Defining the Scope of Section 1 of the Federal Arbitration Act: Recent Judicial Interpretations and Implications for the Gig Economy

By Charlie Wiener

Section 1 of the Federal Arbitration Act states that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”[1]  Since the turn of the millennium, the courts have found reason to define the exact limits of the scope of this exception.  Notably, Circuit City Stores v. Adams, 532 U.S. 105 (2001), held that the exception in Section 1 must be read narrowly only to include transportation workers, otherwise the enumeration of seamen and railroad employees would not make sense.[2]  

In recent years, however, courts have thought it important to define the limits of Section 1 with greater specificity.  Perhaps this is because as of 2018, an estimated sixty-million American workers— or around 56.2% of all private-sector nonunion employees—are now subject to mandatory arbitration agreements.[3]  In Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), the Supreme Court determined that a ramp supervisor for an airline was sufficiently engaged in interstate commerce such that she was within Section 1’s exemption.[4]  The Saxon Court rested its holding on two key points.  First, that the “class of workers” that Saxon is a member of must be based on what “she does at Southwest, not what Southwest does generally.”[5]  Second, in determining that the class of workers Saxon belonged to were within the exception, the Court affirmed Circuit City’s holding that such workers must “play a direct and ‘necessary role in the free flow of goods’ . . . [and] ‘actively engaged in [their] transportation’ . . . across borders. . . .”[6]

This first point is held specifically to refute Saxon’s argument that the enumerated categories in Section 1 are industrywide categories— i.e., anybody working within those industries should be afforded the Section 1’s exception.[7]  The Third Circuit applies this reasoning in Singh v. Uber Techs., Inc., 67 F.4th 550 (3rd Cir. 2023) to reject a contention that Uber drivers should be defined as a class of workers engaged in interstate commerce.[8]  The Court in Singh determined that the only relevant class of worker that Singh could claim to be a member of should be defined as “nationwide Uber drivers”.[9]  With this in mind, along with a host of additional information and statistics about Uber drivers, the Court determined that incidental border crossings that a driver might undertake in the course of his work with Uber are not part of the “actual work” that drivers “typically carry out” as a class.[10]  The Court additionally rejected the Plaintiffs’ argument that the “millions of discrete interstate trips” directed by Uber to its drivers form an unbroken interstate commerce with reference to Saxon’s holding that not all employed by a company engaged in interstate commerce are similarly engaged.[11]

The bases on which the Court decided Singh are doctrinally sound.  However, the decision has striking implications.  Uber and its drivers are a component of the so-called gig-economy.  The exact definition of the gig-economy or gig-work is hard to pin down because it can encompass a broad range of situations, but common among all those situations is a worker being paid per job rather than with a wage or salary.[12]  Most gig workers are labeled as “independent contractors” rather than “employees,” and as such are not afforded the same labor protections “employees” receive.[13]  The classification or misclassification of gig workers is a big issue, and was what Singh was suing about initially; however since the outcome of the case turned entirely on the enforceability of the arbitration agreement, the merits of his claim were unnecessary for the court to reach.[14]  Criticism has been leveled at binding arbitration agreements for this very reason: having these issue solved in arbitration allows companies like Uber to settle them an individual basis without risking a precedent that hurts their business model.[15]  Now there is precedent in one of the Federal Circuits forcing drivers to individually arbitrate these claims outside of the courts.[16]  While this may not affect much the aggrieved individual driver who just wants a payout, it is a devastating blow for those who want larger change.  It may be that solutions outside of the judiciary are necessary.  In 2022, the Senate passed the so-called “#MeToo” bill, which invalidates arbitration agreements as applied to claims stemming from sexual assault or harassment.[17]  Meanwhile, state laws like New York’s recently enacted “Freelance Isn’t Free Act” hope to protect gig workers by requiring greater specificity in their contracts as well as arming government agencies to investigate and penalize misclassification.[18]  However, it remains to be seen if such tactics will prove adequate or if they are simply treating the symptoms and not the disease.

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[1] 9 U.S.C. § 1.

[2] Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 114–15 (2001) (applying the maxim of ejusdem generis that holds that general terms in a statute should be read to embrace “only objects similar in nature to those objects enumerated by the preceding specific words”).

[3] Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Econ. Pol’y Inst. (Apr. 6, 2018), https://epi.org/144131 [https://perma.cc/E56U-5JS7]. 

[4] Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022).

[5] Id. at 456 (holding that since Southwest did not meaningfully dispute that ramp supervisors frequently load and unload cargo, Saxon belonged to a class of workers who did so).

[6] Id. at 458 (quoting Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 (2001)).

[7] Id. at 460.

[8] Singh v. Uber Technologies, Inc., 67 F.4th 550, 557 (3d Cir. 2023) (citing Southwest Airlines Co. v. Saxon, 596 U.S. 450, 456 (2022)) (holding that Singh’s proposed class of “motor carrier workers” is “too general a description to explain much about class members’ actual work”).

[9] Id. at 556.

[10] Id. at 559–60 (quoting Southwest Airlines Co. v. Saxon, 596 U.S. 450, 456 (2022)) (citing statistics that nearly 65% of the most active Uber drivers have never made an interstate trip).

[11] Id. at 561 (citing Southwest Airlines Co. v. Saxon, 596 U.S. 450, 456 n.1 (2022) (wherein the court does not answer the question as to whether ramp supervisors not engaged in unloading cargo would be exempt under § 1)).

[12] No Due Process, No Rights: How Forced Arbitration Enables Misclassification In The Gig Economy, II.A. Definition of Gig Work, Nat’l Inst. Workers’ Rts. (Aug. 11, 2021), https://niwr.org/2021/08/11/no-due-process-no-rights/ [https://perma.cc/V6XP-AXFJ].

[13] Id. at § II.C (Misclassification).

[14] Singh v. Uber Technologies, Inc., 67 F.4th 550 (3d Cir. 2023).

[15] Nat’l Inst. Workers’ Rts., supra note 12, at III.C. (Forced Arbitration Enables Misclassification).

[16] Alice M. Hodsden, Uber Drivers Cannot Bring Class Action for Employment Claims, Ervin Cohen & Jessup: The Staff Report (May 3, 2023), https://www.ecjlaw.com/ecj-blog/uber-drivers-cannot-bring-class-action-for-employment-claims [https://perma.cc/232J-ESR9].

[17] Emily Shumway, After the #MeToo bill, is the future of mandatory arbitration in question?, HR Drive (Feb. 22, 2022), https://www.hrdive.com/news/after-the-metoo-bill-is-the-future-of-mandatory-arbitration-in-question/619229/ [https://perma.cc/WF8P-DZ9E].

[18] New York’s Freelance Isn’t Free Act: A Game Changer for Employers, HR Works (Mar. 17, 2024), https://hrworks-inc.com/industry-update/new-yorks-freelance-isnt-free-act-a-game-changer-for-employers/ [https://perma.cc/P7TQ-FRZG]; see also N.Y. Gen. Bus. Law § 1410–15.