Fox Rothschild employment litigator Steven Gallagher defeated a Petition for Review before the California Supreme Court, helping cement his victory in a precedent-setting arbitration agreement case in the Second Appellate District (Vela v. Harbor Rail Services of California, Inc. (2026) 120 Cal.App.5th 353). The Supreme Court's order, issued en banc, ends the plaintiff's line of challenges in California courts that maintenance and repair workers whose tasks are temporarily and functionally separate from the actual movement of goods do not qualify for the Federal Arbitration Act's (FAA) transportation-worker exemption. The denial makes the appeals court’s certified-for-publication decision subject only to an unlikely writ to the U.S. Supreme Court.

The three-judge appellate panel issued its 19-page decision on May 1, 2026, breaking 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 company's train yard. 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.

After the Court of Appeal affirmed, Vela petitioned the California Supreme Court for review. In Harbor Rail's answer to the petition, Gallagher argued that each of Vela's four grounds for review depended on recasting the Court of Appeal's record-based holding as a broad legal rule the court did not adopt. The answer demonstrated that Vela failed to prove that his class of workers was engaged in the interstate transportation of goods because the record showed only inspection and repair work on decommissioned railcars that had been disconnected from locomotives, withdrawn from service, and were not shown to contain goods.

The Supreme Court agreed and denied review.

The ruling is a significant win for employers in logistics, trucking, railroad and transportation-adjacent industries seeking to enforce arbitration agreements showing a stance of exemption for workers tangential to commerce. The appellate decision holds that:

A business-to-business services agreement between an employer and a railroad client cannot constitute a worker's "contract of employment" under Section 1 of the FAA.
Onboarding documents, even read together, that lack the hallmarks of traditional employment contracts cannot serve as a contract of employment under Section 1.
A repairman who works on decommissioned railcars not shown to carry goods is not a "transportation worker" under Section 1's residual clause because such work is too far removed from the actual process of transporting goods to play a direct and necessary role in interstate commerce.

With the FAA governing, the class action waiver remains enforceable, preempting California's practical rejection of class action waivers and resulting in entire dismissal of the class action. Following this win, servicemen of instrumentalities of commerce are not shielded from arbitration by the transportation-worker exemption in the Federal Arbitration Act, and the California Supreme Court's denial of review confirms that holding.