On October 26, 2015, a California Court of Appeal held that the Federal Arbitration Act (“FAA”) does not apply to interstate truck drivers, and as a result, it ruled that an employer’s class action waiver was unenforceable as a matter of public policy under the CaliforniaGentry rule. Garrido v. Air Liquide Industrial U.S. LP, No. B254490 (Cal. Ct. App. Oct. 26, 2015). This case is significant because it expands the scope of the “transportation worker” exemption under the FAA. Practically, numerous employers who physically distribute their own goods interstate will now be prevented from compelling individual arbitration of class action lawsuits.
By way of legal background, “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” are exempt from coverage under the FAA. This exemption is material in the class action world because under Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the FAA preempts California case law that invalidates class waivers based on public policy factors. Thus, arbitration agreements that are subject to the FAA are not heavily scrutinized under the employee-friendly public policy factors set forth in Gentry v. Superior Court (2007) 42 Cal.4th 443.
In Garrido v. Air Liquide, Plaintiff Mario Garrido (“Plaintiff”) worked for Air Liquide (“Air Liquide”) as a truck driver who transported gases both inside and out of California. In June 2012, Plaintiff filed a class action complaint against Air Liquide, alleging that, inter alia, it failed to provide timely meal periods. Air Liquide promptly moved to compel arbitration of Plaintiff’s claims based on an ADR agreement that contained a class action waiver. The trial court denied Air Liquide’s motion and found the ADR agreement was neither governed by the FAA nor enforceable. Air Liquide filed a timely appeal.
On appeal, Air Liquide argued that Garrido was not a “transportation worker” because he was neither employed in the transportation industry (e.g. for a shipping company) nor responsible for transporting goods of third parties across state lines. The Court of Appeal rejected this argument. The Court held that merely driving goods across state lines is enough to satisfy the standard for this exemption. As such, Air Liquide’s arbitration agreement was found exempt from the FAA’s coverage. From there, the Court ruled that Air Liquide’s arbitration agreement is subject to the California Arbitration Agreement (“CAA”) and the Gentry factors applied. Next, the Court analyzed the four Gentry factors. In doing so, it determined a class proceeding would be a significantly more effective way of allowing the trucker drivers to vindicate their statutory rights. Accordingly, the class waiver was found unenforceable and the trial court’s denial of the motion was affirmed.
This decision is troubling to employers seeking to avoid class action litigation—especially those that employ drivers to distribute their own goods between states—because it broadens the scope of the “transportation worker” exemption under the FAA. The expansion of this exemption will preclude many businesses from enforcing class waivers, which will further increase the total number of class actions litigated in California courts.