By: Gina Gi

Seyfarth Synopsis: The U.S. Supreme Court has resolved a circuit split, holding “last mile” drivers transporting goods within a single state can, but do not necessarily, fall within the transportation worker exemption under section 1 of the Federal Arbitration Act. As a result, such workers may be allowed to bypass mandatory arbitration agreements governed by the FAA.

Flowers Foods, Inc. v. Brock stems from a proposed class action filed in 2022 by drivers for an independent distributor of Flowers Foods. The drivers alleged that Flowers Foods misclassified them as independent contractors and underpaid them. These drivers picked up baked goods that arrived from out-of-state which were kept in a local warehouse, and then transported them to retail stores along their intrastate route. They never crossed state lines and never interacted directly with vehicles that did.

Flowers Foods moved to compel arbitration pursuant to an arbitration provision contained in the parties’ distribution agreement. The district court denied the motion, and the Tenth Circuit followed suit, reasoning that the drivers fell within Section 1’s exemption because their intrastate deliveries “formed a constituent part of the … interstate journey” from Flowers’ out-of-state bakeries to their ultimate destinations, the retail stores. The fact that the drivers never crossed state lines or directly interacted with interstate vehicles was not dispositive.

Flowers petitioned for review, urging the Supreme Court to adopt a bright line rule—that a worker can never qualify for the exemption unless the worker personally crosses state lines or directly loads or unloads a vehicle that did.

In a unanimous decision, the Supreme Court refused to create such a rule and affirmed the Tenth Circuit ruling. The Court found that neither the text of Section 1 nor its prior decisions supported the bright-line rule advocated by Flowers. Nothing in the statute expressly requires a worker to cross state lines or interact directly with a vehicle that does. Instead, the relevant inquiry is whether the class of workers “play[s] a direct and necessary role in the free flow of goods across borders.”

The Court drew support from its 2022 decision in Southwest Airlines Co. v. Saxon, in which airline cargo loaders qualified for the exemption even though they neither flew planes nor crossed state lines themselves. According to the Court, the focus is not on whether workers personally traverse state boundaries, but rather on the role they play in the interstate journey of the goods.

The Court also examined definitions of the terms “engage” and “interstate commerce” at the time of the FAA’s enactment. The Court observed that those definitions likewise contained no requirement that an individual personally cross state lines or directly interact with a vehicle engaged in interstate travel. The Court also looked to historical case precedent to reinforce its conclusion. The Court cited various cases decided in the decades preceding the FAA’s enactment. While those cases arose under the Commerce Clause, the Court found them highly probative of what it meant to be “engaged in commerce between the States” when Congress enacted the FAA.

Notably, the Court emphasized that Flowers Foods had raised several alternative arguments as to why the drivers may not qualify for the exemption, but chose not to seek review of those issues. It is unknown whether the Court’s outcome would have been different had Flowers asked it to discuss the ramifications of these issues. For example, Flowers observed that the drivers worked pursuant to a distribution agreement rather than a traditional employment contract, an issue some lower courts have considered relevant to whether a “contract of employment” exists for purposes of Section 1. Flowers also noted that the distributor took title to the baked goods before selling them to local retailers, a fact that some lower courts have considered relevant when determining whether they remained part of a continuous interstate journey.

Because Flowers elected to focus exclusively on securing a bright-line rule requiring interstate travel or direct interaction with interstate vehicles, the Court declined to address the significance of those other issues Flowers raised in passing. In effect, Flowers placed all of its emphasis on a single argument, and the Court rejected it.

As a result, several important questions remain unresolved. The Court did not address whether Section 1 applies to a contract between two business entities or to workers operating under a distribution agreement, rather than a traditional employment contract. Nor did it decide whether taking title to goods before transporting them within a state – such as for couriers fulfilling take-out orders made within a state – creates a new and distinct intrastate transaction for the goods, outside the scope of Section 1.

The decision leaves open other broader questions concerning the outer boundaries of the transportation worker exemption. While the Court made clear that drivers may qualify even when they never cross state lines or directly interact with interstate vehicles, it remains unclear whether warehouse workers, retail employees, or other non-drivers who handle goods that previously traveled in interstate commerce may likewise fall within the exemption. As that issue was not before the Court, lower courts will continue to grapple with where the interstate journey ends, and which workers are sufficiently connected to it. These questions are already the subject of active litigation across the country, and will continue to be litigated until the Supreme Court agrees to weigh in once again.

By: Kyle D. Winnick, Robert S. Whitman, and Joseph E. Abboud

Seyfarth Synopsis: The Second Circuit held that courts must dismiss out-of-state plaintiffs from FLSA collective actions unless the defendant is “essentially at home” in the forum state or consents to the suit in that venue.

In a significant decision that will affect the scope of FLSA collective action litigation, the Second Circuit has held that courts may not adjudicate claims of out-of-state plaintiffs unless the defendant-employer is “essentially at home” in the forum state or consents to the suit there.

The case involves the interpretation of a 2017 Supreme Court decision, Bristol-Myers Squibb Co. v. Superior Court of California (“BMS”), and deepens a circuit split that may end up at the Supreme Court in the near future. The Second Circuit joins the Third, Sixth, Seventh, and Eighth circuits in applying BMS to FLSA collective actions, with the First Circuit being the lone circuit to disagree.

