Your Arbitration Agreement May Not Cover Who You Think It Covers

Three decisions issued within three weeks of each other this summer have fundamentally changed how California employers and their counsel should evaluate arbitration agreements covering delivery drivers, couriers, yard workers, and anyone else in the chain of moving goods. The cases are Betanco v. Living Spaces Furniture, LLC, Doss v. Tesla, Inc., and In re Rebecca Orr. Taken together, they establish that a significant category of California workers may be entirely outside the reach of the Federal Arbitration Act — and that courts must resolve that question before ordering anyone to arbitrate anything.

The Problem: The FAA Has a Carve-Out Most Employers Don't Think About

The Federal Arbitration Act, which provides the federal framework that makes most employment arbitration agreements enforceable — including class and PAGA waivers — contains a section 1 exemption for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The Supreme Court's 2022 decision in Southwest Airlines Co. v. Saxon clarified that this exemption extends to any worker who is "actively engaged in transportation of goods across borders" — not just the long-haul driver, but potentially anyone in the physical movement chain.

California courts have been applying Saxon unevenly. This summer's trilogy brings consistency — and the results are not favorable for employers who assumed their arbitration agreements were bulletproof.

Betanco v. Living Spaces Furniture, LLC (1st DCA, June 25, 2026)

Living Spaces used a delivery driver named Betanco for final-mile deliveries: he picked up furniture from a California distribution center and delivered it to residential customers. The company moved to compel arbitration when Betanco sued for wage and hour violations.

The Court of Appeal ruled that Betanco fell within the FAA § 1 exemption. The fact that he made only the last leg — the local, retail delivery — did not take him outside the exemption. The court reasoned that goods traveling from manufacturers to California distribution centers to customers are moving in a continuous interstate stream, and Betanco's role in completing that movement was enough to bring him within Saxon's "actively engaged" framework.

The practical consequences were significant and deliberate. With the FAA inapplicable:

• Labor Code § 229 — which preserves court jurisdiction over unpaid wage claims regardless of arbitration agreements — applied directly to Betanco's minimum wage, overtime, meal period, and rest period claims. Those stayed in court.

• His representative PAGA claims remained in court under Adolph v. Uber Technologies.

• Only his narrower individual claims — expense reimbursement, wage statement violations, and UCL — were sent to arbitration.

The result is a bifurcated case where the employer's core exposure (wage claims and PAGA) is in front of a judge and jury, while the peripheral claims are in arbitration. That is precisely the outcome arbitration agreements are designed to prevent.

Doss v. Tesla, Inc. (1st DCA, June 11, 2026)

Tesla's fact pattern tested the exemption on even more attenuated facts. Doss was a yard hostler — he moved inbound trailers around a factory yard, repositioning them for unloading. He never drove on public roads. He never left the facility.

The court held that he still qualified for the FAA § 1 exemption. His work was integral to receiving goods arriving from out of state; the trailers he moved were carrying interstate cargo. Saxon's test focuses on the worker's active engagement in the transportation process, not on whether that worker personally crossed state lines or drove on public roads.

Doss also made an important point about Labor Code § 229 that Betanco echoed: § 229 allows wage claims to proceed in court, but only wage claims in the strict sense — minimum wage, overtime, and similar direct compensation claims. It does not exempt every wage-and-hour theory from arbitration. Claims for expense reimbursement, wage statement penalties, and unfair competition were still sent to arbitration as individual claims.

The takeaway is that the FAA exemption and § 229 operate as a filter, not an all-or-nothing switch. Defense counsel must do a claim-by-claim analysis, not assume that exemption arguments either eliminate arbitration entirely or fail entirely.

In re Rebecca Orr (9th Cir., June 9, 2026)

Orr is a procedural decision, but it is the most consequential of the three for litigation practice. A district court compelled arbitration without first resolving whether the FAA or California law supplied the authority to compel. The Ninth Circuit granted mandamus — an extraordinary remedy — and reversed.

The panel's reasoning: the statutory basis for arbitration is not a technicality. If the FAA applies, the federal preference for arbitration governs, and California rules limiting class waivers and PAGA waivers may be preempted. If the FAA does not apply because the § 1 exemption is triggered, California law governs — and under California law, class and PAGA waivers are subject to different enforceability rules. Getting the threshold question wrong doesn't just affect the arbitration ruling; it potentially determines whether an entire category of claims can be waived at all.

The practical instruction from Orr is unambiguous: no court can skip the § 1 analysis. Every motion to compel arbitration that involves a worker with any connection to moving physical goods must address the transportation worker exemption first, or the order compelling arbitration is vulnerable to mandamus.

What This Means for Employers

The three cases converge on a problem that many California employers have not confronted: the standard arbitration agreement, drafted to be broad and FAA-governed, may not accomplish anything for a significant portion of the workforce.

The workers at risk are not exotic edge cases. They include:

• Delivery drivers, whether final-mile or longer routes

• Couriers and messengers

• Warehouse workers who load and unload interstate cargo

• Yard hostlers, forklift operators, and dock workers handling goods in transit

• Any employee whose work is integral to the physical movement of goods arriving from or departing to other states

The exemption does not require that the worker personally cross a state line. It requires that the worker be actively engaged in a process that is part of interstate transportation. After Betanco and Doss, California courts are reading "actively engaged" broadly.

The arbitration agreement problem runs in two directions. First, employers who assumed arbitration agreements eliminated class and PAGA exposure for these workers were wrong — the FAA preemption that makes those waivers enforceable may not apply. Second, employers whose agreements are governed by California law in the absence of FAA coverage need to understand that California's arbitration statute does not preempt Labor Code § 229, and California law does not enforce class or PAGA waivers in the same way the FAA does.

The Orr procedural instruction means this issue cannot be avoided by moving quickly or framing the motion narrowly. Courts are now on notice that the § 1 determination is a threshold requirement, not an optional argument. Expect plaintiffs' counsel to raise it in every case involving any transportation-adjacent worker.

The Forensic Angle

The Betanco framework — where core wage claims stay in court while peripheral claims go to arbitration — creates a discovery dynamic worth noting. When Labor Code § 229 keeps wage claims in court, full civil discovery applies to those claims. That means timekeeping records, payroll data, scheduling records, and GPS or delivery logs are all potentially subject to discovery in the litigation track, even if the worker's other claims are in arbitration.

For employers with delivery or logistics operations, that data is almost always the most damaging evidence in a wage and hour case. If those records have not been audited — if the employer does not already know what the timekeeping data shows — the litigation track created by Betanco will be the first time they find out. That is the worst possible time to learn that rounding practices, off-the-clock pre-route work, or missed break premiums have been accumulating across a driver population for years.

A forensic audit of that data before litigation does not eliminate the problem. It creates the opportunity to fix it, to assess settlement exposure accurately, and — if violations are isolated rather than systemic — to build the factual record that supports a reduced PAGA penalty argument under Taduran.

Wage Counsel Group provides forensic wage and hour audit services and litigation support for California employers and defense-side employment counsel. For inquiries, contact david@wagecounselgroup.com or visit wagecounselgroup.com.