When Interstate Commerce Stays In-State

The Constitution grants the federal government the exclusive authority to regulate international and interstate commerce. International commerce is easy to define: trade with another country. What is more difficult to define is the distinction between interstate and intrastate commerce. The plain meaning of the text suggests that interstate commerce is commerce that crosses state lines. However, that straightforward definition has not been applicable since the 1930s.

You may wonder why regulating trade between the states is such a significant issue. This provision of the Constitution stems from the era when the country was governed under the Articles of Confederation. Under the Articles, each state possessed the authority to regulate and tax commerce within its own borders. It quickly became apparent during the 1780s that such a system was unworkable. As a result, when the Constitution was drafted, the power to regulate interstate commerce was transferred to the federal government.

Trade among the states gradually became so interconnected that, in the 1930s, the Supreme Court ruled that commerce occurring entirely within the borders of one state could still be considered “interstate” if it had a “substantial economic effect” on interstate commerce. Consider the production of wheat, or any agricultural crop. A farmer in Iowa plants, grows, and sells a crop entirely from a farm in Iowa. Yet the farmer's purchases of seeds and equipment, as well as the sale of the crop itself, affect supply and demand in markets beyond Iowa's borders. Accordingly, the Supreme Court broadened the practical scope of what constitutes interstate commerce.

A recent Supreme Court case addressed a related question regarding the meaning of the phrase “engaged in interstate commerce.” In Flowers Foods, Inc. v. Brock, the Court considered whether workers who perform only the intrastate portion of an interstate delivery route are nonetheless engaged in interstate commerce for purposes of the Federal Arbitration Act. The Court held that workers transporting goods on an intrastate segment of an interstate journey may qualify as transportation workers engaged in interstate commerce, even if they never cross state lines themselves.

This decision may have significant implications because the transportation industry has experienced tremendous growth in “last-mile” delivery services over the past decade. Think DoorDash, Amazon, and other local delivery companies. If your burrito from Chipotle was assembled from ingredients that moved through interstate commerce—and it almost certainly was—the driver delivering that order to your door may now be considered engaged in interstate commerce for purposes of the Federal Arbitration Act.

The case arose under a federal law that exempts workers engaged in interstate commerce from compelled arbitration with their employers regarding workplace disputes. It is common for employers to include mandatory arbitration clauses in employment agreements. Indeed, many gig-based companies classify their drivers as independent contractors rather than employees. The Court's decision may significantly limit the ability of certain employers to rely on arbitration provisions when disputes arise with workers who are part of an interstate stream of commerce.

The practical result of this ruling will likely be an increase in litigation involving working conditions and employment-related disputes, as affected workers may be able to pursue claims in court rather than through mandatory arbitration.

If you have any questions about this article, or about interstate commerce liability in general, please contact Todd Knode (tknode@setlifflaw.com) at (804) 377-1277, or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.