Tag: Airplanes

US Supreme Court Holds That Airline Cargo Loaders Are Exempt From Arbitration

The US Supreme Court has held that airline cargo loaders who load and unload cargo from planes that travel across state lines are exempt from the Federal Arbitration Act (FAA) because they belong to a “class of workers engaged in foreign or interstate commerce” under § 1 of the FAA. Southwest Airlines Co. v. Saxon (June 6, 2020).

Background

Latrice Saxon worked for Southwest Airlines and was responsible for training and supervising teams of ramp agents who load and unload airplane cargo on Southwest planes that travel across state lines. Saxon brought a collective action alleging failure to pay proper overtime wages FLSA in the Northern District of Illinois. However, Saxon had signed an arbitration agreement requiring her to arbitrate her wage disputes, and Southwest moved to dismiss the lawsuit and to compel arbitration under the FAA.

Saxon opposed the motion, invoking § 1 of the FAA, which exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” She argued that ramp supervisors, like seamen and railroad employees, were an exempt “class of workers engaged in foreign or interstate commerce,” but the district court agreed with Southwest and found that only employees involved in “actual transportation,” not those who merely handle goods, fell within § 1 of the FAA. On appeal, the Seventh Circuit Court of Appeals disagreed with the District Court’s decision, holding that “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce.” The Seventh Circuit’s decision conflicted with an earlier decision of the Fifth Circuit, Eastus v. ISS Facility Services, Inc., 960 F. 3d 207 (2020), and the Supreme Court granted certiorari to resolve the conflict between the two circuits.

The Supreme Court’s Decision

In a unanimous decision, the Supreme Court held that loaders who load and unload airplane cargo that travels intrastate play a direct role in the interstate transportation of goods and therefore belong to a “class of workers engaged in foreign or interstate commerce” under § 1 of the FAA. The Court engaged in a two-step analysis. First, it considered how to define the relevant “class of workers.” The Court rejected Saxon’s argument that the “class of workers” should be defined as virtually all airline employees, which would include shift schedulers or those who design Southwest’s website. Rather, the Court held that the inquiry must focus on the job duties of the employees themselves, rather than the employer’s business and that Saxon “belongs to a class of workers who physically load and unload cargo on and off airplanes on a frequent basis.”

Next, the Court considered whether that class of airplane cargo loaders “engaged in foreign or interstate commerce.” It determined that “one who loads cargo on a plane bound for interstate transit is intimately involved with the commerce of that cargo” and that workers like Saxon who load and unload airplane cargo that travels in interstate commerce are exempt from the FAA.

Takeaway for Employers

Though the Court did find a class of workers exempt from the Federal Arbitration Act, it expressly rejected the assertion that this exemption should apply to all employees of an employer engaged in foreign or interstate transportation. It went on to provide examples of positions that would not satisfy the exemption, such as workers engaged in the sale of interstate asphalt or workers who supply janitorial services to a corporation engaged in interstate commerce.

Employers engaged in interstate or foreign transportation commercial should consult legal counsel if they plan to utilize arbitration agreements as part of their dispute resolution process.

Article By John P. Zaimes and Natalie C. Kreeger of ArentFox Schiff LLP

For more arbitration legal news, click here to visit the National Law Review.

© 2022 ArentFox Schiff LLP

GovCon Fraud Grounded: Whistleblower Receives Reward for Reporting Aviation Equipment Government Contracting Fraud

The United States Department of Justice settled a case against aviation equipment defense contractor Airbus Defense and Space Inc. (ADSI) for charging improper fees on government contracts. Under the terms of the settlement, the defense contractor paid $1,043,475 to resolve False Claims Act allegations. A former employee of the government contractor reported these improper fees and will receive $157,220 of the government’s recovery.

According to the allegations, the contractor included an unapproved cost rate on contracts, did not accurately disclose fees, and worked out a storage overbilling scheme with a third-party contractor, causing the government to pay more for storage than necessary. To disguise an additional and sometimes undisclosed indirect cost rate, the contractor added what they called an “Orlando Factor” to various price proposals for 62 contracts. Indirect cost rates are a complex portion of government contracting arrangements whereby a contractor attempts to obtain reimbursement for their company’s operational costs. From 2016-2017, this aviation equipment contractor’s “Orlando Factor” was applied in addition to their indirect cost rate approved by the federal agencies with which they were contracting.

