PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: James Underwood, Lead Associate, and Devon Archer, Working Associate, Calderwood & Harkness LLP
TO: Bernard Crawford, Responsible Partner, Labor & Employment, Calderwood & Harkness LLP
DATE: May 15, 2025
RE: Enforceability of Arbitration Clause and Collective Action Waiver in ICOA v3.0 — Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.)
CLIENT: Stonefield Logistics Group Inc. ("SLG" or "Stonefield")
MATTER NO.: 1012-00004
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I. Executive Summary
This memorandum analyzes the enforceability of the mandatory arbitration clause and class/collective action waiver contained in Version 3.0 of Stonefield Logistics Group Inc.'s Independent Contractor Operating Agreement ("ICOA v3.0"), a January 2023 revision executed by approximately 640 of the 1,187 drivers encompassed by the proposed collective action in Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.). The purpose of this analysis is to assess whether SLG should move to compel individual arbitration for those 640 drivers and, if so, to identify the legal risks and strategic considerations bearing on that decision.
Bottom-Line Conclusion. The arbitration clause and collective action waiver contained in ICOA v3.0 are likely enforceable under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1–16, and controlling United States Supreme Court and Fifth Circuit precedent, including Granite Harbor Systems. v. Lewis, 584 U.S. 497 (2018). The Supreme Court has squarely held that arbitration agreements containing class and collective action waivers are enforceable under the FAA, even in the employment and worker-engagement context, and that the National Labor Relations Act does not create a non-waivable right to collective litigation that would override the FAA. The ICOA v3.0 arbitration clause is well-drafted, contains clear and unambiguous language requiring individual arbitration and expressly waiving participation in class, collective, or representative proceedings, and includes structural features — such as a 30-day opt-out window, a cost-splitting provision favorable to drivers, and a severability clause — that further bolster its enforceability.
The most significant risk to enforceability is the FAA § 1 transportation worker exemption, which excludes from FAA coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1. Following the Supreme Court's decisions in New Prime Inc. v. Oliveira, 586 U.S. 105 (2019), and Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), there is a developing body of case law addressing whether last-mile delivery drivers fall within this exemption. We assess this risk as unlikely to result in the invalidation of the arbitration clause for the majority of SLG's driver population, but it presents a non-trivial litigation risk, particularly for the subset of drivers who perform cross-state-line regional freight services. The Fifth Circuit has not squarely addressed this question in the last-mile delivery context, which introduces some uncertainty.
Strategic Implication. If a motion to compel individual arbitration is granted as to the approximately 640 ICOA v3.0 signatories, those drivers would be removed from the proposed FLSA collective action. The proposed collective would be reduced from 1,187 drivers to approximately 547 drivers (those who signed only ICOA v1.0 or v2.0, neither of which contained an arbitration clause). This reduction would correspondingly decrease collective-wide damages exposure from approximately $73,958,409.00 (inclusive of liquidated damages under 29 U.S.C. § 216(b)) to approximately $34,100,000.00 — a reduction of approximately $39.8 million.
Note Regarding Named Plaintiff. Named plaintiff Marcus Delano signed ICOA v1.0 in March 2021, which did not contain an arbitration clause or collective action waiver. Accordingly, a motion to compel arbitration would not apply to Delano personally. The motion would apply to opt-in plaintiffs who executed ICOA v3.0. Delano would remain as the named plaintiff and could continue to prosecute the collective action on behalf of the non-v3.0 drivers, and his individual claims would proceed in federal court regardless of the outcome of any motion to compel.
II. Background and Factual Context
A. The Independent Contractor Operating Agreement — Evolution
Stonefield Logistics Group Inc. is a regional logistics and last-mile delivery company headquartered in Fort Worth, Texas, operating 14 distribution hubs across four states (Texas, Oklahoma, Louisiana, and Arkansas). SLG engages delivery drivers as independent contractors under its Independent Contractor Operating Agreement ("ICOA"), which has undergone three principal revisions since its inception.
