Arbitrate or litigate? The choice may not be yours after all

We have fond memories of Wonder Bread when we were growing up. The balloons on the package added some je ne sais quoi to our PBJ sandwiches. We never thought about the drivers who transported the bread from the bakery to the store, because why would we?

The U.S. Supreme Court has thought about it. In a unanimous opinion, the court ruled that the Federal Arbitration Act didn’t cover drivers for Wonder Bread. This decision is somewhat of a departure for the court, which has nudged more cases, including employment law cases, into arbitration.

Bread gets to the store somehow

The drivers owned the rights to deliver a bakery’s products, including Wonder Bread, in Connecticut. The contract to purchase those rights required the parties to arbitrate disputes in accordance with the Federal Arbitration Act.

The drivers sued the bakery for wage-and-hour violations, including failing to pay overtime, and unjust enrichment, because they had to pay for distribution rights and operating expenses. The bakery moved to dismiss the case and compel arbitration. The drivers objected.

Drivers: Section 1 of the FAA exempts seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce from arbitration.

A federal trial court granted the bakery’s motion and dismissed the case. The court concluded that the drivers didn’t work in the transportation industry. A federal trial court upheld the decision, ruling that the drivers were bakery workers. The Supreme Court reversed.

Supreme Court: The FAA isn’t concerned with a particular industry. A transportation worker actively engages in transporting goods in interstate commerce. In other words, a transportation worker does not need to work in the transportation industry per se to fall under the FAA exemption. The worker, instead, must at least play a direct and necessary role in the free flow of goods across state borders; that the worker doesn’t physically drive a truck isn’t relevant.

According to the court, this analysis avoids the cheesy problem of deciding whether a pizza joint makes most of its money from pizzas or delivering those pizzas.

The case is Bissonnette et al. v. Lepage Bakeries Park St., LLC.

Don’t wait too long to invoke arbitration

A couple of years ago, the Supreme Court ruled that an employee didn’t need to show they were harmed (i.e., they were prejudiced) when arguing that their employer’s nearly eight-month delay to compel arbitration amounted to a waiver of its right to arbitrate.

Picking up this thread, the 6th Circuit recently ruled that an employer couldn’t demand arbitration after it spent seven months defending a lawsuit.

Lawsuits have phases—the pleadings stage (complaints and answers are exchanged); followed by motions to dismiss/summary judgment; followed by discovery (and more motions); then settlement negotiations; then many, many motions to postpone the trial; and finally, the trial.

Here, the employer participated in extensive discovery. It produced tens of thousands of pages of documents, took and defended depositions, and issued third-party subpoenas without ever mentioning arbitration. Then with discovery nearly complete—after about seven months—it moved to compel arbitration.

A federal trial court denied the motion, concluding that the employer implicitly waived its right to arbitration. The appeals court agreed. The discovery phase was nearly complete when, seven months into the case, the employer moved to compel arbitration. The employer implicitly waived its right to compel arbitration because its conduct was completely inconsistent with reliance on its arbitration right.

The case is Schwebke v. United Wholesale Mortgage LLC.

How late is too late?

Eight months? Seven months? How about six months? While there’s no definitive answer, it’s probably not much of a stretch to say arbitration needs to be invoked as early in the lawsuit as possible.

If your employment agreements, job applications or employee handbook require employees to arbitrate, inform your counsel when you forward the complaint. In this case, the employer tried to push the case into arbitration by arguing to the appellate court that it just forgot about the arbitration clause. This didn’t impress the appellate court.