Dickinson Law's Inside Entrepreneurship Law Blog

By: Luke Gorman

Are transportation workers exempted from arbitration under the Federal Arbitration Act (FAA), no matter the industry they are in? In Bissonnette v. LePage Bakeries Park Street, LLC, the U.S. Supreme Court overruled a recent Second Circuit decision and found that workers delivering baked goods were exempt from arbitration under the FAA. While the decision is brief, it cold have reverberating effects on industries across the United States.

What is the Federal Arbitration act? 

At almost 100 years old, the Federal Arbitration Act was passed in an effort to curb litigation in employment disputes in certain circumstances. At the time, the judiciary was extremely hesitant to recognize that arbitration agreements had the same authority as other parts of contracts. However, Congress saw value in settling disputes through arbitration, seeing it as more efficient and cost effective than litigation. So, to go around the judiciary, Congress passed the FAA, granting  “compelled arbitration” agreements the same legal weight as other clauses in contracts.

Despite the value of arbitration, the Act outlines certain exceptions from compelled arbitration. In particular, the act outlines the Act does not apply to “seamen, railroad employees, or any other class of workers engaged in… interstate commerce.”

what did the court say in bissonnette?

Overruling a 2023 Second Circuit decision, the U.S. Supreme Court concluded that those delivering baked goods are not required to arbitrate under the FAA. Taking a “worker centric” approach, the Court declined to look at the primary industry in which the workers found themselves and instead looked at whether the worker “played a ‘necessary role in the free flow of goods’” within interstate commerce. While recognizing that Congress has the power to expand or retract the provisions of the FAA, the Court ultimately concluded that, as written now, the FAA covers those who transport goods, no matter if they work on railroads, in our seaports, or on behalf of a bakery.

who will be affected and why?

This decision could have long lasting implications in our modern market. The American Trucking Industry revenues are projected to increase by over 50% over the next decade. This likely corresponds to our dedication to online shopping. By 2027, the e-commerce market is expected to total almost $8 trillion; valuing about one third of the U.S. GDP ($25.46 trillion). As a result, such a decision has reverberating effects on companies who make much of their money through the transportation and sale of goods throughout the United States. This could include large businesses, such as Amazon, UPS, and FedEx.

Looking beyond the mega companies, this decision has implications for small businesses as well. Small shops that hire individuals to transport goods within their local market could be required to settle employment disputes through litigation instead of  arbitration. Notably, this likely depends very little on what the business does: The Court in Bissonnette noted the requirement that future conflicts hang on what the employee does rather than what the business does. And while an employee could voluntarily decide to arbitrate if a dispute arises, the guarantee of arbitration no longer exists for small business owners who hire individuals who transport goods across markets.

This ruling also has large implications when it comes to the gig economy. The IRS defines the gig economy as activities where people earn income providing on-demand work, services, or goods, often through a digital platform like an app or website. However, more generally, the gig economy refers to the recent boom in independent workers and “side hustlers” within our workforce.

From 2016 to 2022, the number of employed Americans who identify as “independent workers” increased by almost 10%. These individuals range from paid actors, to lawyers, to airBnB managers, to drivers. Some of the largest gig economy companies include Uber and Lyft as well as various food delivery services like Uber Eats. In Bloomberg, Jennifer Bennett and Khorri Atkinson warn that, if companies use arbitration agreements to protect themselves from litigating employment disputes in court, it could upend a large part of their business models.

how should you prepare for and handle future disputes? 

Businesses should keep in mind the benefits and drawbacks of arbitration when a conflict arises between the business and a current or former employee. If arbitration makes sense, employers should still do everything within their power to advocate for handling disputes before a neutral arbiter.

However, when considering whether arbitration is binding on an employee, businesses must not be blinded by what the business does, but instead what the employee does in their position at the business. When an employee fills a role that is primarily transporting goods and/or services throughout a state or across states, there is a legitimate chance that they are exempt from mandatory arbitration under the FAA. When an employee fills such a role, businesses should be proactive in advocating for what they’d prefer while recognizing the fact that they likely cannot require arbitration. So, when an employee is prepared to shoulder the burdens and costs of litigation, under this new precedent, the business should be prepared to do the same.