ICOA v1.0 (2018). The original ICOA template was drafted in 2018 by Pennfield & Daye LLP, a Fort Worth-based employment and business counsel firm retained by SLG at that time. Version 1.0 was designed to establish the independent contractor relationship and set forth the principal terms of the driver's engagement with SLG. Notably, ICOA v1.0 did not contain any arbitration clause or class/collective action waiver. The agreement classified drivers as independent contractors and included, among other things, the following key operational provisions: (a) a per-delivery payment structure ranging from $14.50 to $38.00 per delivery depending on distance, package weight, and delivery type (standard, regional, or white-glove); (b) requirements that drivers display SLG branding on their vehicles and wear SLG-branded uniforms while performing deliveries; (c) mandatory use of SLG's proprietary GPS tracking and dispatch software, RouteSync; (d) a dispatch obligation requiring drivers to accept deliveries routed through RouteSync; (e) an 85% minimum acceptance rate for dispatched deliveries; and (f) a 12-month, 50-mile non-compete provision restricting drivers from performing similar delivery services for competing logistics companies within a 50-mile radius of any SLG hub at which the driver was assigned during the 12 months following termination of the agreement. ICOA v1.0 was signed by all drivers onboarded from 2018 through approximately mid-2020.
ICOA v2.0 (August 2020). Version 2.0 of the ICOA was introduced in August 2020. This revision included minor amendments to certain operational terms, including adjustments to the per-delivery payment tiers, updated insurance requirements, and revised vehicle maintenance standards. However, ICOA v2.0 did not add an arbitration clause or collective action waiver. The dispute resolution provisions in v2.0 remained substantially unchanged from v1.0, providing only for litigation in the courts of Tarrant County, Texas, or the United States District Court for the Northern District of Texas, Fort Worth Division, with Texas law governing the agreement. Drivers onboarded from mid-2020 through December 2022 signed ICOA v2.0, as did certain earlier drivers who were asked to re-execute when v2.0 was rolled out.
ICOA v3.0 (January 2023). The most recent and currently operative version of the ICOA was introduced in January 2023. ICOA v3.0 represented a material revision to the agreement's dispute resolution framework. The centerpiece addition was a mandatory individual arbitration clause and an express class/collective action waiver. The arbitration clause was drafted by our firm's Dallas office in late 2022, following consultation with SLG's General Counsel, Margaret Hollis, and was incorporated into the broader v3.0 revision. In addition to the arbitration provisions (detailed in Section II.B below), v3.0 included a delegation clause assigning threshold questions of arbitrability — including questions regarding the scope, validity, and enforceability of the arbitration clause — to the arbitrator rather than the court. All drivers onboarded from January 2023 forward were required to sign ICOA v3.0 as a condition of engagement. Additionally, existing drivers who had previously signed v1.0 or v2.0 were presented with ICOA v3.0 and informed that continued engagement with SLG required execution of the updated agreement. Approximately 640 total drivers signed ICOA v3.0 during the period relevant to this litigation (April 30, 2022, to the present), including both newly onboarded drivers and existing drivers who transitioned from earlier versions.
B. Relevant Provisions of ICOA v3.0 Arbitration Clause
The arbitration clause in ICOA v3.0, appearing at Section 14 of the agreement, includes the following material provisions:
Mandatory Binding Arbitration. All disputes, claims, or controversies arising out of or relating to the ICOA, the driver's engagement with SLG, or the termination thereof, including but not limited to claims for unpaid compensation, wage-and-hour violations, misclassification, breach of contract, and tort claims, shall be resolved exclusively through final and binding arbitration. Section 14.1.
Individual Arbitration Only; Class/Collective Action Waiver. All arbitration shall be conducted on an individual basis only. The driver expressly waives any right to participate in, initiate, or be a member of any class action, collective action, or representative action, including but not limited to collective actions under Section 216(b) of the Fair Labor Standards Act, 29 U.S.C. § 216(b), and any representative actions under state law. The driver agrees that claims against SLG may be brought only in the driver's individual capacity and not as a plaintiff or class member in any purported class, collective, or representative proceeding. Section 14.2.
Arbitration Administration. Arbitration shall be administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules then in effect, or, if the AAA is unavailable or declines to administer the arbitration, by a mutually agreed-upon alternative arbitration provider. If the parties cannot agree on an alternative provider, the court shall appoint one. Section 14.3.