This means that nationwide FLSA collective actions can only proceed in New York, Connecticut, or Vermont federal courts if the employer is “at home” in the forum state—that is, incorporated or headquartered there—or has otherwise consented to the court’s jurisdiction over all claims, including those unrelated to the forum state. Under the Second Circuit’s ruling, each employee participating in an FLSA collective action must independently establish that the court has jurisdiction over their claim. As the court acknowledged, its decision puts a halt to forum shopping, where litigants pick a court to bring nationwide claims “to capitalize on discrepancies between precedents in different circuits.” Plaintiffs no longer can subject employers to nationwide FLSA collective actions in federal courts within the circuit merely because the employer happens to do business in that state.

In this case, two Vermont delivery drivers sued a nationwide bakery in Vermont federal court, claiming that Vermont and out-of-state delivery drivers were all misclassified as independent contractors and owed unpaid overtime under the FLSA. Because the bakery was not based in Vermont, the Vermont federal court lacked the power to hear the claims of the out-of-state delivery drivers, which therefore must be dismissed.

With the Second Circuit joining the majority on this issue, the First Circuit’s contrary position is now an even greater outlier that will likely have less persuasive power on courts outside the First Circuit. Unless that court reverses its position and joins the majority soon, the Supreme Court may have to weigh in to resolve the circuit split and bring nationwide uniformity to FLSA collective action litigation.

Although this decision provides employers sued in the Second Circuit greater ability to oppose nationwide collective actions, employers must be mindful of potential consequences. Successfully preventing a nationwide action from proceeding in one state may invite a flood of copycat lawsuits in other states, or (more likely) a nationwide suit in the employer’s home state where it cannot invoke BMS. Nonetheless, the decision provides additional strategic options when facing putative FLSA collective actions.

By: Ariel D. Cudkowicz, Michael E. Steinberg, and Madeline R. Comer

Tips from Seyfarth is a blog series for employers, and their in-house lawyers and HR, payroll, and compensation professionals, in the food, beverage, and hospitality sector. We curate wage and hour compliance “tips” to keep this busy industry informed.

Seyfarth Synopsis: Effective July 1, 2026, all Florida food establishments must disclose any mandatory fee, not just automatic gratuities, on both the menu and bill.

We here at TIPS have been closely following a newly passed piece of legislation out of Florida relating to disclosure of charges by food establishments. The newly passed bill expands upon an existing statute, F.S.A. § 509.214, requiring public food establishments to disclose automatic gratuities and service charges to customers. The expanded law, which will come into effect on July 1, now requires food establishments to disclose any mandatory “operations charge,” not just automatic gratuities or service fees. The statute defines “operations charge” as an automatic fee or charge other than a tax that a customer is required to pay in addition to the cost of the food or beverage purchased, including—in addition to service charges and automatic gratuities—items such as credit card surcharges and delivery fees. This is a non-exhaustive list.

The statute further requires that the establishment disclose the amount or percentage of the charge and the purpose of the charge. These disclosures must appear on all written contracts, physical and digital menus, applications or websites for placing orders, and the face of the bill provided to the customer. The disclosures must appear in a font equal to or greater than the font used throughout the menu or bill, i.e., no “fine print.” If an establishment does not provide menus, the disclosure must be visible in an “obvious and clearly readable manner” on the menu board or sign near the register. Finally, the receipt must include separate lines for gratuity, operations charges, and sales tax.

Notably, the statute does not include a private right of action. This means that an individual customer cannot bring a lawsuit for an alleged violation of this law. However, employers should be aware that the state government has the authority to impose fines or sanctions for non-compliance.

This development reflects a national trend towards requiring food establishments and other sellers of goods and services to disclose mandatory fees that may impact the total price of a good or service purchased. For example, California, Colorado, Massachusetts, and New York City have all passed such laws targeting hidden fees in the last few years, indicating that more legislation of this nature potentially affecting restaurants’ disclosure of service charges, automatic gratuities, and other mandatory fees could be on the horizon. Stay tuned for our upcoming TIPS post about that growing national trend and its potential implications for restaurant and hospitality employers.

If you are a restaurant or hospitality employer looking for guidance on how to proceed in the wake of these recent developments regarding disclosure of mandatory fees, we encourage you to reach out to us or any member of Seyfarth’s Wage and Hour Litigation Practice Group.

By: Phillip Ebsworth and Natalie Kreeger

Seyfarth Synopsis: The Second District reversed an order denying a motion to compel arbitration, holding that multiple onboarding documents reflected a valid and enforceable agreement to arbitrate individual employment and PAGA claims, and that a wholesale PAGA waiver did not defeat enforcement where it could be severed consistent with Viking River Cruises, Inc. v. Moriana.

In Santana, the plaintiff signed three arbitration-related agreements during his employment onboarding with Studebaker. After his termination, Santana filed a wage and hour class action asserting various Labor Code claims, including a PAGA claim. Studebaker moved to compel arbitration of Santana’s individual claims, including his individual PAGA claim, which the trial court denied. The Second District, Division Seven, rejected the trial court’s conclusion that purported conflicts among the arbitration provisions defeated mutual assent and that a wholesale PAGA waiver rendered the agreement unconscionable.

The Court of Appeal held that any inconsistencies across the onboarding documents “at most, created an ambiguity regarding some aspect of the agreement to arbitrate,” not uncertainty negating the parties’ clear intent to arbitrate employment related disputes under the FAA, including Santana’s individual Labor Code and PAGA claims. Although one provision contained a wholesale PAGA waiver, the court held that it conflicted with multiple provisions preserving non-individual PAGA claims and could be severed under Viking River. The court therefore concluded that the agreement remained enforceable and directed the trial court to grant the motion to compel arbitration.

The decision serves as a reminder that arbitration agreements are to be construed in favor of arbitration and inconsistencies in agreements do not invalidate an arbitration agreement including an agreement to arbitrate individual PAGA claims.

