Fox Rothschild employment litigator Steven Gallagher secured a precedent-setting victory before California's Second Appellate District in a certified-for-publication decision holding that maintenance and repair workers whose tasks are temporally and functionally separate from the actual movement of goods do not qualify for the Federal Arbitration Act's (FAA) transportation-worker exemption.

The ruling is a significant win for employers in logistics, trucking, railroad and transportation-adjacent industries seeking to enforce arbitration agreements. The court also held that onboarding agreements, even when read together, lacking the hallmarks of traditional employment contracts cannot serve as “contracts of employment” under Section 1 of the FAA and affirms that plaintiffs cannot rely on business-to-business contracts to satisfy the contract requirement.

Issued on May 1, 2026, the three-judge panel’s 19-page decision in Vela v. Harbor Rail Services of California, Inc., breaks new ground on three key questions under the FAA's Section 1 exemption.

Plaintiff Arturo Vela worked as a railcar repairman for Harbor Rail Services of California (Harbor Rail) from May to October 2021, inspecting and repairing freight cars at a railroad companies train yard in California. Before starting work, Vela signed an arbitration agreement that included a class action waiver. He later filed a wage-and-hour class action against Harbor Rail. The trial court granted Harbor Rail’s petition to compel arbitration and dismiss class claims, and Vela appealed.

First, the appellate panel rejected Vela's attempt to claim "railroad employee" status through his employer's subcontracting relationship with PHL, holding that a business-to-business services agreement between Harbor and PHL cannot constitute a "contract of employment" under Section 1.

Second, the panel applied the U.S. Supreme Court’s 2022 decision in Southwest Airlines Co. v. Saxon and held that Vela was not a "transportation worker" under the residual clause because inspecting and repairing freight cars was "too far removed from the actual process of transporting goods" to play a direct and necessary role in interstate commerce.

Third, the panel held that onboarding documents, even read together, that lack the hallmarks of traditional employment contracts cannot serve as a contract of employment under Section 1.

With the FAA governing, the panel affirmed the enforceability of the class action waiver, which preempts the California’s practical rejection of class action waivers, and results in entire dismissal of the class action. Harbor Rail also was awarded costs on appeal.

Following Vela, servicemen of instrumentalities of commerce are not shielded from arbitration by the transportation worker exemption in the Federal Arbitration Act.