Could Your Arbitration Agreement Be Unenforceable Because Your Employees Are "Transportation Workers"?

The California Court of Appeal has issued a new decision, Doss v. Tesla, Inc. (June 11, 2026), holding that "yard hostlers"—workers who move 53-foot trailers of auto parts entirely within the grounds of Tesla's Fremont factory—are "transportation workers" exempt from the Federal Arbitration Act (FAA).

The decision matters to any California employer whose workers handle goods shipped from out of state, even if those workers never leave company property. When the FAA does not apply, California rules that are otherwise preempted—including Labor Code section 229 can defeat or limit an arbitration agreement.

If you have questions regarding the Doss decision or would like to review your company's arbitration agreements, please contact the ILS legal team at contact@consultils.com.

What This Update Covers

The Court of Appeal addressed four issues:

• Whether on-site workers who handle out-of-state goods are exempt "transportation workers" under FAA section 1

• Which wage claims Labor Code section 229 allows employees to litigate in court despite an arbitration agreement

Can Employees Who Never Leave Company Property Be Exempt "Transportation Workers"?

The FAA generally requires courts to enforce arbitration agreements, but section 1 exempts the employment contracts of "transportation workers" engaged in foreign or interstate commerce. Tesla argued its yard hostlers could not qualify: they worked only within the factory grounds, never crossed state lines, and moved parts that had already arrived at their final destination.

The Court of Appeal disagreed. The yard hostlers drove tractor trucks to move and position trailers—still loaded with parts shipped from out of state—so the trailers could be unloaded at the warehouse. Following the U.S. Supreme Court's decisions in Southwest Airlines Co. v. Saxon (2022) and Flowers Foods, Inc. v. Brock (2026), the court focused on the actual work performed and held that this preparatory work was a direct and necessary step in completing the goods' interstate journey. Because the trailers themselves were instrumentalities of interstate commerce that had crossed state lines, the interstate movement had not ended when the hostlers took over.

The court emphasized that its holding is fact-specific and does not convert every mailroom employee or package handler into a transportation worker. But the practical consequence is significant: because the FAA did not apply, the arbitration agreement was governed by California law alone, without FAA preemption.

Employer takeaway: Employers should identify roles that involve moving or handling goods still in their interstate journey—drivers, warehouse workers, and yard or dock personnel—and assess whether their arbitration agreements would survive under California law if the FAA does not apply.

Key Legal Reasoning

The Fourth Circuit upheld the jury’s decision and made the takeaway clear: WARN Act responsibility isn’t determined by what your org chart says—it’s determined by how your companies function day to day. If affiliated entities operate like a single, integrated business, the court may treat them as one employer for WARN purposes.

To assess “single employer” status, courts commonly weigh practical indicators such as:

• Common ownership (same parent/owners)

• Overlapping leadership (shared officers/directors or management)

• Real control over employment decisions (who actually decides hiring, firing, layoffs, scheduling)

• Centralized HR/policies (shared HR systems, handbooks, benefits, discipline practices)

• Operational interdependence (shared resources and coordinated operations)

In this case, the evidence pointed strongly toward integration—such as shared office space, common management, employees and equipment moving between entities, and a unified payroll system—so the court concluded the group operated as one employer under WARN.

Employer Implications

• WARN risk can “travel” across a corporate group: Even if only one entity executes a layoff, affiliated companies may still be pulled into WARN responsibility if the group operates as a single, integrated business.

• Courts focus on how things work in real life—not what the org chart says: Formal separation won’t help much if day-to-day operations are intertwined.

• Red flags that increase single-employer risk include:

  • Centralized HR or shared policies

  • A unified payroll/benefits system

  • Overlapping executives or decision-makers

  • Employees, equipment, or resources routinely shared across entities

  • Closely linked operations (one entity can’t function without the other)

• Also check state law early: Many states have mini-WARN rules that can be stricter than federal WARN—with lower thresholds, longer notice periods, or different triggering events.

If a Class Waiver Is Invalid, Is the Entire Arbitration Agreement Lost?

The answer is: not necessarily.

The Court of Appeal held the trial court erred in refusing to sever the invalid class waiver, reiterating the strong preference under California law to sever offending terms and enforce the remainder of an agreement. The mere presence of a class waiver does not show the agreement is "permeated" by unconscionability or part of an illegal scheme.

That said, the court did not order the agreement enforced. Because the plaintiff had raised additional unconscionability challenges the trial court never decided, the case was remanded for a determination of whether the agreement as a whole is unconscionable.

Employer takeaway: A well-drafted arbitration agreement can often survive the loss of a single provision, but stacking one-sided terms invites a finding that the entire agreement is unenforceable. Agreements should be reviewed to minimize provisions vulnerable to unconscionability challenges.

Key Takeaways

Doss v. Tesla extends the FAA's transportation worker exemption to employees who handle interstate goods entirely on their employer's premises. For those workers, California law governs arbitration agreements without FAA preemption.

Employers in manufacturing, logistics, warehousing, and distribution should review both their job classifications and their arbitration agreements in light of this decision.

If you have questions regarding the Doss decision or would like to review your company's arbitration agreements, please contact the ILS legal team at contact@consultils.com.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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As Managing Partner at ILS, Richard Liu ranks among the leading U.S. attorneys in corporate, employment, and regulatory law. He is known for crafting legal strategies aligned with clients’ business objectives and advising Fortune 500 companies, startups, and executives on corporate transactions, financing, privacy, and employment matters across the technology, healthcare, and financial sectors.

Before founding ILS, Richard practiced at top defense firms, where he developed a reputation for anticipating risks and designing strategies that balance protection with growth. He has secured favorable outcomes in contract and intellectual property disputes, represented clients in state and federal courts, and is recognized for combining large-firm expertise with boutique-firm agility. Richard is also a frequent speaker at industry and legal conferences.

Email: contact@consultils.com | Phone: 626-344-8949

Harry is a litigation associate focusing on employment disputes—including single-plaintiff claims and wage-and-hour class actions—as well as commercial litigation. He represents clients in both federal and state courts and has experience drafting pre-trial briefs, discovery motions, and other key filings.

He developed a strong foundation in public-service and pro bono work during law school, including experience with a state attorney general’s office and nonprofit legal organizations. Known for careful case preparation and sharp issue-spotting, Harry brings a practical, strategy-driven approach to helping clients navigate complex disputes.

Email:  contact@consultils.com | Phone: 626-344-8949