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California Court of Appeal Holds Intrastate Drivers Who Participate in Interstate Commerce Exempt From Federal Arbitration Act

On March 22, 2019, the California Court of Appeal for the Fifth District in Nieto v. Fresno Beverage Company, Inc., 2019 S.O.S. 1275, ruled that a truck driver who completed only intrastate delivery routes nonetheless “engaged” in interstate commerce and was therefore exempt from the Federal Arbitration Act (“FAA”).

In Nieto, a delivery truck driver employed by beverage distributor Fresno Beverage Company, Inc., doing business as Valley Wide Beverage Company (“VWB”), filed a class action complaint alleging wage and hour violations of the California Labor Code. In response, VWB petitioned to compel arbitration pursuant to the FAA, arguing that the FAA requires courts to enforce arbitration agreements for all contracts “involving” interstate commerce.

Nieto argued he was a transportation worker exempt from the FAA pursuant to Section 1, and could therefore maintain his employment action pursuant to California law. Section 1 of the FAA provides that employment contracts of seamen, railroad employees, or “any other class of worker engaged in foreign or interstate commerce” are exempt from the FAA. VWB countered that its drivers were not engaged in interstate commerce as they only delivered within California.  The trial court ultimately agreed with Nieto and held that he was exempt from the FAA because his employment “involved transporting goods received from out of state.”

The Court of Appeal for the Fifth District affirmed the decision of the trial court, holding that truck drivers are transportation workers exempt from the FAA’s coverage. Citing the Supreme Court’s decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the Court of Appeal found that Section 1 of the FAA is a narrow exemption that applies to “transportation workers,” or those “actually engaged in the movement of goods in interstate commerce.” Nieto, 2019 S.O.S. at 6 (emphasis added). Thus, the Court held that the FAA’s scope is narrower than VWB asserted and applies only to those “engaged in,” as opposed to those “involved in,” the interstate movement of goods. The Court also noted that other courts have consistently recognized truck drivers as transportation workers within the meaning of Section 1. Further, the Court held that “‘[i]nterstate commerce’ includes not only goods that travel across state lines but also ‘the intrastate transport of goods in the flow of interstate commerce.’” Nieto, 2019 S.O.S. at 10. Therefore, a driver need not personally cross state lines to engage in interstate commerce.

Accordingly, the Court held that Nieto engaged in interstate commerce because he “participat[ed] in the continuation of the movement of interstate goods to their destinations,” and his deliveries “although intrastate, were essentially the last phase of a continuous journey of the interstate ecommerce.” Id. The Court therefore found Nieto to be a transportation worker exempt from the FAA, and as such permitted him to maintain his employment action under California law.