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Distributors can’t be forced to arbitrate misclassification claims

Truck on highway


A federal appeals court has ruled that employee misclassification claims brought by “distributors” who delivered goods from a bakery company to their retailers were not subject to mandatory arbitration.

Defendant Flowers Foods, Inc., which owns subsidiary bakeries in multiple states, originally hired plaintiffs Margarito Canales and Benjamin Bardzik as temporary employees to deliver its wares to grocery stores and other businesses.

According to the plaintiffs, Flowers, through one of its subsidiaries, pressured them to purchase the routes they were driving and operate as independent “distribution companies.”

The plaintiffs, who allegedly spent at least 50 hours a week driving their delivery routes, filed suit against Flowers and its subsidiaries alleging they were misclassified as independent contractors to avoid minimum wage and overtime laws.

A U.S. District Court judge denied the defendants’ motion to enforce an arbitration clause in their contracts, finding that the plaintiffs were “workers engaged in foreign or interstate commerce” exempt from mandatory arbitration under Section 1 of the Federal Arbitration Act.

The 1st U.S. Circuit Court of Appeals affirmed, rejecting the defendants’ contention that the plaintiffs worked in the baking industry, not the transportation industry.

“Simply put, ‘workers who do transportation work are transportation workers,’” Judge William J. Kayatta Jr. wrote for the panel. “[W]e held [in our 2023 Fraga v. Premium Retail Servs., Inc. decision] that an employee of a retail services company may qualify as a transportation worker for purposes of section 1, based on the work that she actually performed. … So, too, here. We look to what work plaintiffs do, not what defendants do generally.”

The court similarly rejected the defendants’ argument that the plaintiffs’ responsibilities were those of a business owner, not a transportation worker.

“This argument runs smack into the facts as found by the district court — each plaintiff spends a minimum of fifty hours per week driving their delivery routes to deliver goods,” Kayatta wrote. “There is no evidence in the record to suggest that this finding comes anywhere close to clear error.”

Delivery dispute

One of Flowers’ subsidiaries is defendant Lepage Bakeries Park Street, which operates from Maine.

Through its own subsidiary, defendant CK Sales Co., Lepage sells the right to distribute its products to “independent distributors” who buy baked goods from the defendants and resell and deliver them to stores along their routes.

The defendants classify these distributors as independent contractors.

Until April 2018, the plaintiffs worked as employees hired through a temporary staffing agency.

In late 2017, they were apparently told their routes would be purchased soon, which they took to mean they would be terminated unless they purchased the routes themselves.

The plaintiffs created a distribution company that they named T&B Dough Boys Inc., and in June 2018 bought the rights for three Massachusetts routes.

They purchased a fourth route in July 2019 and sold it back to buy a different route in October 2020.

Each time the plaintiffs purchased a route, they entered into a distributor agreement with CK Sales. The contracts contained a mandatory arbitration provision.

The defendants shipped the goods across state lines to their North Reading warehouse, where the plaintiffs apparently picked them up to deliver in trucks along their routes, which did not cross state lines.

The plaintiffs claim they each spent at least 50 hours a week driving and another 20 to 30 hours a week supervising other drivers they hired.

The parties dispute how much control the defendants exercised over the plaintiffs’ business, with the defendants claiming the plaintiffs, as T&B, purchased baked goods from the defendants and resold them to stores for a profit.

The plaintiffs, on the other hand, argued that by the terms of their contracts and in practice, they lacked any meaningful control over the quantity or price of goods they were distributing or over their delivery schedules or customer stores included on their routes.

In June 2021, the plaintiffs brought a misclassification action in U.S. District Court.

The defendants moved to dismiss and, alternatively, to compel arbitration, arguing that Section 1 did not apply.

U.S. District Court Judge Allison D. Burroughs denied the motion. The defendants appealed and the 1st Circuit affirmed.