With all of this in mind, the repercussions of this decision are likely not fully understood yet. The Supreme Court expressly declined to give their opinion on any alternative grounds in favor of arbitration. That includes an argument that the drivers weren’t engaging in interstate commerce because they delivered only within one state, as well as an argument that the drivers weren’t transportation workers to begin with. With these questions seemingly still unresolved, grey areas exist around whether certain employees who drive or otherwise travel by vehicle may avoid arbitration clauses, and businesses must tread even more cautiously when a conflict arises between the business and a transportation worker.

This post has been reproduced and updated with the author’s permission. It was originally authored on April 23, 2024 and can be found here.

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By: Jack Kline

When starting a small business, there are many questions that need to be answered. There are regulations to comply with, hiring requirements, and many other things running through your mind. There are some labor laws that only trigger if your business is of a certain size. One of the more notable of these, and the topic of our discussion here, is the Family Medical Leave Act (“FMLA”).

so, what is the fmla?

The FMLA is a federal labor law, enacted in 1993, that requires covered employers to provide protected, unpaid leave for qualifying reasons for its eligible employees. These employees are entitled to up to 12 weeks of unpaid leave each year. Further, the FMLA requires that their job is protected until they return, meaning that they cannot be fired simply for utilizing their allotted leave.

who is a covered employer?

There are three categories that a covered employer might fall under:

First, private-sector employers are considered covered for the purposes of the FMLA if and only if they employ 50 or more employees in 20 or more work weeks during the current or preceding calendar year.

Second, all public agencies are covered, regardless of the number of employees employed. This means that from the largest federal agency down to the smallest local government office, the FMLA act must be complied with.

Finally, local educational agencies (including school boards and public or private elementary and secondary schools) are covered as well. Similar to the waiver of the 50-employee requirement that public agencies receive, local educational agencies are not required to meet a minimum number of employees to provide the benefits of the FMLA.

who is an eligible employee?

An employee must meet three requirements to be considered eligible and thus, able to utilize the benefits of the FMLA.

First, an employee is required to have worked at least 1,250 hours during the 12 months prior to taking their leave under the FMLA. This works out to 25 hours per week over a 50-week period. In other words, part-time employees may be covered.

Second, the employee must be working at a location where the employer has 50 or more employees within 75 miles. This means that the protections of the FMLA apply even to a regional company that may have several small offices in a township, county, state, etc. Returning to the “covered employers” section, this second requirement is not applicable to public agencies or local educational agencies.

Finally, the employee must have worked for the employer for at least 12 months; however, the 12 months do not have to be consecutive.

eligible v. ineligible leave 

Not all leave is created equal. As a result, the FMLA only covers eligible leave. So, what is the difference? Eligible leave covers serious familial and medical events. For instance, the birth of a child and bonding with them thereafter. Similarly, the placement of a child for adoption or for purposes of foster care. Serious health conditions, i.e., a condition that renders an employee unable to adequately perform their job duties, or care for a family member with a serious health condition. Regarding family members: when taking leave to care for a relative, the FMLA only applies to care provided to one’s spouse, parents, or child. Military caregiving leave is another eligible reason for leave and provides even greater protection than the standard FMLA provisions.

On the other hand, there are certain reasons for leave that are considered ineligible. For instance, having a mere cold or other minor illness, being in the middle of a move, vacations or travel, among other things.

how can eligible employees use the fmla?

The FMLA provides for two ways that an eligible employee can utilize their FMLA time. They can choose to use their time continuously, i.e., take the full 12 weeks at once. Or they can choose to use their time intermittently. Whether an employee uses their FMLA leave continuously or intermittently, both are limited by the same 12 weeks of eligible time in a singular 12-month period.

It is worth noting that as a covered employer, you cannot require that your employees take their time continuously. It is up to the eligible employee’s discretion as to how their FMLA leave is taken. When using intermittent leave, employees under the FMLA must make reasonable efforts to work with the employer, you, to schedule their leave in a way that does not unnecessarily disrupt business operations. Similarly, the employer must reasonably accommodate an employee’s intermittent leave.

small business exception to the fmla

Your business does not necessarily have to employee 50 people, in one location, to qualify as a covered employer. This exception applies to integrated and joint employers.

Integrated employers are employers with two or more businesses that share common management, intermixed operations, centralization of operations, or a degree of common financial control or ownership. These are employers that typically own multiple locations or branches. Joint employers are employers who use an employee sharing service. Think contract staffing.

If you qualify as a joint employer or an integrated employer, you might still have to offer the protections of the FMLA if the number of total employees adds up to more than 50.

