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    Nieto and New Prime Expand the Scope of the Transportation Exemption Under the FAA

    Locke Lord Publications

    Recent state and federal cases continue to explore and define the reach of the Federal Arbitration Act (FAA). In Nieto v. Fresno Beverage Company, Inc. (2019) 33 Cal.App.5th 274 a California Court of Appeal upheld a trial court’s determination that the plaintiff truck driver who made strictly in-state deliveries of defendant employer’s products, was nonetheless engaged in interstate commerce, and therefore exempt from the FAA. Section 1 of the FAA renders the FAA’s requirements inapplicable to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”—the so-called “transportation worker exemption.” In Nieto, the plaintiff driver sued his former employer claiming violations of California laws providing for meal and rest breaks and daily overtime. The defendant argued that the matter should be resolved in arbitration, notwithstanding the FAA exemption, because the plaintiff had signed an arbitration agreement and the exemption did not apply to purely intra-state workers like Nieto. The trial court disagreed, and the Court of Appeal affirmed. According to the Nieto Court, interstate commerce existed because the goods were deemed to be in the stream of interstate commerce, although the plaintiff himself never crossed state lines. Nieto comes on the heels of the decision of the Supreme Court of the United States in New Prime Inc. v. Oliveira, which expanded the transportation workers exemption under the FAA to include independent contractors providing interstate transport. Employers seeking to enforce arbitration agreements under the FAA should be aware of Nieto and New Prime and conform any agreements arguably subject to the transportation worker exemption to comply with applicable state arbitration law.

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