Ninth Circuit: Court, Not Arbitrator, Must Decide Whether FAA Applies

The court—not an arbitrator—must decide whether the Federal Arbitration Act (FAA) applies to a case, including any statutory exclusions, the Ninth U.S. Circuit Court of Appeals has ruled.

Rebecca Orr worked as a seasonal support driver for UPS in late 2023. When she first applied for the position, Orr signed an “Arbitration Agreement/Seasonal Hiring Agreement.”

The agreement included a “Delegation Clause” that “the Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the validity, applicability, enforceability, unconscionability or waiver” of the agreement.

It also included a class action waiver and a provision requiring Orr to arbitrate any Private Attorneys General Act (PAGA) claims on an individual basis only, as well as a section entitled “How This Agreement Applies” that described it as a contract governed by the FAA.

When Orr began making deliveries, she experienced frequent, unannounced changes to her schedule. When she stopped receiving assignments, she filed suit in state court, including claims under PAGA and other putative class claims.

UPS responded with a motion to remove the case to federal court, followed by a motion to compel arbitration.

The district court granted UPS’s motion. It stayed the litigation of the class claims pending resolution of arbitration and held that it “need not decide” whether the FAA or the California Arbitration Act (CAA) governed the agreement.

Orr filed a motion for clarification, maintaining that the district court must decide for itself whether the agreement fell within an exception to the FAA and that under the agreement’s delegation clause, the district court was without authority to determine whether her substantive claims were arbitrable.

The district court denied the motion for clarification. Orr filed for a writ of mandamus.

Relying on New Prime Inc. v. Oliveira, the Ninth Circuit granted the writ.

“The district court committed clear error by refusing to determine the basis for its authority to compel arbitration and improperly delegating the contractual question as to the FAA’s applicability to the arbitrator,” the court wrote.

To stay proceedings or compel arbitration under the FAA, a district court must determine whether an agreement falls within the boundaries of §§ 1 and 2.

But the district court refused to determine whether the FAA or the CAA governed arbitration. Instead, it compelled arbitration without stating the basis for its authority to do so—sidestepping whether the FAA’s contracts of employment exclusion applied.

“[T]he Agreement’s terms made it necessary for the district court to decide whether the FAA applied,” the court said. “The choice-of-law provision in the Agreement provides that the FAA will govern the Agreement unless the FAA ‘does not apply to a particular dispute or to one or both parties.’ That provision indicates the parties’ expectation that the FAA will control absent a ruling to the contrary, and so suggests that, as a contractual matter, the issue of the FAA’s applicability should be decided before ordering arbitration.”

Although the agreement does not dictate who will decide whether the FAA applies, New Prime does, the court explained, where the court held that the “district court, not an arbitrator, must determine whether § 1’s exemption applies in a given case.”

Further, whether the FAA applied to the case was not simply a technical question, the court said, as state law and the FAA are not identical.

“They differ in ways that may be relevant to this case,” the court wrote. “As a result, without any district court determination of the governing law, the arbitrator, when evaluating the threshold issues of the Agreement’s enforceability and arbitrability, will need to decide in the first instance whether the FAA governs.”

For example, several of Orr’s claims might be litigable in court if the agreement fell within a § 1 exemption, the court said, including her claim of violations of section 229 of the California Labor Code.

“The Agreement’s Delegation clause requires the arbitrator, not the court, to decide in the first instance whether section 229 applies to Orr’s claims ‘for the collection of due and unpaid wages,’” the court said. “Because section 229 cannot apply if the FAA does, the arbitrator will have to decide whether the § 1 exemption applies if the district court does not. New Prime forbids that result.”

Orr made a sufficient showing that she was entitled to mandamus relief, the Ninth Circuit concluded, finding uncorrectable prejudice stemmed from the district court’s refusal to specify the source of authority for its order compelling arbitration, as well as concerns that the holding might cause confusion and encourage similar erroneous approaches.

“Our mandamus order is not meant to indicate that arbitration must be ordered, but that the basis for the arbitration must be decided first, with other arbitrability issues committed to the district court to follow,” the court wrote.

To read the opinion in Orr v. U.S. District Court, click .

Why it matters: The Ninth Circuit relied heavily on New Prime, which made clear that even where parties have agreed to “require arbitration of every question under the sun,” a court’s authority to compel arbitration is not unconditional. Instead, that decision dictates that the “district court, not an arbitrator, must determine whether § 1’s exemption applies in a given case,” the federal appellate panel explained.