How the Supreme Court's Expanded 'Interstate Commerce' Exemption Reshapes Mandatory Arbitration

For decades, American employers and their workers have been locked in a high-stakes legal tug-of-war over where employment disputes should be resolved. Companies overwhelmingly favor mandatory arbitration—a private, often faster, and generally less costly forum that shields disputes from public dockets and prevents class-action lawsuits. Workers and their advocates, conversely, argue that arbitration suppresses wage claims and hides systemic workplace issues, pushing instead for the right to sue in open court. The battleground for this conflict has narrowed to a single, century-old sentence in the Federal Arbitration Act of 1925.[6]

That sentence—Section 1 of the FAA—exempts "seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce" from forced arbitration. Over the past five years, the Supreme Court has systematically broadened the interpretation of this exemption, culminating in the May 2026 ruling in Flowers Foods, Inc. v. Brock. By decoupling the definition of "interstate commerce" from both the employer's specific industry and the worker's physical crossing of state lines, the Court has created a massive new loophole for modern supply chain, logistics, and delivery workers to bypass arbitration entirely.[1][2][4][5][6]

To understand the mechanism driving this shift, one must look at the original architecture of the Federal Arbitration Act. Enacted in 1925, the FAA was designed to ensure that courts honored private dispute-resolution agreements, overriding judicial hostility toward arbitration. However, Congress carved out a specific exemption for transportation workers, recognizing that federal regulation of interstate commerce—particularly maritime and rail transport—required its own specialized dispute frameworks. For decades, lower courts interpreted this carveout narrowly, generally restricting it to literal sailors, train conductors, and long-haul truckers who physically moved goods across state borders.[3][4][5]

The modern expansion began in 2019 with New Prime Inc. v. Oliveira, where the Supreme Court ruled that the exemption applied to independent contractors as well as traditional employees. This was followed by the 2022 decision in Southwest Airlines Co. v. Saxon, which shifted the focus from the worker's job title to their actual daily tasks. In Saxon, the Court held that an airline ramp worker who loaded and unloaded cargo qualified for the exemption, even though she never personally traveled across state lines. The ruling established that handling goods actively moving in interstate commerce was sufficient to trigger the Section 1 carveout.[1][2][3][4][5]

Despite Saxon, corporate defense teams continued to argue that the exemption should only apply to workers employed by companies formally classified within the "transportation industry." This argument reached the Supreme Court in the April 2024 case Bissonnette v. LePage Bakeries. The plaintiffs were franchisees who distributed baked goods in Connecticut and sought to avoid arbitration for their wage claims. The Second Circuit Court of Appeals had ruled against the workers, reasoning that because they worked in the bakery industry rather than the transportation industry, the FAA exemption did not apply.[2][5]

The Supreme Court unanimously overturned the Second Circuit's industry-based test. The justices concluded that imposing a "transportation industry" requirement would lead to complex, unworkable line-drawing problems regarding how to classify modern, multifaceted corporations. Instead, the Court reaffirmed that the exemption is tied to the nature of the work performed by the individual, not the primary revenue source of the employer. This meant that a delivery driver for a bakery, a retail giant, or an e-commerce platform could qualify for the exemption just as easily as a driver for a dedicated freight company.[2][5][6]

With the industry defense dismantled, employers pivoted to a geographic defense, arguing that a worker must at least cross state lines—or interact directly with vehicles that do—to be "engaged in interstate commerce." This set the stage for the May 2026 showdown in Flowers Foods, Inc. v. Brock. The plaintiff, Angelo Brock, operated a local distribution route entirely within the state of Colorado, delivering baked goods from an in-state warehouse to local retail stores. Because his physical route was purely intrastate, Flowers Foods argued that the FAA's interstate commerce exemption could not possibly apply to his contract.[1][2][4]

In a unanimous decision authored by Justice Neil Gorsuch, the Supreme Court rejected the employer's bright-line geographic rule. The Court held that a worker does not need to personally cross state borders, nor play a "game of tag" with vehicles that do, to qualify as a transportation worker under Section 1. Instead, the relevant legal inquiry is whether the worker plays a "direct, active, and necessary role" in the continuous interstate journey of goods. Because the baked goods Brock delivered originated outside of Colorado and were moving through an interstate distribution network, his local "last-mile" delivery was deemed an integral component of interstate commerce.[1][2][3][4][6]

The synthesis of Bissonnette and Flowers Foods establishes a powerful new functional test for employment contracts. The Supreme Court has effectively decoupled the FAA exemption from corporate classification and geographic reality, replacing them with a "flow of goods" standard. If a product begins its journey in one state and ends in another, virtually any worker who physically moves that product along the chain—from the warehouse loader to the last-mile delivery driver—can now argue they are exempt from mandatory arbitration.[2][3][4][6]

For corporate employers, this expanded interpretation represents a significant compliance and financial risk. Companies in distribution, logistics, e-commerce, and retail have long relied on arbitration clauses to manage workplace disputes predictably and to prevent individual wage-and-hour claims from snowballing into massive class-action lawsuits. With the Section 1 exemption now covering a vast swath of the local supply chain, employers face the prospect of litigating minimum wage, overtime, and misclassification claims in public courts before juries.[1][2][3][4]

For workers, the rulings provide a critical point of leverage in salary and contract negotiations. Employees and independent contractors who handle goods often find themselves bound by take-it-or-leave-it arbitration agreements signed during the onboarding process. The ability to bypass these clauses restores their access to the judicial system, where the threat of public discovery and class-wide damages can force companies to settle wage disputes more favorably. It also empowers workers to challenge their classification as independent contractors—a central issue in both the Bissonnette and Flowers Foods cases.[2][5][6]

Despite the unanimous rulings, the boundaries of the FAA exemption remain contested. The Supreme Court explicitly declined to create a blanket rule exempting all local drivers, noting that the analysis remains highly fact-specific. Lower courts must now grapple with where the "interstate journey" of a product officially ends. For instance, does the exemption apply to a food delivery driver transporting a meal from a local restaurant to a consumer, simply because the ingredients originally crossed state lines? While the Court has broadened the pathway to open court, the exact perimeter of "interstate commerce" will continue to be litigated case by case.[2][4][6]