This post has been reproduced and updated with the author’s permission. It was originally authored on May 7, 2024 and can be found here.

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By: James Moll

On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final ruling that will affect businesses all across the nation going into the future. The ruling indicates that noncompete agreements nationwide will now be banned in an effort to promote business and increase innovation. Although the noncompete ban will have far reaching implications at all levels of business in the United States, a major question going forward is how will this determination affect smaller, state businesses in the future? Note that as of the publication of this blog post, the rule has been stayed while it makes it through legal challenges.

what are noncompete agreements?

Before analyzing the potential affects the noncompete ban will have on small businesses, it is important to first understand what a noncompete agreement is. Noncompete agreements, or more simply “noncompetes,” are provisions in employment agreements that essentially limit what an employee may do or where an employee may work following departure from the original employment organization.

As the name suggests, noncompete agreements are predicated on the idea that an employer can limit the ability of an employee to compete with the business in the future. Noncompete agreements can limit an employee’s ability to compete by placing restrictions on physical areas where the employee may work or types of work the employee can engage in the future. A study in 2019 determined that the most noncompete agreements in workplaces where any employees were subject to the agreement existed in the manufacturing, wholesale trade, and business services industries. That same study also determined that Texas, Ohio, and Virginia ranked highest as the states with workplaces where any employee is subject to a noncompete agreement.

the ban and its reasoning 

With the knowledge of what noncompete agreements are, we now can turn to the new FTC ban. The ban on noncompete agreements was announced on April 23, 2024 and was planned to take effect 120 days after its publication, or August 21, 2024. However, the ban has been stayed due to legal challenges.

Still it is important to understand what the FTC ruling does. The ruling itself bans all existing noncompete agreements as well as all future noncompete agreements by rendering the agreements legally unenforceable.

The one exception to the ban is that noncompete agreements for senior executives may still be enforceable after the publication of the new rule. However, going forward, new noncompete agreements for senior executives constructed after the ban will also be unenforceable. It is important to note that senior executives represent less than .75% of workers in the workforce.

When the FTC handed down its ruling, it indicated that its reasoning for the ban is that it will benefit the American economy. FTC Chair Lina M. Khan was quoted stating, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.” By banning noncompete agreements, the FTC hopes that the ruling will help stimulate business growth. The FTC projects that following the ban, there will be more patents issued (prospectively anywhere between 17,000-29,000 more a year), around 8,500 new businesses will be created a year, and typical workers will earn $524 more a year. Another study, outside of the FTC, estimates that following the ban, 16% of workers will switch jobs while 7% of workers will start a rival business.

what does this mean for small businesses?

Although the future is very uncertain regarding what effects the ban will have, it could potentially be a windfall for the employees of small businesses as well as individuals who want to start a new business. New businesses that are just starting out face a number of risks and obstacles during the formation process. Generating capital, finding a consumer base, and initiating the production of products just to name a few.

Additionally, noncompete agreements have the potential to upend new businesses before they even begin. If you are a noncompete agreement employee who wants to start a new business, you could potentially find that the agreement bars you from working within a certain mile range of a physical location. This in turn could make your business much less cost effective if the geography of your customer base is not in your favor. Some noncompete agreements could also bar a new business from being started if the agreement specifies that an employee cannot work in a specific type of business that would compete with the original business. Although the threat of competition may be detrimental to some businesses moving forward, the potential boon created by the new ban may be a huge stimulus to small business creation. Without the threat of legal action resulting from the breach of a noncompete agreement, we could see many new businesses start up in the coming years.

Patrick is a 3L at Penn State Dickinson Law pursuing a JD degree. He received a Bachelor’s and Masters in Criminal Justice from West Chester University before attending Penn State Dickinson Law. Patrick is currently very interested in pursuing a career in business law. He can be contacted at jpm7538@psu.edu.

Sources:

FTC Announces Ruling Banning Noncompetes: https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

Noncompete rule: https://www.ftc.gov/legal-library/browse/rules/noncompete-rule

Noncompete agreements: https://www.epi.org/publication/noncompete-agreements/

16% of employees plan to quit once noncompete ban takes effect: https://www.legaldive.com/news/employees-quit-once-noncompete-ban-takes-effect-Clarify-Capital-FTC/715385/#:~:text=Dive%20Insight%3A,the%20formation%20of%20rival%20businesses.