In the recently published opinion in Betanco v. Living Spaces Furniture, LLC, the First District Court of Appeal confirmed that a last-mile delivery driver can qualify as a “transportation worker” exempt from the Federal Arbitration Act even where the sale was retail and the delivery never left California. The First District’s inquiry turned on whether the driver remained part of the continuous movement of goods in interstate commerce from origin through delivery. Because the furniture never left that stream, even after a brief pause at a distribution center, his arbitration agreement fell outside the FAA under 9 U.S.C. section 1.

Living Spaces sells furniture manufactured both inside and outside California, some of it from Mexico, and maintains distribution centers in Rialto and Fremont. When a customer selects delivery rather than pickup, Living Spaces contracts with third-party providers such as Of Service Transportation, which engaged Luis Betanco as a driver. Betanco signed a 2019 independent contractor agreement with an FAA-governed arbitration clause and a class and representative action waiver. After his relationship with Of Service ended in 2021, he filed a wage-and-hour class action and a separate PAGA action against Of Service and Living Spaces, and the defendants later moved to compel arbitration of both cases and to dismiss Betanco’s non-individual PAGA claims under Viking River Cruises, Inc. v. Moriana.

The trial court found the arbitration agreement enforceable generally, including against Living Spaces on an equitable estoppel theory (since he alleged that he was an employee of the company and was working as its agent), but agreed that Betanco was a transportation worker outside the FAA’s coverage. Applying state law instead, the court declined to strike the class waiver under Gentry v. Superior Court, but held that Betanco’s core wage claims could still proceed in court under Labor Code section 229, a California law which allows an individual to maintain a lawsuit for the collection of due and unpaid wages without regard to the existence of any private agreement to arbitrate, but which would otherwise be preempted by the FAA. It sent his expense reimbursement, wage statement, and unfair competition claims to arbitration along with his individual PAGA claim, but denied dismissal of his non-individual PAGA claims under Adolph v. Uber Technologies, Inc., staying those claims pending arbitration.

On appeal, the Court of Appeal rejected the argument that Betanco’s deliveries were too local and too retail to qualify for the exemption. Applying Circuit City Stores v. Adams and the Supreme Court’s recent decision in Flowers Foods, Inc. v. Brock, the court found that furniture remains in the stream of interstate commerce from the outset of its shipment to a specific class of California customers, and does not “come to rest” merely because it pauses at a distribution center before the last-mile driver picks it up – drawing on Rittmann v. Amazon.com’s reasoning that goods held briefly at a fulfillment center remain part of a single continuous interstate transaction. The fact the last mile delivery was triggered by a final retail sale at the local level was irrelevant.

As to the issue of PAGA standing, Living Spaces argued that because all of its delivery contractors had signed similar arbitration agreements, no representative PAGA claim should survive on behalf of the broader workforce. The court rejected that argument under Adolph., which holds that compelling a plaintiff’s individual PAGA claim to arbitration does not strip standing to pursue non-individual claims in court, since a PAGA action is a dispute between the employer and the state rather than a private class action. That other employees also arbitrated their individual claims did not change Betanco’s own standing as an aggrieved employee.

For employers running a delivery program through independent contractors, Betanco materially strengthens the argument that last-mile delivery workers can fall within section 1 where the goods’ interstate journey is still ongoing – regardless of how briefly they pause at a distribution center or whether the ultimate sale is retail or wholesale. Betanco follows the same reasoning as Villalobos v. Maersk, Inc. decided last year, and together the two cases suggest that delivery and logistics employers should consider whether their California workforce falls within section 1 before assuming their arbitration agreements are FAA-governed. Employers should also make sure such agreements can stand on their own under the California Arbitration Act and Gentry, since a PAGA claim compelled to individual arbitration will not, by itself, defeat other employees’ standing to pursue the balance of the claim in court.

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