Supreme Court rules FAA arbitration exemption may apply to workers who do not cross state lines

The United States Supreme Court held in Flowers Foods, Inc. et al v. Brock (Flowers) that the transportation worker exemption in Section 1 of the Federal Arbitration Act (FAA) may apply to certain workers engaged in the movement of goods on a purely intrastate leg of an interstate journey – even if those workers do not cross state lines. This decision potentially exempts significant categories of distribution and logistics workers from contractually mandated arbitration.

Writing for a unanimous Court, on May 28, 2026, Justice Neil Gorsuch drew on a century-old “continuous journey” precedent to interpret Section 1’s text – holding, for purposes of the FAA, that interstate commerce does not end at a state border for goods continuing in transit to their final destination, provided the worker’s role is a “direct, necessary, and active” part of the interstate movement.

In rejecting Flowers’s proposed bright-line rule – that a worker must always cross state lines or interact with a vehicle that does in order to qualify for the Section 1 exception – the Court held “at least sometimes” a worker performing an intrastate leg of an interstate journey may be covered by that exemption. That qualifier reflects the Court’s deliberately narrow approach: it decided only the question presented – whether crossing state lines is categorically required – without further defining the exemption’s full reach, leaving significant uncertainty for businesses trying to determine which workers are, and are not, covered. This is the second Supreme Court decision establishing law governing transportation logistics law in less than a month. See our insights on the prior decision here.

This alert summarizes the latest ruling and its practical implications for shippers, distributors, retailers, consumer packaged goods (CPG) companies, e-commerce platforms, and other companies that provide or rely on “last-mile” delivery services and whose agreements include arbitration requirements for workforce disputes.

Background

The FAA generally requires courts to enforce pre-dispute arbitration agreements, keeping workforce disputes out of court. Section 1, however, carves out “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Until recently, courts interpreted this exemption narrowly – generally limiting it to workers who physically crossed state lines or operated vehicles in interstate transit.

Over the last six years, however, a series of Supreme Court decisions has reshaped the contours of the Section 1 exemption. Collectively, these decisions established that:

1. “Contracts of employment” include agreements with independent contractors, not just traditional employees
   
   
2. Whether a worker qualifies for the exemption turns on what the worker actually does, not the worker’s title or classification, and
   
   
3. A worker need not be employed in the “transportation industry” to be exempt, so long as the worker plays a direct, necessary, and active role in the physical movement of goods across state lines.

Prior to Flowers, federal circuit courts were divided on whether Section 1’s reach extended to workers whose transportation activity is confined to a single state but involves the handling of goods moving interstate. The Ninth and Second Circuits held that such workers could qualify for the exemption, while the Fifth and Eleventh Circuits held that they could not. The Supreme Court granted certiorari to resolve the split.

The Court’s holding

The case involved a franchisee distributor who transported baked goods from Flowers Foods’ Colorado warehouse to local stores without crossing state lines. The Court unanimously held that Section 1’s exemption is not limited to workers who cross state lines. Drawing on the century-old “continuous journey” precedent, Justice Gorsuch explained that interstate commerce does not end at the destination state border when goods remain in transit to their final destination. A worker who performs an intrastate leg of that journey may qualify if the worker’s role is direct, necessary, and active in the interstate movement.

Rather than announcing a broad categorical rule, the Court stated that “at least sometimes, a person can ‘take part,’ be ‘employ[ed],’ or be ‘involve[d]’ in that continuous journey without leaving a State or touching vehicles that do” (emphasis added). That language represents the Court’s holding: it rejected Flowers’s categorical position that crossing state lines is always required, without purporting to resolve every scenario in which the exemption might or might not apply.

The Court expressly left unaddressed subsidiary questions – including whether a transfer of title to the goods, the use of a worker-formed entity, or some break in the goods-in-transit chain might defeat the exemption – because Flowers did not present them. The practical result is uncertainty for businesses structuring delivery and distribution operations, which must now assess the enforceability of their arbitration agreements on a fact-specific basis.

What remains unclear: The contours of the “continuous journey”

The Court’s holding raises the follow-on question: when does an interstate journey end? The Court did not directly address this, and the opinion does not use the industry phrase “come to rest.” However, based on a lower-court precedent the Court cited, a potential implication of the “continuous journey” framework is that the exemption ceases to apply once goods have come to rest at a location that marks the end of one commercial journey and the beginning of another. Where that line falls in the context of modern, complex distribution networks is the key question Flowers leaves open. The decision will also provide plaintiffs’ counsel with new opportunities to test the boundaries of FAA Section 1.

Potential areas of contention include:

• Distribution centers. Plaintiffs may argue that workers within a distribution center – and drivers who deliver goods from that center to stores – are performing successive legs of the same interstate journey, provided the goods never “come to rest” at the facility. The concept of goods “coming to rest” has been recognized by lower courts in related contexts. But where goods are cross-docked or briefly staged before local delivery – without a new sale or change in ownership interrupting their path – the argument that the journey has not ended becomes substantially stronger. How courts apply this distinction to modern distribution centers and processes remains an open question.
  