Delegation Clause. Any question regarding the scope, validity, enforceability, or applicability of this arbitration provision, including whether a particular dispute is subject to arbitration and whether this arbitration provision is enforceable, shall be determined by the arbitrator and not by any court. This delegation of arbitrability questions to the arbitrator shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1–16. Section 14.4.
Governing Law. This arbitration provision shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1–16. Texas substantive law shall apply to the interpretation and construction of the ICOA, including this Section 14, to the extent not preempted by the FAA. Section 14.5.
Venue. Arbitration shall take place in the county in which the driver's assigned SLG distribution hub is located, unless the parties mutually agree to an alternative location. Section 14.6.
Cost-Splitting Provision. SLG shall pay all arbitrator fees and administrative costs associated with the arbitration. Each party shall bear its own attorneys' fees and costs, unless otherwise provided by applicable statute or the arbitrator determines that an award of attorneys' fees is appropriate under applicable law. Section 14.7.
30-Day Opt-Out Window. A driver may opt out of the arbitration provision by providing written notice to SLG's Driver Relations Department within thirty (30) calendar days of the driver's execution of the ICOA. Opt-out notice must be in writing, signed by the driver, and delivered by certified mail, email, or hand delivery to the designated SLG address. A driver who timely exercises the opt-out right shall not be subject to this arbitration provision but shall remain bound by all other terms of the ICOA. Records maintained by SLG indicate a negligible opt-out rate. Section 14.8.
Severability. If any portion of this arbitration provision is found to be unenforceable, the remainder of the provision shall remain in full force and effect. Specifically, if the class/collective action waiver set forth in Section 14.2 is found to be unenforceable with respect to a particular claim or category of claims, the remainder of the arbitration provision shall continue to apply, and such claim or claims shall be severed from the arbitration and may proceed in court. Section 14.9.
Survival. The obligations under this arbitration provision shall survive the expiration or termination of the ICOA for any reason. Section 14.10.
These provisions, taken together, establish a comprehensive arbitration framework that is consistent with, and in many respects modeled on, the types of arbitration clauses that the Supreme Court and the Fifth Circuit have upheld as enforceable.
C. Parties Affected
A motion to compel individual arbitration would apply only to drivers who executed ICOA v3.0 and did not exercise the 30-day opt-out right. Based on preliminary information provided by SLG's Driver Relations Department (Karen Lund, Director), approximately 640 drivers signed ICOA v3.0 during the relevant period of April 30, 2022, to the present. This figure includes both drivers who were newly onboarded under v3.0 beginning in January 2023 and existing drivers who transitioned from ICOA v1.0 or v2.0 to v3.0 as a condition of continued engagement.
Named plaintiff Marcus Delano signed ICOA v1.0 in March 2021, when he was onboarded as a delivery driver at SLG's Arlington, Texas hub. He did not subsequently execute ICOA v3.0. As a result, no arbitration clause applies to Delano, and he cannot be compelled to arbitrate his individual claims or his role as the named representative of the proposed collective.
If arbitration is compelled for the approximately 640 v3.0 signatories, the remaining proposed collective would consist of approximately 547 drivers — those who signed only ICOA v1.0 or ICOA v2.0, neither of which contained an arbitration clause. These 547 drivers would remain eligible to participate in the FLSA collective action, and Delano would continue to serve as the named plaintiff.
III. Legal Analysis
A. Federal Arbitration Act — General Framework
The Federal Arbitration Act, 9 U.S.C. §§ 1–16, enacted in 1925, establishes a strong federal policy favoring the enforcement of arbitration agreements. Section 2 of the FAA provides the statute's foundational command:
"A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.
This provision reflects a congressional determination that arbitration agreements are to be placed on an "equal footing with other contracts" and enforced according to their terms. Camberwell Enterprises Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). Courts may not "single out" arbitration agreements for disfavored treatment, nor may they apply state-law rules that, while facially neutral, have a disproportionate impact on arbitration clauses. Id. at 341–43. The FAA's saving clause — "save upon such grounds as exist at law or in equity for the revocation of any contract" — preserves generally applicable contract defenses such as fraud, duress, and unconscionability, but only insofar as those defenses are applied evenhandedly to all contracts and not weaponized as a backdoor mechanism for invalidating arbitration agreements specifically. Id.
