California Employment Law Blog

The Power of Agreement: Ninth Circuit Validates Arbitration Clauses Between Businesses

Posted by Timothy B. Del Castillo | Apr 13, 2024 | 0 Comments

The recent decision by the Ninth Circuit Court of Appeals in Fli-Lo Falcon, LLC v., Inc. (2024) sheds light on how the Federal Arbitration Act (FAA) applies to arbitration agreements in commercial contracts between businesses. This judgment is particularly relevant to the delivery service industry, offering clear guidance on how arbitration provisions in commercial agreements are enforced.

The case originated from disputes between Amazon and several delivery service partners (DSPs) who had signed Delivery Service Program Agreements. These agreements included clauses requiring that any disputes be settled through binding arbitration, conducted by the American Arbitration Association (AAA). When disagreements arose, Amazon pushed to enforce these arbitration clauses, leading to the district court dismissing the lawsuit. The plaintiffs appealed, but the Ninth Circuit supported the original decision, reinforcing that the arbitration agreements were valid and enforceable.

A key aspect of the Ninth Circuit's ruling involved interpreting the FAA's "transportation worker exemption." This exemption generally excludes certain employment contracts from the FAA's coverage. The court decided this exemption didn't apply to the DSPs because, despite their claims of being akin to "workers" involved in interstate commerce, they are business entities, not individual workers. The court applied the principle of ejusdem generis, meaning that general terms within a law are interpreted to include only items similar to those specifically listed. Since the categories listed before referred only to individual natural workers, the court concluded that the exemption does not extend to corporate entities.

Additionally, the court addressed the plaintiffs' claims that the arbitration agreement was unconscionable. It pointed out that the agreement included a delegation provision, which clearly states that any disputes about the arbitration process itself, including questions about its validity and scope, should be decided by the arbitrator. This inclusion of the AAA rules was seen as strong evidence of an agreement to let arbitrators handle these arbitration-related disputes.

The decision from the Ninth Circuit reinforces an important lesson for companies that use arbitration clauses in their contracts. It highlights that the FAA's transportation worker exemption is interpreted narrowly and does not cover business entities engaged in transportation through contracts. This has significant implications for the logistics and delivery sectors, where it's common to work with independent contractors and other business entities under contract. The ruling ensures that arbitration agreements in commercial contracts will likely be upheld, and that any disputes over these agreements, including challenges to their fairness or validity, will generally be resolved through arbitration if a clear delegation clause is present.

For businesses, particularly those in logistics, delivery, and transportation, it's vital to carefully draft arbitration clauses. Attention should be paid to the clarity of any delegation provisions to ensure they comply with FAA standards and to avoid potential legal challenges about the enforceability of these clauses.

About the Author

Timothy B. Del Castillo

Tim Del Castillo is Founding Partner of Castle Law: California Employment Counsel, PC.


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