The allegations further describe additional fees the contractor tacked onto equipment acquisitions in violation of federal acquisition regulations. Moreover, the contractor listed an unverified affiliate fee on its proposals. Finally, the contractor inflated storage costs by a factor of 10, resulting in General Dynamics passing on $80,000 in storage fees to the U.S. Navy instead of $8,000 in fees.

Defense contracting fraud harms taxpayers; inflating the cost of obtaining equipment can make defense budgets spiral out of control. This particular contractor seems to have found multiple ways to hide costs and pad proposals so as to turn a profit above and beyond their cost of doing business.

A former employee of ASDI reported these fraudulent practices and is being rewarded for speaking up, including receiving funds to pay for their expenses, attorneys’ fees, and costs. The Department of Justice needs whistleblowers to report government contracts fraud. Last year, only 35 defense fraud cases were filed by whistleblowers. With $720 billion spent, more fraud is out there.

© 2021 by Tycko & Zavareei LLP
For more articles on Government Contracts, visit the NLR

Government Contracts, Maritime & Military Law type of law section.

Brexit Poses Issues For Airports, Airlines

The United Kingdom’s split from the European Union could leave the nation and United States without a trade agreement to manage the aviation industry. The aviation industry currently operates between the two nations under the Open Skies agreement signed by the U.S. and the EU in 2007. However, the U.K. will no longer be covered under the agreement once it leaves the bloc and, while it is still an EU member, cannot negotiate a new agreement either.

Open Skies agreements are bilateral air service agreements (ASAs) the U.S. government negotiates with other countries to provide rights for airlines to offer international passenger and cargo services. Agreements cover a number of significant matters including rights to fly over and land in territories, regulatory requirements, competition, commercial opportunities, customs and duties, and landing charges.

The situation is creating uncertainty and legal challenges in one of the most important components of international trade. Forty percent of the EU’s air traffic to the U.S. departs from U.K. airports and nearly 48,000 flights left the U.S. bound for the U.K. in 2016 alone. Commercial arrangements in the aviation industry including for airlines, air freight companies, airports and all related businesses depend on the Open Skies agreements as a basis for their contractual arrangements. Some U.S. airlines are already seeking to renegotiate deals with U.K. airports to ensure that break clauses and other mechanisms are inserted to deal with any uncertainty following Brexit, which under Article 50 has a deadline of March 30, 2019. Post-Brexit flight bookings may also need some form of provision to deal with contractual rights to hedge against major changes in the event that the Open Skies agreement is terminated for the U.K.

Michael O’Leary, CEO of Ryanair, Europe’s largest airline, told reporters on Aug. 2 that without some understanding of what a future agreement will look like airlines won’t be able to plan their 2019 flight schedules.

“There is going to be a serious disruption unless the British government can negotiate an agreement by around this time next year,” Ryanair said.

In late July, Airlines for America, the nation’s largest aviation trade group, issued a formal statement calling for the airline industry to be dealt with immediately and separately from Brexit negotiations. On Aug. 1, Reuters reported that British Transport Secretary Chris Grayling met with White House and airline officials to assure them that an agreement would be in place when the U.K. exits the EU. The Federal Aviation Administration’s chief Michael Huerta has also recently explained the seriousness of the U.K.’s situation with regards to aviation safety. Along with the other EU member states, the U.K. is currently part of the European Aviation Safety Agency (EASA), which is responsible for all aspects of civil aviation safety in the EU. Speaking at the UK’s Aviation Club, Huerta pointed out that the U.K. currently benefits from the being part of EASA and that when it leaves the EU it will need to be replaced or there would be the very real possibility of an “interruption of service.”

Faced with uncertainty of legal rights and concerns about ongoing aviation safety regulation, it is important that U.S. airlines as well as U.S. logistics and freight companies monitor the situation and plan for potential disruption. Some comfort can be taken from British Government assurances that open skies agreements and regulations will be in place when the U.K. exits the EU, however, individual commercial agreements should be reviewed to minimize risk of disruption. For instance, U.S. airlines have agreements with U.K. airports for a range of services including landing rights and leases for office outlets. All these agreements may need to be reviewed sooner rather than later so that both parties have contingencies in place to avoid any disruption as much as possible.

This post was written by G. Thomas Lee and David B. Hamilton of Womble Carlyle Sandridge & Rice, PLLC.
Get more Brexit Analysis at the National Law Review.