The Supreme Court has repeatedly and emphatically reaffirmed the robust enforceability of arbitration agreements under the FAA. In Concepcion, the Court held that the FAA preempted California's Discover Bank rule, which had effectively rendered class action waivers in consumer arbitration agreements unconscionable as a matter of state law. 563 U.S. at 352. In Halcyon Corporation v. Italian Colors Restaurant, 570 U.S. 228 (2013), the Court held that a class action waiver in an arbitration agreement was enforceable even where the cost of individually arbitrating a federal statutory claim exceeded the potential recovery, rejecting the argument that the "effective vindication" doctrine required invalidation of the waiver. Id. at 235–36. And in Granite Harbor Systems. v. Lewis, 584 U.S. 497 (2018), the Court held that arbitration agreements containing class and collective action waivers are enforceable in the worker context, as discussed in detail in Section III.B below.
Within the Fifth Circuit, the federal policy favoring arbitration is well-established and consistently applied. The Fifth Circuit instructs district courts to resolve doubts regarding the scope of an arbitration agreement in favor of arbitration, Pedcor Mgmt. Co. v. Nations Pers. of Tex., Inc., 343 F.3d 355, 358 (5th Cir. 2003), and to compel arbitration unless the party opposing arbitration demonstrates that the agreement is not valid or that the dispute falls outside the agreement's scope. Against this legal backdrop, the ICOA v3.0 arbitration clause benefits from a strong presumption of enforceability.
B. Granite Harbor Systems. v. Lewis — Collective Action Waivers in Arbitration Agreements
The most directly controlling authority on the enforceability of the collective action waiver in ICOA v3.0 is Granite Harbor Systems. v. Lewis, 584 U.S. 497 (2018). In Ridgeway Services Inc., the Supreme Court consolidated three cases involving arbitration agreements between employers and employees that required individualized arbitration and waived the right to participate in class or collective proceedings. The employees in those cases argued that the NLRA, 29 U.S.C. §§ 151–169, guaranteed them a substantive right to engage in "concerted activities" — including collective litigation — that could not be waived through an arbitration agreement. The employees contended that the NLRA created an irreconcilable conflict with the FAA, and that the NLRA's protections should prevail.
The Court rejected this argument in a 5-4 decision authored by Justice Gorsuch. The Court held as follows:
First, the FAA requires courts to enforce arbitration agreements according to their terms, including terms providing for individualized arbitration and waiving class or collective proceedings. The statute's saving clause preserves only generally applicable contract defenses, not defenses derived from other federal statutes that would effectively prohibit arbitration on an individualized basis. 584 U.S. at 507–10.
Second, the NLRA's reference to "concerted activities" in Section 7 does not encompass a right to collective litigation that would override the FAA. The NLRA's "concerted activities" language focuses on the right to organize unions and bargain collectively — it does not create a non-waivable right to pursue claims through class or collective action procedures. Id. at 512–18.
Third, even if the NLRA's "concerted activities" language were ambiguous as to whether it encompassed a right to collective litigation, the canon of statutory interpretation requiring harmonization of conflicting statutes would lead the Court to conclude that the FAA and the NLRA can coexist — the FAA governs the enforceability of arbitration agreements, and the NLRA governs labor organizing and collective bargaining. Id. at 518–21.
The holding of Ridgeway Services Inc. is directly applicable to FLSA § 216(b) collective actions. The Court expressly addressed the FLSA collective action mechanism in its analysis, noting that the employees in one of the consolidated cases (Penrose Firth CPAs LLP v. Morris) had brought their claims under the FLSA. The Court held that the FLSA's collective action provision, like the NLRA's "concerted activities" protection, does not override the FAA or create a non-waivable right to collective litigation that would invalidate an arbitration agreement's collective action waiver. Id. at 520–21.
The ICOA v3.0 collective action waiver mirrors — indeed, is deliberately modeled on — the type of waiver upheld in Ridgeway Services Inc.. The waiver is clear and unambiguous, it expressly references FLSA § 216(b) collective actions by statute number, and it requires all disputes to be resolved on an individual basis through binding arbitration. Under Ridgeway Services Inc., this waiver is enforceable as a matter of federal law.