By: Petersen D. Walrod and Andrew M. McKinley

Seyfarth Synopsis: On April 23, 2026, the U.S. Department of Labor (“DOL”) published a notice of proposed rulemaking for a new joint employer rule that would set a uniform test for joint employer status for purposes of the Fair Labor Standards Act (“FLSA”), Migrant and Seasonal Workers Protection Act (“MSPA”), and the Family and Medical Leave Act (“FMLA”). This article explains what this test does, how it is different from the previous joint employer rule promulgated by the DOL, and what may happen with it in the future.

Introduction – Federal Rulemaking Is Like a Box of Chocolates

Anyone who has ever plucked a nondescript chocolate from a half-eaten box of candy knows that, sometimes, you just have to pop it in your mouth to know what’s inside. And that is not much different from the reality businesses have long faced with respect to joint employment under the FLSA: set a nationwide strategy and wait until a lawsuit is filed to learn what jurisdiction-specific, multi-factor test may apply—tests that, at times, may lead to contrary results. The DOL’s new joint employer rule, published on April 23, 2026 (the “Proposed Rule”), however, seeks to remedy that problem by setting a common filling throughout the box: the same four Bonnette-style factors that the DOL used in its 2020 joint employer rule (the “2020 Rule”).

But this time, it is the outer coating that has changed. Having learned from the vacatur of the 2020 Rule—its last attempt at rulemaking on joint employment under the FLSA— the DOL has made a number of compromises that make the Proposed Rule less sweet and enticing (i.e., less business friendly) compared to the 2020 Rule, but perhaps more savory (i.e., more likely to be adopted by a court).

Background – The Messy Box of Chocolates that Is the Joint Employer Space

Much like a box of chocolate left out at a party, joint employer jurisprudence is a chaotic patchwork of different inquiries, tests, and factors for businesses and workers to navigate. For example, the 4th Circuit looks at whether the two putative joint employers are “completely disassociated” with one another, while the 2nd Circuit considers whether the putative joint employer has “functional control over workers.” Even where there is agreement on what test to use, different courts use different variants of factors or weigh them differently.

In 2016, the DOL issued subregulatory guidance that attempted to impose an expansive definition of joint employer status, but this guidance was rescinded in 2017. Then, in 2019, the DOL proposed a new joint employer rule, which was finalized as the 2020 Rule. The 2020 Rule adopted the analysis used in the seminal Ninth Circuit case of Bonnette v. California Health & Welfare Agency. But, in the interest of analytical clarity and certainty, it limited consideration of factors that did not bear on control, and it rejected evidence bearing on a worker’s economic dependence on the potential joint employer as irrelevant.

Eventually, on September 8, 2020, the Southern District of New York vacated the 2020 Rule in New York v. Scalia. It found that the 2020 Rule contradicted the text of the FLSA, placed too much emphasis on control in contravention of the FLSA’s more expansive “suffer or permit” language, improperly precluded consideration of economic dependence factors, and failed to adequately explain its change in prior position or to address increased costs to employers and workers.

On July 30, 2021, citing Scalia, the DOL withdrew the 2020 Rule. It did not issued a new joint employer test through notice and comment rulemaking until the Proposed Rule.

Analysis of the Proposed Rule – Filling and Coating

The Filling

For most people, the filling, whether it is nougat, caramel coconut cream, an almond, or simply milk chocolate, is the star of the show. The same is true here: most businesses and workers care about the core joint employer test. Like the 2020 Rule, the Proposed Rule codifies that there are two flavors of joint employment. The Proposed Rule proposes to codify them as: (1) vertical joint employment; and (2) horizontal joint employment.

For vertical joint employment, the Proposed Rule puts forward a test that is, at least with respect to its four primary factors, virtually identical with that promulgated by the 2020 Rule and that are largely based on Bonnette. Those factors are whether the putative joint employer:

  1. hires or fires the employee;
  2. supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. determines the employee’s rate and method of payment; and
  4. maintains the employee’s employment records.

One who bites into the Proposed Rule, however, may notice an important difference in flavor. The Proposed Rule goes on to state that “[n]o single factor is dispositive in determining joint employer status under the FLSA, as the determination will depend on all of the facts in a particular case.” By contrast, the 2020 Rule attempted to limit consideration of this kind of “all of the circumstances” analysis to those that bore on control. This appears to be a compromise by the DOL to “cure” an issue with the 2020 Rule identified by New York v. Scalia.

The Proposed Rule also readopts the supplemental clarifying provisions from the 2020 Rule, including (1) a reasonably circumscribed definition of “employment records”; (2) an acknowledgment of the primacy of actual conduct versus reserved control; (3) clarification of the role of “indirect control” and minimization of situations in which recommendations result in the direct employer making voluntary choices; and clarification of factors that are not relevant, including those that “are primarily probative of a worker’s status as an employee or independent contractor.”

Similarly, under the Proposed Rule, horizontal joint employment will be determined by a test that is nearly the same as that finalized in the 2020 Rule. The key inquiry is whether the putative joint employers are “acting independently of each other and are dissociated with respect to the employment of the employee” or whether they are “sufficiently associated with respect to the employment of the employee.” To determine whether a sufficient level of association exists, the Proposed Rule considers whether: (1) there is an arrangement between them to share the employee’s services; (2) one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer. As with the proposed test for vertical joint employment, the Proposed Rule inserts a compromise, explaining that “[s]uch a determination depends on all of the facts and circumstances.”

