as Transportation Worker
VanDyke Says Employee Is Exempted from Federal Enforcement of Arbitration Agreement
By Kimber Cooley, Staff Writer
The Ninth U.S. Circuit Court of Appeals held yesterday that a warehouse worker who worked in a facility which received watches, apparel and shoes from mostly international locations belonged to a class of workers who engage in foreign or interstate commerce and was thus exempt from the enforcement of an arbitration agreement in his employment contract under federal law governing arbitration.
Circuit Judge Lawrence VanDyke wrote the opinion which affirms in part an order denying the employers’ motion to compel arbitration by Senior District Court Judge Terry J. Hatter Jr. of the Central District of California. Senior Circuit Judge Carlos T. Bea and Circuit Judge Milan D. Smith Jr. joined in the opinion.
From August 2020 to February 2021, Adan Ortiz was employed by Randstad Inhouse Services, LLC, a staffing agency that provided workers to GXO Logistics Supply Chain, Inc.
Ortiz was assigned to work at an GXO warehouse in San Bernardino County receiving Adidas-brand merchandise from domestic and foreign sources and distributing it to domestic customers and retailers in California and other states. His job responsibilities included moving packages of merchandise after they arrived at the warehouse and preparing them to leave the facility.
Arbitration Agreement
Ortiz signed an arbitration agreement which was expressly governed by the Federal Arbitration Act (“FAA”) and required arbitration of any claims concerning his “recruitment, hire, employment, client assignments and/or termination including, but not limited to, those concerning wages or compensation.”
The arbitration agreement also included a waiver of class action claims and a provision indicating that any client to which Ortiz provided services was an intended beneficiary of the agreement.
On March 1, 2022, Ortiz filed a putative class action in Los Angeles Superior Court against Randstad and GXO, alleging various California wage and hour claims, a claim under California’s Unfair Competition law, and a claim under the Labor Code’s Private Attorney General Act. Randstad removed the case to federal court and filed a motion to compel arbitration, in which GXO joined.
Hatter declined to compel arbitration, finding that Ortiz qualified under the FAA’s transportation worker exemption to the FAA and that no other law governed the agreement.
Randstad and GXO filed a consolidated interlocutory appeal.
Transportation Worker Exemption
The exemption to the FAA relied upon by Ortiz is found in 9 U.S.C. §1. It exempts the “contracts of employment of seaman, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the provisions of the FAA.
VanDyke noted that the U.S. Supreme Court has construed the code section narrowly, applying it only to employment contracts of transportation workers.
He wrote that “employees like Ortiz, who do not transport products across great distances and interact with interstate commerce on a purely local basis, present a particularly difficult interpretive issue.”
He turned to the 2022 U.S. Supreme Court case of Saxon v. Southwest Airlines Company for guidance. Saxon found that an airline employee who worked as a ramp supervisor, loading and unloading baggage and cargo on and off airplanes, qualified as a transportation worker under the code.
VanDyke explained that the case established a two-step analysis to determine whether a particular employee qualified as a transportation worker within the meaning of the exemption.
The court first looked to the relevant “class of workers” to which an employee belonged, and then determined whether that class of workers engaged in foreign or interstate commerce. As to the second prong, VanDyke wrote:
“Though the Court’s different formulations of the test—direct and necessary, active engagement, and intimate involvement—all vary slightly, Saxon’s bottom line is that to qualify as a transportation worker, an employee’s relationship to the movement of goods must be sufficiently close enough to conclude that his work plays a tangible and meaningful role in their progress through the channels of interstate commerce.”
He noted that the Supreme Court in Saxon recognized that the further removed the class of workers is from the actual crossing of interstate or international borders, the more difficult the analysis will become.
Ortiz’s Claims
VanDyke distinguished cases relied upon by Randstad and GXO , saying:
“[T]his case does not concern last-mile delivery drivers. It presents no thorny questions about when the interstate transport of goods ends and the purely intrastate transport of the same goods begins. Nor does it involve an employee who handles goods at or near the logistical end of an interstate or international supply chain.”
VanDyke agreed with Hatter’s analysis that Ortiz is exempt. As to the first step in the analysis, the jurist wrote:
“Ortiz’s job description meets all three benchmarks laid out in Saxon. Both Ortiz and Saxon fulfilled an admittedly small but nevertheless ‘direct and necessary’ role in the interstate commerce of goods: Saxon ensured that baggage would reach its final destination by taking it on and off planes, while Ortiz ensured that goods would reach their final destination by processing and storing them while they awaited further interstate transport.”
He found that Ortiz’s work was “actively engaged” and “intimately involved with” transportation, saying that “Ortiz handled [goods] as they went through the process of entering, temporarily occupying, and subsequently leaving the warehouse — a necessary step in their ongoing interstate journey to their final destination.”
The judge rejected the arguments by Randstad and GXO that Ortiz’s work could not qualify for the exemption because his work was purely intrastate as he only moved goods a short distance within the building and did not load or unload them onto trucks coming to or leaving the facility. VanDyke wrote:
“If Saxon stands for anything, it is that an employee is not categorically excluded from the transportation worker exemption simply because he performs his duties on a purely local basis. In Saxon, the plaintiff’s job description was physically confined to Chicago’s Midway International Airport….But that did not preclude the Court from concluding that she was sufficiently connected to interstate commerce….Saxon is clear on this issue: what matters is not the worker’s geography, but his work’s connection with—and relevance to—the interstate flow of goods.”
As to the short nature of the movement accomplished by Ortiz in his performance of duties, VanDyke declared:
“Movement over a short distance is movement nonetheless. And more importantly, the distance also does not affect the nature of the task or its inherent connection to interstate commerce.”
He declined to apply an industry-wide standard for analyzing the application of the exemption, saying “we conclude that an employee need not necessarily be employed by an employer in the transportation industry to qualify for the transportation worker exemption.”
State Law Issues
The appellate panel addressed state law issues in a concurrently filed memorandum decision. Smith and VanDyke joined in the majority memorandum opinion, which found that California law applied to the arbitration agreement and was not preempted by the FAA. The panel wrote: “But here, where the FAA neither compels nor forecloses arbitration, the second sentence of the choice-of-law clause clearly expresses the parties’ intent for non preempted state law to continue to apply to the Agreement. The [California Arbitration Act] is one such source of non-preempted law.”
The jurists continued: “For these reasons, the district court’s order denying appellants’ motion to compel arbitration is REVERSED IN PART, insofar as it concluded that state law does not apply in the alternative, and all remaining issues are REMANDED to the district court.”
Bea wrote a separate opinion, concurring in part and dissenting in part. He agreed that Ortiz qualified as an exempt transportation worker, but said “in my view, the arbitration agreement unambiguously limits its enforcement to and by the FAA and, therefore, precludes enforcement under the California Arbitration Act.”
The case is Ortiz v. Ranstad Inhouse Staffing Services, LLC, 23-55147.
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