The Fifth Circuit has followed Ridgeway Services Inc. consistently in the years since its issuance. Prior Fifth Circuit precedent in the D.R. Horton line of cases — in which the NLRB had found that class and collective action waivers in arbitration agreements violated the NLRA, and the Fifth Circuit had partially upheld that finding — has been superseded by Ridgeway Services Inc.. See D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). Post-Ridgeway Services Inc., the Fifth Circuit has enforced class and collective action waivers in arbitration agreements without qualification. See, e.g., Swain v. BNSF Ry. Co., 17-10013, 2018 WL 6061798 (5th Cir. Nov. 20, 2018) (per curiam) (vacating and remanding in light of Ridgeway Services Inc.).
Assessment: There is a strong basis for enforceability of the ICOA v3.0 collective action waiver under Ridgeway Services Inc.. Plaintiff's counsel at Hartwell & Brashear will have difficulty distinguishing Ridgeway Services Inc. on its facts or its reasoning, and the Fifth Circuit's consistent application of the decision provides additional support. We assess the risk that the collective action waiver will be found unenforceable under Ridgeway Services Inc. as low.
C. Lamps Plus, Inc. v. Varela — Ambiguity in Arbitration Agreements
In Lamps Plus, Inc. v. Varela, 587 U.S. 176 (2019), the Supreme Court held that ambiguous arbitration agreements cannot be construed to authorize class-wide arbitration. The Court reasoned that because class arbitration "sacrifices the principal advantage of arbitration — its informality — and makes the process slower, more costly, and more likely to generate procedural morass than final judgment," id. at 184 (quoting Concepcion, 563 U.S. at 348), consent to class arbitration must be clear and unambiguous. Courts may not rely on state-law rules of contract interpretation — such as the contra proferentem doctrine — to infer consent to class arbitration from ambiguous contractual language. Id. at 185–87.
Lamps Plus is relevant to the present analysis insofar as it forecloses any argument that the ICOA v3.0 arbitration clause could be interpreted to permit class or collective arbitration. The v3.0 clause is entirely unambiguous: it requires individual arbitration, expressly waives class and collective proceedings (including FLSA § 216(b) collective actions), and does not contain any language that could be construed as authorizing class-wide or collective arbitration. Even if the clause contained ambiguity — which it does not — Lamps Plus would prevent a court from reading such ambiguity in favor of class or collective proceedings. This holding supports SLG's position and eliminates any risk that a court might impose class or collective arbitration as an alternative to individual arbitration.
Assessment: Lamps Plus reinforces the enforceability of the individual arbitration requirement. There is no risk of court-imposed class or collective arbitration under ICOA v3.0.
D. FAA § 1 Transportation Worker Exemption — Primary Risk Factor
The FAA § 1 transportation worker exemption represents the most significant challenge to the enforceability of the ICOA v3.0 arbitration clause. We address this issue in detail because it is the area where plaintiff's counsel is most likely to mount a credible challenge and where the outcome is least certain.
1. Statutory Text
Section 1 of the FAA provides, in relevant part:
"[N]othing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1.
If SLG's drivers are found to constitute a "class of workers engaged in foreign or interstate commerce" within the meaning of this provision, the FAA would not apply to the ICOA, and the arbitration clause would be unenforceable under federal law. The clause might still be enforceable under state arbitration law — specifically, the Texas General Arbitration Act, Tex. Civ. Prac. & Rem. Code ch. 171 — but state law may provide a less favorable framework for enforcement, particularly with respect to the collective action waiver.
2. Supreme Court Guidance — New Prime Inc. v. Oliveira (2019) and Southwest Airlines Co. v. Saxon (2022)
Two recent Supreme Court decisions provide the governing framework for analyzing the § 1 exemption.