The Proposed Rule, again like the 2020 Rule, also clarifies the relevance of certain business models and business practices, including that:

  • Operating as a franchise or similar type of business model does not make joint employer status more or less likely;
  • Requiring a putative joint employer to satisfy legal obligations or quality control standards does not make joint employer status more or less likely;
  • The putative joint employer’s practice of providing the employer a sample employee handbook, or other forms, offering an association health or retirement plan, or any similar business practice, does not make joint employer status more or less likely.

Finally, the Proposed Rule, like the 2020 Rule, is sprinkled with examples that explain, clarify and make concrete these analyses. While, as discussed more below, these examples are organized differently, their nougaty substance is similar, other than those conformed to reflect substantive changes made to the Proposed Rule.

The Coating

Everyone has had the experience of eating two chocolates with different coatings, but much to one’s surprise, the same fillings. Here, the Proposed Rule and the 2020 Rule have similar tasting fillings, but with different coatings that fundamentally complement and change the flavor of the filling in different ways.

As mentioned above, the most important difference between the Proposed Rule and 2020 Rule is that the Proposed Rule does not seek to narrow the inquiry of “other circumstances” to those that bear on control, as the 2020 Rule did. The Proposed Rule also does not exclude—and in fact, expressly acknowledges—the relevance of “[i]ndicia of whether the employee is economically dependent on the potential joint employer,” in contrast with the 2020 Rule’s attempt to exclude such considerations.

Again, these changes are responsive to the court’s criticism in Scalia that the 2020 Rule hewed too closely to the common law test for employee status that the FLSA supposedly has rejected. By making these compromises, the DOL weakens the analytical clarity of the 2020 Rule, continuing a degree of uncertainty for businesses looking for definitive criteria to guide their decision-making. Now, extraneous facts that are not encompassed in the four factors, including those that bear on so-called “economic dependence” may potentially be relevant.  

In an attempt to cover the potential bitterness of this new coating, the DOL adds some clarification, explaining that any “additional factors” are less relevant than the four Bonnette-style factors, and that if the four Bonnette-style factors align, that outcome has a “substantial likelihood” of outweighing the additional factors. One may be forgiven for thinking that they have drawn the chocolaty form of the DOL’s Proposed Independent Contractor Test’s core-factor structure, although this is perhaps not an unwelcome surprise.

Finally, in a development that many might find sweet, the Proposed Rule has an expanded scope, as it also determines joint employer status under the FMLA and MSPA, in addition to the FLSA, whereas the 2020 Rule only covered the FLSA. Given that joint employer issues often are particularly salient for interstate operations that must undergo compliance with all of these statutes, this added uniformity will help increase clarity and certainty.

Overall, businesses and workers may find the Proposed Rule’s new coating slightly less enticing than that of the 2020 Rule. But, importantly, courts may find it more palatable, based on their interpretations of the FLSA and Supreme Court precedent interpreting the FLSA.

Aftertaste

The Proposed Rule is not a final rule. It was published in the Federal Register on April 23, 2026, and it will be open for public comment for sixty days (through June 22, 2026), after which the DOL will review public input and determine what, if any, revisions to include in a final rule. The timeline from proposed rule to final rule can take several months—and likely significantly longer—and the DOL may alter aspects of the proposal in response to comments.

As with chocolates, some courts will pick out the Proposed Rule while others will stick with their preferred flavors. Courts retain ultimate authority to determine who is or is not a joint employer, and whether any court will actually defer to the Proposed Rule—particularly in the face of binding circuit court-level precedent—is far from a certainty. And even then, those many circuit-level tests have proliferated to the analyses of many state-level statutes, which will be wholly unaffected by the Proposed Rule.

The Rule does provide certainty in at least one respect: as the DOL acknowledges in the Proposed Rule, it ensures that, for DOL enforcement personnel, there is a uniform standard being applied to determine whether joint employment relationship exists. That is, while courts may still elect to apply different tests in jurisdiction, the DOL will seek to enforce solely the test articulated in the Proposed Rule nationwide.

And ultimately, while the Proposed Rule perhaps shies further away from definitive criteria than many would have hoped, it is an improvement over the current absence of any rule. It provides an analytically clear and reasonably defensible version of the test that provides guidance for how to interpret the factors and apply them in real world situations.

By: Brett Bartlett and Noah Finkel

As the FLSA landscape continues to evolve, Seyfarth’s national Wage and Hour Litigation Practice Group is pleased to share our observations and analysis of the 2025 FLSA litigation trends as well as our forward looking predictions for 2026.

Wage and hour litigation and enforcement actions increased in 2025 compared to 2024. Private FLSA actions in federal courts increased slightly (5,702 cases versus 5,456 in 2024), and the U.S. Department of Labor recovered more back wages in 2025 than in any year since 2019. Additionally, annual PAGA filings in California remained elevated at 9,343. This elevated PAGA figure represents only a modest drop versus 2024, when filings surged leading up to the PAGA reform that took effect in June 2024. While it is difficult to surmise from the total of all filings which industries were most regularly targeted by wage and hour plaintiffs in 2025, it appears that retail, medical, and professional services firms remained at the top of the list.

The totality of these trends (elevated PAGA activity, an increase in federal FLSA filings, and a marked rise in WHD enforcement recoveries) reflects a broader re‑acceleration of wage and hour activity that had been muted in the immediate post‑pandemic years.

To access the flipbook, please click here. We hope our analysis is of assistance to you and/or your colleagues. Should you have any questions or comments, please reach out to your Seyfarth attorney.

