Can a business entity qualify for the FAA’s transportation worker exemption? Yes. Earlier this week, the Second Circuit held that a distribution agreement signed by a corporate entity can qualify as a “contract of employment” under the transportation worker exemption in section 1 of the FAA. Silva v. Schmidt Baking Distribution LLC, No. 24-2103 (Dec. 22, 2025) (click here for a copy of the decision).
The entities at issue were single-employee corporations, formed at the behest of a manufacturer in order to deliver the manufacturer’s baked goods, and the workers at issue were previously delivery drivers who were W2 employees. However, in a footnote, the court was careful to point out it was not adopting a veil-piercing or sham entity approach. Instead, the court adopted a literal approach and examined whether there was a “contract of employment of” transportation workers, as opposed to a contract of employment “with” transportation workers.
The Second Circuit attempted to limit its holding in order to minimize the risk of conflict with other circuits, but the Second Circuit’s limitation is subject to critique. The court drew a line between contracts involving single-employee corporations and those involving “sizeable” transportation companies, suggesting that the latter fall outside § 1 of the FAA. That distinction, however, is difficult to justify. The exemption from § 1 of the FAA does not depend on the number of workers performing the transportation services. Under the text of section 1 and the Supreme Court’s New Prime ruling, the phrase “contracts of employment” broadly means a contract for the performance of work by transportation workers, and the number of workers should not be relevant. If a single-employee corporation qualifies for the exemption, it is unclear at what point the exemption disappears. Suppose the corporation at issue in this Silva case hires a second driver as deliveries increase, then a third, and eventually a small fleet. At no point does the nature of the work change; the contract still governs the performance of transportation services by delivery drivers engaged in interstate commerce. However, under the Second Circuit’s approach, the legal character of the contract would somehow change as the fleet grows; to avoid a clash with other Circuits, the Second Circuit unfortunately drew a line that the FAA does not support.