New Prime Inc. v. Oliveira, 586 U.S. 105 (2019). In New Prime, the Court addressed whether the § 1 exemption applies only to formal employment contracts or also to independent contractor agreements. The petitioner, a trucking company, argued that the statutory phrase "contracts of employment" should be limited to contracts creating an employer-employee relationship, and that independent contractor agreements were therefore outside the scope of the exemption. The Court unanimously rejected this argument, holding that the word "employment" in § 1 is used in its older, broader sense — meaning "work" or "engagement" — and encompasses agreements with independent contractors as well as traditional employees. Id. at 116–17. Accordingly, the § 1 exemption is not limited to employment contracts in the modern, narrower sense of that term; it extends to any contract for work performed by a class of workers engaged in interstate commerce, regardless of whether the workers are classified as employees or independent contractors.
This holding is directly relevant to the present case. SLG classifies its drivers as independent contractors, and the ICOA is styled as an independent contractor agreement. Under New Prime, the independent contractor classification does not insulate the ICOA from the § 1 exemption. The relevant question is whether the drivers are a "class of workers engaged in foreign or interstate commerce," regardless of their classification as employees or independent contractors.
Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022). In Saxon, the Court addressed the scope of the phrase "class of workers engaged in foreign or interstate commerce." The respondent, Latrice Saxon, was a ramp supervisor for Southwest Airlines who loaded and unloaded cargo from aircraft at Chicago's Midway Airport. Southwest argued that Saxon was not exempt under § 1 because she did not work in the transportation industry in the traditional sense — she did not pilot aircraft, navigate ships, or drive trucks across state lines. The Court rejected this argument, holding that the exemption covers workers who are "actively engaged in the transportation of goods across borders," even if they do not personally cross state lines in the course of their work. Id. at 458–59. The Court emphasized that the relevant inquiry is whether the worker "frequently load[s] and unload[s] cargo" or otherwise plays "a direct and necessary role in the free flow of goods across borders." Id. at 460. Because Saxon physically loaded and unloaded cargo from aircraft that traveled in interstate commerce, she was within the § 1 exemption.
At the same time, the Court in Saxon reiterated the foundational principle from Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001), that the § 1 exemption is to be construed narrowly. The exemption is limited to "transportation workers" — workers who are themselves actively engaged in the physical transportation of goods or passengers in interstate commerce. Circuit City, 532 U.S. at 119. It does not extend to all workers who, in some attenuated sense, "touch" or "affect" interstate commerce. The Court in Saxon expressly declined to address the precise outer boundaries of the exemption, noting that "we do not attempt to plot the exact boundary" of the phrase "engaged in . . . interstate commerce." 596 U.S. at 462.
3. Application to SLG Drivers
The question whether SLG's drivers fall within the § 1 exemption requires a factual analysis of the nature of the work they perform and its connection to interstate commerce.
Nature of SLG's Operations. SLG provides three principal categories of delivery services: (a) last-mile delivery, in which drivers pick up packages from SLG distribution hubs and deliver them to end consumers at residential or commercial addresses; (b) regional freight, in which drivers transport larger shipments between SLG hubs or between SLG hubs and client warehouse facilities; and (c) white-glove delivery, in which drivers perform specialized delivery and installation services for large or high-value items (appliances, furniture, and similar products). SLG operates 14 distribution hubs across four states: nine in Texas, two in Oklahoma, two in Louisiana, and one in Arkansas. The majority of SLG's delivery volume consists of last-mile deliveries performed within the geographic service territory of a single hub.
Arguments That the Exemption Applies. Plaintiff's counsel at Hartwell & Brashear will likely argue that SLG's drivers fall within the § 1 exemption on the following grounds:
(a) Drivers transport goods, including goods that moved in interstate commerce before reaching SLG's hubs. SLG's distribution hubs receive shipments from national retailers, e-commerce companies, and manufacturers, many of which originate from out of state. Drivers who pick up these goods and deliver them to end consumers are, in a sense, completing the final leg of an interstate supply chain.
(b) Regional freight services involve cross-state-line transportation. A subset of SLG drivers performs regional freight services that involve transporting goods between SLG hubs in different states — for example, from Dallas, Texas, to Tulsa, Oklahoma, or from Shreveport, Louisiana, to Texarkana, Texas. These drivers physically cross state lines in the course of their work, which brings them squarely within the type of interstate transportation activity contemplated by § 1 and Saxon.