  
• Worker-formed entities. Courts remain split on whether contracting with a worker-formed entity (e.g., an independent owner-operator who incorporates an LLC or corporation to run their in-state delivery business), rather than with the individual worker directly, fits the Section 1 exemption from the FAA arbitration requirement. The Court in Flowers acknowledged such circumstances but noted that Flowers “d[id] not ask us to decide their legal significance,” having staked its argument exclusively on the bright-line cross-state-border rule. Until this question is resolved, it is unclear whether these structures will fall within the arbitration requirement of the FAA.
  
  
• Title transfer as a firewall. Some distributors structure relationships so that title to goods transfers before final delivery, arguing that the interstate journey ends at that point. Courts are divided on whether such a title transfer marks the end of interstate transportation. The viability of that argument may depend on whether the title transfer reflects a genuine commercial break (e.g., meaningfully changes how goods are handled, routed, or delivered, and whether risk of loss has transferred) or is merely a formality in a continuous distribution pipeline (e.g., title passes between commonly owned affiliates without more).
  
  
• Purely intrastate shipments. Flowers addressed only goods moving on an intrastate leg of an interstate journey – that is, goods originating in one state and destined for another. The decision does not extend the Section 1 exemption to workers handling goods that originate and terminate within the same state. Where goods are produced, warehoused, and delivered entirely within one state, with no connection to a cross-border shipment, the “continuous journey” framework is less likely to apply, and the FAA’s general arbitration enforcement mandate is more likely to govern. Companies are encouraged to evaluate whether their distribution operations exclusively involve intrastate commerce – which would fall outside the scope of Flowers – or whether goods have an interstate origin, destination, or transit point that could bring workers within the exemption.

Considerations for affected companies

As these issues are litigated, arbitration enforceability may vary by jurisdiction, supply chain structure, and the specific facts of each worker’s role. Below are practical considerations that shippers, distributors, retailers, CPG companies, e-commerce businesses, and other companies that provide or rely on last-mile delivery services should consider evaluating:

• Review arbitration programs and contractual structures. Companies may review their arbitration requirements for distribution, delivery, warehouse, and related workers – including contractors, franchisees, and staffing-agency personnel whose work may be a direct, necessary, and active part of interstate goods movement – and ensure that such agreements contain robust severability provisions. Entity-based structuring, such as contracting with worker-formed entities, may not insulate agreements from Section 1.
  
  For workers who fall within the exemption, consider whether state arbitration laws may provide an independent enforcement basis. Because Section 1 exempts those workers from the FAA – rather than prohibiting arbitration – state arbitration law may be used to fill the gap. This could be accomplished by adding a clause to employment agreements stating that in the event the FAA does not apply, state arbitration law shall apply. Note that some states impose their own requirements and limits on the enforceability of arbitration agreements, so assessment of applicable state law may be appropriate. Companies may also consider other risk-mitigation strategies, such as insurance coverage for potential litigation exposure.
  
  
• Prepare for increased litigation. The Flowers ruling could result in an increase in class and collective actions challenging arbitration clauses across the logistics sector. The decision’s lack of a bright-line rule may also encourage plaintiffs’ counsel to test the boundaries of Section 1. The costs of defending class actions and the negative attention these lawsuits sometimes generate may increase settlement pressure.
  
  
• Analyze and document supply-chain operations. In Section 1 disputes, courts may consider whether goods came to rest before the intrastate leg in determining whether the FAA mandates enforcement of arbitration provisions. Companies may consider whether distribution operations can be structured so that goods are stored, resold, or otherwise involve a step or transaction that breaks the “continuous [interstate] journey before intrastate movement.” Maintaining clear records of product origin, warehouse handling procedures, title transfer, and delivery routing may be helpful as courts assess whether the exemption applies.
  
  
• Evaluate retail and consumer goods distribution models. Companies in the consumer goods and retail sectors are encouraged to examine how their distribution models align with the Flowers framework. Many CPG companies, grocery chains, and e-commerce platforms rely on multi-tier distribution networks – including national distribution centers, regional hubs, and store-level or last-mile delivery – that may involve workers participating in intrastate segments of interstate journeys. Direct-to-consumer delivery programs, including grocery delivery, meal-kit services, and same-day fulfillment, often utilize gig workers or independent contractors to transport goods that originated out of state, often increasing the likelihood that such workers may fall within the FAA’s transportation worker exemption and avoid mandatory arbitration. Retailers operating private fleets or using dedicated contract carriers for store replenishment are encouraged to assess whether those drivers perform a “direct, necessary, and active” role in interstate goods movement. Companies may also evaluate whether franchise or licensee delivery arrangements – which are common in food and beverage distribution – may create exposure under Section 1, particularly where the franchisor exercises control over delivery routing, branding, or operational standards.

Looking ahead

The Flowers decision was unanimous, and its central holding – that, in some circumstances, Section 1 covers workers who do not cross state lines – is now settled law. What remains unsettled is how lower courts will apply the Court’s decision to the wide variety of distribution, delivery, and logistics arrangements that characterize modern supply chains. For companies that provide or rely on last-mile delivery services, the Court’s decision heightens the importance of evaluating those arrangements and their implications for transportation worker disputes and litigation.

DLA Piper will continue to monitor post-decision developments and is available to assist companies with reviewing and strengthening arbitration agreements, assessing worker classification and contractor structures, evaluating state-law alternatives and insurance coverage, and analyzing supply-chain operations to support arbitration strategies consistent with the evolving framework.

Please contact any of the authors for additional information.