Reported / Citable
Background
Luis Betanco worked as a delivery driver for Of Service Transportation, which contracted with Living Spaces Furniture — a multistate chain — to handle last-mile deliveries from Living Spaces’ California distribution centers to individual customers. Betanco delivered furniture from warehouses in Rialto and Fremont to nearby California homes. He never personally crossed state lines, but the furniture he delivered had been manufactured outside California and shipped to those California distribution centers before he picked it up.
After Betanco stopped working in 2021, he filed two lawsuits against Living Spaces and Of Service: a class action for wage-and-hour violations and a separate representative action under the Labor Code Private Attorneys General Act (PAGA). The defendants moved to compel arbitration under the arbitration clause in Betanco’s independent-contractor agreement. That clause was governed by the Federal Arbitration Act (FAA).
Betanco argued the FAA did not apply because he was a “transportation worker engaged in interstate commerce” under FAA section 1 — a category the Supreme Court has held is exempt from the FAA entirely. The trial court agreed he was a transportation worker and denied the motion to compel on that basis, though it ordered some claims to arbitration under California law and stayed the PAGA representative claims. Both sides appealed.
The Court’s Holding
The First District affirmed the trial court’s conclusion that Betanco qualifies as a transportation worker exempt from FAA coverage. Applying the categorical approach, the court held that a last-mile delivery driver participates in the interstate movement of goods when those goods have traveled across state lines as part of a continuous commercial journey that ends only when the driver delivers the item to the customer. The fact that Betanco himself only drove within California is not dispositive — what matters is that he was an integral link in an interstate commercial chain.
The court reached this conclusion after the Supreme Court’s 2026 Flowers Foods, Inc. v. Brock decision, which confirmed that a worker need not personally cross state lines to be a transportation worker engaged in interstate commerce. The court declined to consider new arguments Living Spaces raised only in supplemental briefing after Flowers, applying waiver principles.
On PAGA, the court also affirmed the trial court’s rejection of the employers’ motion to dismiss Betanco’s representative (non-individual) PAGA claims. Under the California Supreme Court’s 2023 Adolph v. Uber decision, a plaintiff retains standing to pursue representative PAGA claims even after his individual PAGA claim is compelled to arbitration.
Key Takeaways
- Last-mile delivery drivers whose routes are entirely within California can still qualify as FAA-exempt transportation workers if the goods they deliver have traveled in interstate commerce as part of a continuous journey from out of state to the customer.
- After Flowers Foods (2026), employers can no longer defeat the FAA section 1 exemption simply by pointing out that the driver never crosses state lines — the focus is on the worker’s role in the larger interstate movement of goods.
- Companies using independent-contractor delivery networks for goods sourced from outside California should audit their arbitration agreements: FAA-only clauses may be unenforceable for drivers in those networks, even if other labor-cost savings remain intact.
- Adolph v. Uber (2023) continues to govern PAGA standing: compelling an individual PAGA claim to arbitration does not strip the plaintiff of standing to litigate representative PAGA claims in court.
- Labor Code section 229 independently bars arbitration of claims for unpaid wages regardless of arbitration agreements — another layer of protection that remained in play for Betanco’s core wage claims.
Why It Matters
California’s gig and logistics economy depends heavily on last-mile delivery workers who operate under independent-contractor agreements with mandatory arbitration clauses. This decision — following Flowers Foods — substantially narrows employers’ ability to invoke the FAA to route those workers’ claims into private arbitration. Any driver who delivers goods with an out-of-state origin is now a strong candidate for the FAA transportation worker exemption, meaning wage theft and Labor Code claims can proceed in court as class actions or PAGA representative suits.
For retailers and logistics companies operating distribution-center-to-customer delivery networks in California, the practical effect is significant: arbitration clauses tied to the FAA may not hold against these workers, and PAGA exposure for the entire driver workforce remains in play. Companies should reassess workforce classification, arbitration strategy, and compliance with California wage-and-hour law for their delivery operations.