Introduction. In Nathaniel Silva et al v. Schmidt Baking Distribution, LLC and Schmidt Baking Com-pany, Inc., ____ F.4th ____, 2025 U.S. App. LEXIS 33347 (2nd Cir. Dec. 22, 2025), the United States Court of Appeals for the Second Circuit addressed the question of the scope and breadth of Section 1 of the Federal Arbitration Act.

Background. Two commercial truck drivers were hired by a baked goods company. They were hired through a staffing agency and initially designated as “W-2” employees. The entity hiring them then indicated that as a condition of their continuing to get work, they would each be required to create a corporation, designating themselves as “president” of each such entity, and “distributors” in their relationship with the baked goods company. The entity hiring them went on to require that in their capacity as president of each of these new corporate entities, they would be required to sign distributor agreements which contained mandatory arbitration clauses.

Lawsuit Claim. Unhappy with their compensation structure, the drivers filed a proposed collective action in state court alleging wage and hour violations, contending that paperwork creating corporate entities did not really change their status as individual truck drivers. The baked goods company removed the case to federal court and then moved to compel arbitration. The District Court granted the motion under the FAA, concluding that no exemption applied to preclude enforcement of the arbitration agreements in question. The drivers filed an interlocutory appeal of this Order, contending that they were exempt from arbitration on the basis of Section 1 of the FAA.

Issues Presented. Whether the District Court erred in compelling arbitration based upon the plain-tiffs’ potential status as exempt under FAA §1.

Judicial Analysis. FAA §1 provides an exception to the ability of a party to compel arbitration by excepting “contracts of employment of seaman, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In this case, the Second Circuit focused upon whether the contracts eventually signed by the baked goods company and the “single-employee corporation delivery driver individuals” constituted a “contract of employment” under Section 1.

As a starting point, the Silva Court turned its attention to the recent Supreme Court decision in New Prime, Inc. v. Oliveira, 586 U.S. 105 (2019). Oliveira involved a wage and hour claim by a truck driver against a trucking company that had labelled him as an independent contractor. The Supreme Court determined that the contract in question fell within the scope of the Section 1 exemption.

Gleaning from the Oliveira decision the Supreme Court’s admonition to examine the Congressional intent in adopting the Section 1 exemption, the Second Circuit determined that regardless of the fact that the truck drivers signed the agreements in question as presidents of their respective corporations rather than in their individual capacities, the proper interpretation of Section 1 was that its exemption applied to this situation, precluding the baked goods company from enforcing the contractual arbi-tration clauses in question.

Conclusion. The Silva decision highlights the significance of the demarcation effected by FAA Sec-tion 1 establishing an exemption from arbitration of claims involving employees masquerading as corporate business agreements.

¹ Mr. Schooler is a former member of the Board of the CIArb North America Branch, and the immediate Past Chair of the Texas Chapter.