By: Gina Gi

Seyfarth Synopsis: The reach of the FAA’s transportation worker exemption remains heavily litigated, particularly as it applies to last-mile delivery drivers. Federal circuits are currently divided on whether such drivers fall within the exemption. The U.S. Supreme Court is poised to resolve the split soon, with its decision expected to have significant ramifications.

The Federal Arbitration Act (“FAA”) provides that arbitration agreements are “valid, irrevocable, and enforceable,” subject to limited exceptions. One such exception, set forth in Section 1, excludes “contracts of employment” of any “class of workers engaged in foreign or interstate commerce”—commonly referred to as the “transportation worker exemption.” 9 U.S.C. § 1. More than a century after the FAA’s enactment, the scope of this exemption and the FAA’s reach continues to be actively litigated.

Over the past two decades, the U.S. Supreme Court has clarified the scope of this exemption through a series of key decisions. In Circuit City Stores, Inc. v. Adams (2001), the Court rejected the Ninth Circuit’s broad interpretation of Section 1 and limited the exemption to workers actually engaged in the movement of goods in interstate commerce. Later, in New Prime Inc. v. Oliveira (2019), the Court held that independent contractors may fall within the exemption. Then in Southwest Airlines Co. v. Saxon (2022), the Court found that airline ramp supervisors were exempted because they handled cargo traveling in interstate commerce. Finally, in Bissonette v. LePage Bakeries Park St., LLC (2024), the Court confirmed that workers need not be employed in the transportation industry itself to fall within the exemption.

Despite this guidance, the Supreme Court has left substantial room for lower courts to define the exemption’s boundaries. As a result, federal circuits have adopted differing analytical approaches—some focusing on whether goods and passengers are part of a continuous interstate flow, others emphasizing the class of workers’ central duties, and still others applying multifactor tests:

Focus on Flow of Goods and People as a Constituent Part of an Integrated Interstate JourneyFocus on Class of Workers and Their Central DutiesMultifactorTo Be Determined
– 1st Circuit
– 9th Circuit
– 10th Circuit		– 3rd Circuit
– 5th Circuit
– 7th Circuit
– 11th Circuit		– 8th Circuit– 2nd Circuit
– 4th Circuit
– 6th Circuit

Simultaneously over these past two decades, the modern workforce has undergone a significant shift away from traditional employment toward more flexible, on-demand labor. The rise of the gig economy has also produced a growing class of drivers responsible for transporting goods and passengers, making them an increasingly significant segment of the labor market. This shift has intensified the importance of determining which drivers fall within the transportation worker’s exemption.

Ride-Share and Food Delivery Drivers

Circuit Courts have largely reached a consensus when evaluating ride-share and app-based food delivery drivers finding that these workers generally do not qualify for the exemption.

Ride-Share Drivers:

Multiple circuits, including the First, Third, and Ninth—have concluded that ride-share drivers primarily engage in local, intrastate transportation. Even when trips occasionally cross state lines, those crossings are considered incidental rather than central to the drivers’ work. Courts consistently emphasize that the exemption applies only where interstate transportation is a defining feature of the job, not a happenstance of geography. See Capriole v. Uber, 7 F.4th 854, 865 (9th Cir. 2021) (Uber drivers have a fundamentally “intrastate transportation function”); Cunningham v. Lyft, Inc., 17 F.4th 244, 253 (1st Cir. 2021) (Lyft drivers were “primarily in the business of facilitating local, intrastate trips”); Singh v. Uber Technologies Inc., 67 F.4th 550, 560, 557 (3rd Cir. 2019) (“Uber drivers are in the business of providing local rides that sometimes – as a happenstance of geography – cross state borders” and were not a “a central part” of the job).

Food Delivery Drivers:

Similarly, courts evaluating food delivery drivers have found that their work involves distinct local transactions. Once goods arrive at local restaurants or businesses, their interstate journey is considered complete. Drivers then picking up these meals and delivering them to consumers are not participating in interstate commerce. See Immediato v. Postmates, Inc., 54 F.4th 67, 78 (1st Cir. 2022) (Postmates drivers who transported food to customers were engaged in “entirely new and separate” local transactions); Wallace v. Grubhub, 970 F.3d 798, 802 (7th Cir. 2020) (Grubhub drivers primarily delivered meals locally for customers).

The Circuit Split on Last-Mile Delivery Drivers

In contrast, courts are divided on whether “last-mile” delivery drivers—those who transport goods locally in the final leg of their journey to consumers—fall within the exemption.

Circuits Finding Exemption Applies:

The First, Ninth, and Tenth Circuits have generally concluded that last-mile drivers are exempt. These courts reason that goods transported by such drivers remain in a continuous stream of interstate commerce until they reach their final destination. Under this view, it is immaterial that the drivers themselves do not cross state lines; what matters is their role in completing an interstate journey. These courts have applied this reasoning to Amazon Flex drivers delivering packages from local warehouses, as well as drivers transporting goods from regional supply centers to local franchisees. In these cases, the goods are not deemed to have “come to rest,” but instead remain in transit as part of an integrated interstate process. See Rittmann v. Amazon.com (9th Cir. 2020) and Waithaka v. Amazon (1st Cir. 2020), cert. denied (2021) (Amazon Flex drivers making deliveries from local warehouses to customers are exempt); see also Mendoza v. Domino’s Pizza, 73 F.4th 1135 (9th Cir. 2023) (Domino’s drivers delivering pizza ingredients from local supply center to franchisees are exempt).

