BACK TO THE BAKERY:
THE SECOND CIRCUIT AND THE FAA’S
“TRANSPORTATION WORKER EXCEPTION”
By
Prof. Anthony Michael Sabino
Having recently celebrated its centennial, the Federal Arbitration Act, 9 U.S.C. § 1, et seq. (the “FAA”), remains the adamantine cornerstone of a strong federal policy favoring arbitration. See, inter alia, Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022). Promulgated in 1925, the enactment’s prime directive is that agreements to arbitrate “shall be valid, irrevocable, and enforceable.” FAA, supra, at § 2 (emphasis supplied). See, i.e., Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63 (2019).
It is therefore ironic that a statutory regime which seeks to replace judicial proceedings with alternative dispute resolution is ofttimes a wellspring for litigation. Particularly contentious is the FAA’s “transportation worker exception,” which exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” FAA, supra, at § 1 (emphasis supplied).
The United States Court of Appeals for the Second Circuit has recently become a focal point for such controversies. A scant two years ago, it was reversed by the United States Supreme Court in an opinion which—for the moment—exposits the last word on the Section 1 exemption. See Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. ___ (No. 23-51) (April 12, 2024) (“Bissonnette”), reversing sub nom. Bissonnette v. LePage Bakeries Park Street, 33 F.4th 650 (2d Cir. 2021).
Now the august tribunal has entered the fray once again. Silva v. Schmidt Baking Distribution, LLC, ___ F.4th ___ (No. 24-2103-cv) (December 22, 2025) (“Silva”) represents an evolution in the appellate court’s interpretation of the transportation worker exception. However, to better understand the panel’s reasoning, it is necessary to first briefly catalog Silva’s antecedents.
Arbitration Landmarks
Twin cornerstones comprise the Supreme Court’s contemporary teachings regarding the Section 1 exemption. The first is Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), wherein the high Court unanimously proclaimed that the transportation worker exception is dependent upon “the actual work…typically carr[ied] out” by the employees who seek to avoid the arbitral forum, and not the employer’s stated business. Foreshadowing the case we are about to dissect, Justice Thomas presciently warned that “the answer will not always be so plain” when the workers in question are “further removed” from interstate commerce or crossing borders. Id. See also Sabino, “The FAA Keeps on Flying: The Supreme Court and ‘Southwest,’” 268 New York Law Journal p. 4, cl. 4 (July 28, 2022).
The second foundational piece is the aforementioned Bissonnette, supra, which, as we shall soon see, eerily parallels Silva. Adjudicating the question of whether truckers delivering and marketing baked consumables could eschew arbitration in favor of litigating their complaints, the Justices were unanimous yet again in pronouncing that it is the actual work undertaken by the employee which determines eligibility for the transportation worker exception. Writing for the Court, Chief Justice Roberts observed that the text of Section 1 is bereft of industry categories; accordingly, the employer need not be a member of the transportation sector for the exemption to apply. Id. See also Sabino, “Exempting ‘Transportation Workers’ from Arbitration: ‘Bissonnette,’” 272 New York Law Journal p.4, cl.4 (July 22, 2024). Our review complete, we turn to the matter at hand.
Silva
Nathaniel Silva and Phil Rothkugel worked as commercial truck drivers for Schmidt. Their job consisted of driving to a warehouse, loading their trucks with fresh baked goods, proceeding to various stores within a designated territory, and then stocking retailers’ shelves with Schmidt’s wares. Initially, each was treated as an employee of the staffing agency which had assigned them to the bakery.
After a time, Schmidt conditioned the drivers’ employment upon the pair creating individual corporate entities, which would enter into separate “Distribution Agreements” with the bakery. These arrangements explicitly denied the existence of any employer-employee relationship, classifying the newly formed corporations as independent contractors, while purporting to exclude the workers entirely. Above all else, the distribution accords included a mandatory arbitration clause, which prohibited class claims.
Lacking experience in business formation, the two drivers established their separate corporations “[u]nder instruction and with assistance from Schmidt,” and executed the distribution contracts, not individually, but as the presidents of their respective firms. Notwithstanding these formalisms, Silva and Rothkugel continued to work as before, with little or no change in their responsibilities.
Aggrieved over what they alleged to be Schmidt’s violation of sundry wage and hour laws, the pair initiated a putative class action in a state forum, whereupon the bakery removed the controversy to the federal district court. Rejecting the plaintiffs’ claim that the distribution agreements were contracts of employment falling within the transportation worker exemption, the trial bench directed the parties to arbitration, which would, per force, frustrate any effort to certify a class.
