Baking company, distributor spar over arbitration

WASHINGTON — Whether independent distributors of baked foods are subject to mandatory and binding arbitration is a question at the center of a case to be argued before the US Supreme Court. Briefs taking both sides of the question have been submitted to the court in recent weeks. 

In the case, Flowers Foods, Inc. contends that arbitration agreements signed by two of its independent distributors are binding while the distributors claim that a provision in the 1925 Federal Arbitration Act (FAA) makes the arbitration agreement unenforceable.

Neal Bissonnette et al. versus LePage Bakers Park St, LLC, et al., is the latest in a series of cases in recent years examining the enforceability of mandatory arbitration agreements. The Bissonnette case has attracted interest and briefs from across the baking industry as well as from the US Chamber of Commerce.

At issue is a clause in the Federal Arbitration Act exempting from mandatory arbitration the “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

To the petitioners, Neil Bissonnette and Tyler Wojnarowski, the question before the court is whether commercial truck drivers are a “class of workers engaged in commerce” in the same way as “seamen” and “railroad employees.” They are appealing decisions by the US Court of Appeals Second Circuit, which concluded that to qualify for the exemption, workers would not only need to be involved in transportation-related activities, i.e., they would need to be employed by the transportation industry.

The petitioners described themselves as commercial truck drivers.

“They worked full time hauling goods for Flowers Foods, the multibillion-dollar company that manufactures Wonder Bread and other packaged baked goods found on grocery shelves throughout the country,” the petitioners’ Supreme Court filing said. “Flowers ships its products across state lines from its manufacturing plants to stores like Walmart, Target, and Safeway. The petitioners were responsible for the last leg of that journey — from Flowers’ regional warehouse in Connecticut to stores throughout the state. Flowers classified the petitioners as independent contractors. The company required them to form shell corporations; it mandated that they purchase the right to transport Flowers goods; and it demanded that they pay for the trucks they drove on the company’s behalf. But while Flowers requires its drivers to sign contracts purporting to deem them ‘independent’ distributors, they are, in fact, Flowers employees: Their job is to transport Flowers’ goods under Flowers’ control.”

The issue of arbitration emerged in 2019 when the petitioners sued Flowers, alleging they had been misclassified as independent contractors and that Flowers had violated state and federal wage laws.

“They alleged that Flowers illegally took deductions from their paychecks, charged them for the privilege of working for the company, and failed to pay them overtime,” the petitioners’ filing said.

A district court ruled against the petitioners because they were independent businesses, not transportation workers. The Second Circuit’s decision focused on the need to work for a transportation business to qualify.

In appealing the Second Circuit decision, the petitioners contend “nothing in the statute’s text supports adding an additional requirement that they work in an industry that pegs its charges to the movement of goods or generates its income primarily from that movement.”

In its response, Flowers challenges the basic facts presented by the petitioners, beginning with their self-characterizations as “mere truck drivers.” Flowers said the petitioners own two Connecticut corporations — Bissonnette Inc. and Blue Star Distributors Inc. — “that purchased from Respondent C.K. Sales Co., LLC the rights to market, sell, and distribute Flowers products.”

Flowers, in turn, sought to compel arbitration based on the clause in the distributor agreement, and the petitioners are claiming they are exempt from the Federal Arbitration Act.

Countering the petitioners’ definition, Flowers said independent distributors purchase products from Flowers and resell the products to their customers at a higher price.

“Independent distributors can increase their profits by selling more products in their territories, lowering expenses, or buying additional territories, among other things,” Flowers said. “Independent distributors can incur losses when marketing efforts fail, accounts shrink or shut down, or expenses rise. Independent distributors are free to sell their territories in whole or in part.”

Distributors are not required to perform services personally, Flowers said.

Among numerous points made in its filing, the company said that the FAA “residual clause applies only to classes of workers in the transportation industry — i.e., workers engaged by companies that sell transportation services.” As such, the company said another FAA case settled in 2022 in favor of workers — Southwest versus Saxon — is not relevant to the current case.

“That case involved an airline employee who indisputably worked in the transportation industry,” Flowers said.

In citing Saxon, the petitioners quoted Justice Clarence Thomas who wrote in the majority opinion that the “relevant ‘class of workers’” determines the applicability of the FAA exemption rather than “what the company does generally.” In the case of Southwest, Latrice Saxon was a worker who loaded and unloaded cargo from planes and was deemed by the court a transportation worker.

The petitioners and Flowers in their filings noted a dissent in the Second Circuit appeal by the late judge Rosemary S. Pooler in which she concluded that the FAA exemption applies because the petitioners “are commercial truck drivers” who “handle goods traveling in interstate commerce every day.”

A brief submitted by the US Chamber of Commerce, the American Bakers Association and others emphasized that the FAA for nearly a century has “embodied Congress’s strong commitment to ensuring the enforceability of arbitration agreements.”

 The groups said a “common attribute” of the seamen and railroad employees of 1925 is that they performed work within the transportation industry, adding that the petitioners do not meet that requirement.

“That is enough to resolve this case,” the groups said.

Drilling deeper into the legal ramifications of the ruling, the brief cited precedent in which the Supreme Court concluded that “where general words follow specific words in a statutory enumeration, the general words are (usually) construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.”

Looking at the term “interstate commerce,” the group also differentiated between positions such as maritime or rail workers and the activity of litigants in the Lepage case.

“No reasonable person reading the FAA in 1925 would have considered ‘a pizza delivery person who delivered pizza across a state line to a customer in a neighboring town,’ or the account manager in Hill who occasionally crossed the border between Georgia and Alabama in delivering furniture and other items to customers as akin to ‘seamen’ or ‘railroad employees,’” the groups said.

The brief said the Second Circuit’s approach to the case has the “virtue” of providing “a clear, bright-line rule that is easy for workers and businesses to understand and for courts to apply” when considering who may be exempt from arbitration agreements.

“Petitioners’ interpretation of the Section 1 exemption, by contrast, would significantly increase litigation over when and whether the FAA applies,” the brief said.

Also submitting comments was the Independent Bakers Association. Nicholas Pyle, president of the IBA, said the group and its members “have a significant interest in the proper interpretation of the Federal Arbitration Act.

Among points made by the IBA in its brief is that the petitioners, like other baked foods distributors, are in the business of selling product as wholesales, “not in the provision of transportation services to manufacturers or other third partners.”

“Their business model involves buying products from manufacturers such as Flowers, taking title to the products, and then selling them to retailers at a higher price,” the IBA said.

“Simply put, a wholesale distributor cannot make a living without buying and selling products; a transportation worker can and does,” the IBA added.