Circuits Rejecting Exemption:

The Fifth and Eleventh Circuits take a narrower approach, focusing on the nature of the workers’ duties rather than the broader journey of the goods. These courts hold that once goods arrive at a local warehouse and are unloaded, their interstate journey ends. Drivers who subsequently deliver those goods locally are therefore engaged in intrastate activity, even if the goods originally traveled across state lines. Under this view, the exemption applies only where workers play a “direct and necessary role” in moving goods across state or national borders—not where they simply handle goods that previously moved in interstate commerce. See Lopez v. Cintas Corp., 47 F. 4th 428 (5th Cir. 2022) (delivery driver who picked up items at local warehouse and delivered to customers locally was not exempt) and Hamrick v. Partsfleet, LLC, 1 F.4th 1337, 1350 (11th Cir. 2021) (District court erred by focusing on the goods rather than the class of workers).

The Supreme Court Is Set to Weigh in and Resolve the Issue

The Supreme Court is now poised to resolve this circuit split. In Flower Foods, Inc. v. Brock, cert granted, 146 S.Ct. 327 (Mem) (U.S. Oct. 20, 2025), the Court will review a Tenth Circuit decision holding that delivery drivers picking up goods at local warehouses that originated from out of state and delivering them to local retail stores were transportation workers. The Tenth Circuit aligned with the First and Ninth Circuits, emphasizing that the drivers were completing the final leg of an interstate journey and operated within a distribution system controlled by the national baked goods company.

A decision, expected later this year, could significantly reshape the legal landscape. If the Court rules in favor of the driver, then more last-mile drivers—particularly in the gig economy—might be brought within the exemption. This would allow them to potentially bypass mandatory arbitration agreements and pursue claims in court, including class and collective actions. For employers, such a ruling could lead to a surge of such actions that would otherwise be barred by arbitration agreements, increased litigation exposure, higher defense costs, and potentially substantial aggregate liability.

Conversely, a ruling in favor of Flowers Foods would reinforce a narrower interpretation of the exemption and curb its recent expansion. Ultimately, the Court’s decision will shape the balance between enforcement of arbitration agreements and access to courts as well as class and collective remedies for a rapidly growing segment of the workforce.

By: Dena Moghtader

Seyfarth Synopsis: In a misclassification-to-trial case, the Fifth Circuit affirmed a defense verdict because the plaintiff failed to prove the employer had actual or constructive knowledge of alleged overtime, rejected the theory that “no timekeeping system,” standing alone, creates constructive knowledge for the employer, and upheld the Fifth Circuit pattern jury instruction that employees must notify employers when working extra hours.

In this recent decision, Merritt v. Texas Farm Bureau, 166 F.4th 490 (5th Cir. 2026), the Fifth Circuit underscored that even when a plaintiff clears the classification hurdle, the overtime claim may still turn on a separate, dispositive issue: whether the employer knew, or had reason to know, the employee was working overtime.

Jerry Merritt worked for Texas Farm Bureau (“TFB”) as an Agency Manager, where he supervised a team of insurance agents and sold and renewed insurance policies. TFB classified Merritt and other Agency Managers as independent contractors. In his role, Merritt set his own work schedule, was paid by commission rather than hourly, and had no obligation to track or disclose his hours to TFB. TFB did not supervise Merritt’s hours or completion of daily tasks.

In 2019, Merritt sued TFB alleging he was misclassified and sought unpaid overtime under the FLSA. The district court ruled on summary judgment that he should have been classified as an employee, and concluded he was owed at least 816 hours of overtime. This left one issue for trial: whether TFB had actual or constructive knowledge of Merritt’s overtime work.

At trial, the jury found TFB lacked both actual and constructive knowledge of Merritt’s overtime. Merritt filed a Rule 50 motion for judgment as a matter of law and alternative Rule 59 motion to vacate and grant a new trial. The district court denied Merritt’s motions. Merritt appealed.

Fifth Circuit: It is a plaintiff’s burden to show the employer had actual or constructive knowledge that overtime was worked.

Merritt made three arguments on appeal. First, he argued that because TFB permitted him to work unlimited hours, TFB’s knowledge of his overtime work was irrelevant. The Court denied his argument and held that a plaintiff claiming entitlement to overtime pay is required to prove the employer’s actual or constructive knowledge of the overtime work.

Second, Merritt argued that TFB had constructive knowledge of the overtime because TFB made no effort to maintain a timekeeping system or to record Merritt’s time. The Court denied this argument too, reiterating that it is Merritt’s burden to show that TFB knew he worked overtime and the “absence of a timekeeping system, standing alone, does not establish constructive knowledge,” especially when the worker is not required to report hours, operates autonomously, and works off-site.

Finally, Merritt argued that the jury was given a misleading instruction that Merritt had a duty to notify TFB he was working overtime. The Court again denied this argument, holding that the jury charge was modeled after the Fifth Circuit’s pattern jury instructions, and Merritt cites no authority to support his argument that the jury charge misstates the law.

This opinion highlights some practical points:

  1. There is another hurdle in a case where classification is contested. Even if a court rules that the worker should be classified as an employee and is owed overtime hours, a plaintiff must still prove that their putative employer knew or should have known overtime was being worked.
  2. On these facts, a missing timekeeping system by itself is insufficient to show constructive knowledge, and the court declined to treat that absence as shifting the burden to the employer.
  3. Merritt reinforces the deference given to pattern-based jury charges.

Merritt reinforces that it is the obligation of a plaintiff seeking entitlement to overtime pay to show that the employer had actual or constructive knowledge of the overtime they worked.

By: Petersen D. Walrod & Kyle D. Winnick

Seyfarth Synopsis: The U.S. Department of Labor has proposed a new independent contractor rule that would guide courts, companies, and workers in their determinations of who must be paid as an employee and who can be treated as an independent contractor under the FLSA and two other statutes.