The “Transportation Worker Exception”
The Second Circuit reversed and remanded. Commencing with the observation that the transportation worker exception is a “hotly contested issue that the courts have recently been called upon to address with increasing frequency” (footnote omitted), Circuit Judge Kahn then defined the paramount issue on this interlocutory appeal as whether the distribution accords were, indeed, contracts of employment, as defined by Section 1.
The panel first reminds that Congress deliberately and specifically exempted certain classes of workers engaged in the transportation of goods from the FAA’s sweeping mandate that agreements to arbitrate are valid, irrevocable, and enforceable. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). Second, the Supreme Court has admonished that the lawmakers’ choice of words be given the meaning they had when the FAA was promulgated in 1925.
The tribunal then announced that the phrase “contracts of employment” is not exclusionary; in contradistinction, it is “a capacious term referring to ‘nothing more than an agreement to perform work’” (citation omitted). Moreover, high Court precedent clearly directs that the transportation worker exception must be interpreted broadly, in order to bring any contract for the performance of work by workers within the statute’s purview. See New Prime Inc. v. Oliveira, 586 U.S. 105 (2019).
Silva commended the exactitude of the statutory text in encompassing contracts of employment of, not with, transportation workers. This “leaves little room to exclude a contract from the [Section] 1 exception solely because it is between businesses,” for example, agreements purportedly signifying an independent contractor relationship. See New Prime, supra. Circuit Judge Kahn emphasized that this component of the FAA exemplifies the legislators’ overarching concern for workers engaged in the free flow of commerce, a solicitude which “is not conditioned on whether the contractual party is an individual worker or a corporate personality.”
Work By Workers Is Dispositive
“We are also mindful,” noted the panel, that the plaintiffs executed distribution accords on behalf of their respective corporations, not in their individual capacities. Nevertheless, the Second Circuit robustly “decline[d] to allow employers to circumvent Congress’s exception of transportation workers from the FAA’s reach by requiring those workers to take the corporate form,” particularly where, as here, the entities had been formed at the behest of the employer.
Supreme Court mandates require the federal courts to “look to the substance of an agreement, not its formalities.” Here, the arrangements in controversy could not evade Section 1 “merely because [they were] signed by business entities.” The plaintiffs in the instant case “are clearly transportation workers who fall within the ambit” of the transportation worker exception. To hold to the contrary would vitiate the exemption, collapsing Congress’s intent to channel such controversies away from arbitration and to the judiciary.
Unsurprisingly, the appellate court wholeheartedly disabused the bakery’s contention that the distribution agreements were akin to a franchisor-franchisee or supplier-distributor relationship. The FAA’s plain language, opined Circuit Judge Kahn, “provides no statutory basis for such a distinction.”
The Second Circuit then forestalled any notion that Silva would engender excessive Section 1 litigation. First, “whether a contract falls within the exception will be clear from the face of the document,” typically without need for extensive discovery or protracted hearings.
Second, the case at bar pivoted upon these essential facts: the plaintiffs were formerly ordinary wage earners; the corporate entities were “mere instrumentalities” formed at the bakery’s insistence; the work performed by the two truck drivers “remained largely unchanged” even after executing the distribution agreements; and, in sharp contrast to large scale logistics companies employing substantial workforces and entering into business-to-business arrangements, the complainants were undeniably “individual transportation workers.”
Destined For The Supreme Court?
Silva marks a turning point in the Second Circuit’s perception of the FAA’s transportation worker exception. Examining the Section 1 exemption afresh after being reversed barely two years ago in Bissonnette, the tribunal is now clearly aligned with the Supreme Court’s most current interpretations of the statutory carveout.
In this most recent adjudication, the panel ably eschewed contractual formalisms, properly concluding that it is the actual work performed by the employees which is dispositive in determining if they qualify for the exception to arbitration.
In closing, we think it probable, indeed beneficial, that, like its immediate predecessor, Silva will be reviewed by the Justices. And we are confident that the Second Circuit’s most recent interpretation of the transportation worker exception shall endure as an arbitration landmark.
Prof. Anthony Michael Sabino, partner, Sabino & Sabino, P.C., is also a Professor of Law, Tobin College of Business, St. John’s University. Anthony.Sabino@sabinolaw.com.