After much anticipation, the Department of Labor (DOL) has published a Proposed Rule defining independent contractors as opposed to employees under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) (the “Proposed Rule”). As expected, the Proposed Rule largely mirrors the DOL’s earlier 2021 Rule. The Proposed Rule would replace the Biden administration’s 2024 rule and is intended to provide clarity as to the definition of who is an independent contractor under the FLSA, FMLA, and MSPA. Notably, the Proposed Rule:

  • Embraces the same “core factor” approach used in the 2021 Rule, recognizing the significant weight courts give to “the right to control the manner and means by which services are performed” factor and “the opportunity-for-profit-or-loss” factor;
  • Uses the same three non-exhaustive factors as “additional guideposts,” including: the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production; and
  • Weighs key issues similarly to the 2021 Rule, including by minimizing the probative value of unexercised control; consolidating the investment and opportunity-for-profit-or-loss  factors; expressly stating that compliance with specific legal obligations, health and safety standards, customer deadlines, and insurance minimums does not demonstrate employee‑type control; and rejecting the relevance of comparing the relative investment levels of putative employers to those of workers.

Background

As explained here, the 2021 Rule was the DOL’s first-ever attempt, via rulemaking, to formally define independent contractors versus employees under the FLSA. It was issued against the backdrop of the growing gig economy and evolving work arrangements. In synthesizing decades of case law, the DOL concluded that the “core” control factor and the opportunity-for-profit-or-loss factor exerted an outsized influence on judicial outcomes. The 2021 Rule also addressed other key issues, such as minimizing the weight given to unexercised control and excluding from the analysis any control exercised solely to comply with certain laws.

Following the change in administration, however, the DOL rescinded the 2021 Rule and eventually promulgated a new rule in 2024. The 2024 Rule rejected the “core factor” framework in favor of a six‑factor test. It relied on an ambiguous totality‑of‑the‑circumstances analysis and reframed several factors in ways that increased the likelihood that workers would be classified as employees rather than independent contractors. The 2024 Rule was subsequently challenged in court, and in 2025 the DOL directed agency investigators to cease applying it and instead rely on sub-regulatory articulations of the test. 

The “Core Factor” Analysis, Restored

The Proposed Rule adopts the same “core factor” test used in the 2021 Rule: namely, that the control factor and the opportunity-for-profit-or-loss factor are the most reliable indicators of whether a worker is operating an independent business. If these two factors point in the same direction, “there is a substantial likelihood that this is the accurate classification for the individual.”

If the core factors of control and opportunity-for-profit-or-loss do not point in the same direction, the following factors should then be considered:

  • The amount of skill required for the work;
  • The degree of permanence of the working relationship between the individual and the potential employer; and
  • Whether the work is part of an integrated unit of production.

The Proposed Rule also provides that “additional factors” other than these five may be relevant but “only if the factors in some way indicate whether the individual is in business for him- or herself, as opposed to being economically dependent on the potential employer for work.”

The Proposed Rule Readopts the 2021 Rule’s Positions on Key Issues

The Proposed Rule also, like the 2021 Rule, provides guidance that clarifies grey areas for employers. These include:

  • Requirements that a worker comply with specific legal obligations; satisfy health and safety standards; carry insurance; meet contractually agreed‑upon deadlines or quality‑control standards; or adhere to similar terms are not probative of control;
  • A worker’s opportunity for profit or loss is not evaluated relative to that of the putative employer’s opportunity, and the opportunity for profit or loss need not arise from initiative or investment;
  • Clarification of the “integrated unit” factor by explaining that it concerns whether the worker is part of an integrated unit of production, and distinguishing it from the “importance or centrality” of the individual’s work to the potential employer’s business; and
  • Confirmation that actual practice is more relevant than what is theoretically or contractually possible.

This guidance also helps address specific concerns and ambiguities that the economic realities independent‑contractor test presents when applied to specific work relationships, industries, and sectors.

The Proposed Rule’s Illustrative Examples

To further provide predictability, clarity, and certainty, the Proposed Rule includes examples of how the above factors should be applied in specific circumstances. These include:

  • It is not probative for the control factor that a logistics company requires an individual who performs logistics services for it to comply with federally mandated transportation safety rules.
  • It is not probative for the opportunity-for-profit-or-loss  factor that a company that provides a software app has invested millions of dollars into the app, whereas an individual who provides services using the app has invested substantially less.
  • The skill factor weighs in favor of employee status where a roofing worker develops roofing skills on the job, but did not start with them because the business did not require them to have those skills at the start. In contrast, the skill factor weighs in favor of independent contractor status where a roofer is required to possess skills as a prerequisite to qualification for the opportunity.
  • The integrated unit factor weighs in favor of employee status where a remote newspaper editor is involved with the entire production process of the newspaper, and does the same work as newspaper employees, even though they are not physically at the newspaper’s office.
  • The integrated unit factor weighs in favor of independent contractor status where a journalist works on specific articles, and their work is separate from the newspaper’s other processes.

The DOL also adds further regulatory text explaining that the purpose of the independent contractor test is to determine whether a worker is economically dependent on an employer for “work.” This is a helpful change as it will help courts find a rationale for embracing the DOL’s proposed approach.

Takeaway

The Proposed Rule is not a final rule. The Proposed Rule was published in the Federal Register on February 27, 2026 and it will be open for public comment for sixty days (through April 28, 2026), after which the DOL will review public input and determine what, if any, revisions to include in a final rule. The timeline from proposed rule to final rule can take several months—even longer than a year—and the DOL may alter aspects of the proposal in response to comments.

Any final rule will be treated by a reviewing court as interpretive guidance. Courts retain ultimate authority to determine who is an employee and who is an independent contractor, and they give DOL interpretations such as this one Skidmore deference—that is, weight proportional to the guidance’s persuasive power. In addition, every federal circuit already applies its own standard for distinguishing independent contractors from employees, and district courts are likely to continue following circuit precedent.

Nonetheless, if finalized, the Proposed Rule will be welcome news for employers and workers, as it provides to courts the regulatory agency’s interpretation of the economic realities test, including a modern, well-balanced, clear analysis that gives greater weight to the two core factors and interprets all factors in an even-handed manner consistent with decades of case law.

Seyfarth attorneys are closely monitoring the DOL’s rulemaking in this area and are available to provide guidance on how the Proposed Rule impacts businesses and workers.

By: Noah A. Finkel and Cassandra M. Ficano

Seyfarth Synopsis: It has long been established that, to be enforceable, a release of a FLSA claim must be approved by either the Department of Labor or a court. While courts in the Second and Eleventh Circuits have consistently adhered to this precedent, in recent years, a growing number of courts in other jurisdictions like the Ninth Circuit have begun to take a different view. The U.S. District Court for the Western District of Washington can now be added to that growing list with its summary judgment decision upholding the enforcement of a private separation agreement as a valid release of FLSA claims.

In a scenario familiar to many employers, AGC Biologics Inc. (“AGC”) and former hourly employee Eufronio Lomibao voluntarily entered into a separation agreement following the termination of his employment in which Lomibao received money and job placement services in exchange for a broad release of all claims arising out of his employment. The general release explicitly accounted for any claim brought under the FLSA. The parties did not obtain, or attempt to obtain, approval from a court or the Department of Labor.

About nine months after signing that agreement, Lomibao initiated a class and collective action against AGC, claiming the company failed to compensate him for all hours worked in violation of the FLSA and Washington wage-hour law.

AGC moved for summary judgment before discovery on the basis that Plaintiff’s individual FLSA and state law claims were barred by the parties’ separation agreement. The Court agreed, granting AGC’s motion and dismissing the action in its entirety with prejudice.

Underscoring the lack of clarity on this issue, Judge John H. Chun started his analysis in Opinion and Order by noting that “caselaw regarding waiver of FLSA rights is hardly perspicuous.” Indeed, even within the Ninth Circuit, where the Western District of Washington sits, courts have diverged on whether judicial or Department of Labor approval is always required for a valid waiver of FLSA rights. Against that backdrop, Judge Chun framed his analysis around three key questions: (1) whether FLSA rights can ever be waived by contract; (2) if so, under what circumstances should an agreement waiving FLSA rights be considered valid; and (3) if the Court does not invalidate the agreement on FLSA waiver grounds, whether any genuine issues of material fact existed that would preclude summary judgment.

In addressing the first issue, Judge Chun declined to hold, as a matter of law, that an employee can never waive FLSA rights through a contractual agreement. Taking a textualist approach, he noted that neither binding precedent nor the plain language of the FLSA supports a bright-line prohibition on such waivers. In light of that absence – and mindful of “prudential concerns and other public policies,” including longstanding principles favoring the enforcement of contracts according to their terms – Judge Chun explained that he was “not inclined to recognize a categorical ban on waiver of FLSA rights via contract.”

Second, Judge Chun determined that a bona fide dispute existed between the parties at the time the separation agreement was executed regarding potential FLSA coverage and liability. He emphasized that Lomibao was aware during his employment, and, moreover, before signing the agreement that he believed AGC had failed to compensate him for all hours worked. The Court squarely rejected Lomibao’s contention that no “active dispute” existed at that time, correctly pointing out that an “active dispute” is not the applicable standard. Rather, the law requires only the existence of a bona fide dispute between the parties.

The Court acknowledged but ultimately declined to adopt the approach followed by the Eleventh and Second Circuits, which always require Department of Labor or judicial approval for any enforceable waiver of FLSA rights. Instead, having already concluded that the parties’ separation agreement was not invalid for lack of a bona fide dispute, the Court found no remaining basis on which to invalidate the release of Lomibao’s FLSA claims.

Because Lomibao challenged the validity of the separation agreement solely on legal grounds – namely, the argument that FLSA waivers require approval to be valid and enforceable – the Court found he failed to identify any genuinely disputed or missing facts suggesting the parties did not form a valid contract. Unlike the cases Lomibao cited in opposing summary judgment, it was undisputed here that he signed an agreement expressly releasing his right to bring any FLSA claim against AGC. The Court highlighted several undisputed facts underscoring the agreement’s validity: the employee had 45 days to review the agreement; he signed it after 21 days; he was advised to consult with an attorney before executing it; he did not revoke his acceptance within the seven‑day revocation period; and AGC fully performed its obligations under the agreement, including issuing the severance payment and providing job‑placement services.

Judge Chun’s decision underscores that, unlike some other circuits, the Ninth Circuit has not embraced a universal rule. Generally, the appropriate course for each employer depends on the jurisdiction and the specific factual circumstances surrounding the agreement. The most risk‑averse approach remains obtaining judicial or DOL approval for any release of FLSA claims. Many employers, however, may elect to proceed without approval – particularly in situations like this one, where it is undisputed that a valid contract was formed between the parties, the contract expressly provides for the release of FLSA claims and the jurisdiction does not have a hard-fast rule requiring approval.