(c) Some last-mile drivers may cross state lines. Certain SLG hubs are located near state borders. For example, the Shreveport, Louisiana, hub serves delivery territories that extend into northeastern Texas, and the Texarkana hub straddles the Texas-Arkansas border. Drivers assigned to these hubs may regularly cross state lines in performing routine deliveries.
Arguments That the Exemption Does Not Apply. SLG has strong counterarguments:
(a) Last-mile delivery drivers are the final link in a supply chain, not interstate transportation workers. The Supreme Court and lower courts have drawn a distinction between workers who themselves move goods across state lines and workers who handle goods that have previously moved in interstate commerce. In Saxon, the Court emphasized that the ramp supervisor was "actively engaged in the transportation of goods across borders" because she was loading and unloading cargo directly onto and off of aircraft that physically traveled in interstate commerce. 596 U.S. at 460. A last-mile delivery driver who picks up a package from a local hub and delivers it to a nearby residential address is not engaged in the "transportation of goods across borders" — the interstate transportation has already been completed by the time the goods arrive at the SLG hub.
(b) The Fifth Circuit has not squarely addressed the application of § 1 to last-mile delivery drivers. While this leaves some uncertainty, it also means there is no binding precedent requiring the exemption to apply.
(c) The majority of SLG drivers operate intrastate. Based on SLG's operational data, the vast majority of deliveries performed by SLG drivers are local, intrastate deliveries within the geographic service territory of a single hub. Most drivers never cross state lines in the course of their engagement with SLG. The ICOA defines the driver's service territory by reference to the assigned hub, typically within a defined radius (generally 75 miles), and most deliveries fall well within that radius and within a single state.
(d) Post-Saxon lower court holdings. Following Saxon, a number of district and circuit courts have addressed whether last-mile delivery drivers fall within the § 1 exemption. The emerging consensus — though it is by no means uniform — is that last-mile delivery drivers who operate locally and do not themselves transport goods across state lines do not fall within the exemption, even if the goods they deliver previously moved in interstate commerce. See, e.g., Carmona v. Domino's Pizza, LLC, No. 21-cv-01429, 2023 WL 2552943 (C.D. Cal. Mar. 16, 2023) (holding that pizza delivery drivers were not within § 1 because they did not transport goods across state lines); Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024) (addressing a related question and clarifying that the exemption does not require workers to be employed by a company in the transportation industry, but did not resolve the last-mile question). Courts have generally reasoned that the § 1 exemption targets workers who perform the actual work of interstate transportation — truckers, pilots, seamen, railroad workers, and those who directly load and unload goods onto interstate conveyances — not workers who are merely the last link in a chain of commerce.
Risk Assessment. We believe the better reading of current law supports the conclusion that the § 1 exemption does not apply to the majority of SLG's last-mile delivery drivers. Most of these drivers perform purely local deliveries within a single state, do not cross state lines, and are not themselves "engaged in . . . interstate commerce" within the narrow meaning of § 1 as interpreted by Circuit City, Saxon, and the lower courts. However, we identify the following areas of non-trivial risk:
(a) The subset of SLG drivers who perform cross-state-line regional freight services have a stronger claim to the § 1 exemption. These drivers physically transport goods across state borders, which aligns more closely with the type of activity the Court in Saxon identified as falling within the exemption. If the court focuses on this subset, it may find that at least some SLG drivers are exempt, which could create complications for a blanket motion to compel.
(b) The Fifth Circuit has not issued a definitive ruling on the application of § 1 to last-mile delivery drivers. Until the Fifth Circuit addresses this question directly, there is uncertainty regarding how a district court in the Northern District of Texas would rule.
(c) The factual record regarding which SLG drivers cross state lines, how frequently, and in what capacity, is not yet fully developed. The court may order an evidentiary hearing or limited discovery on this question, which would add time and cost to the proceedings.
Mitigation. Even if the FAA is found inapplicable under the § 1 exemption, the arbitration clause may still be enforceable under the Texas General Arbitration Act ("TAA"), Tex. Civ. Prac. & Rem. Code ch. 171. The TAA provides for the enforcement of arbitration agreements in a manner broadly similar to the FAA, and Texas courts have generally applied the TAA to enforce arbitration clauses in contexts where the FAA does not reach. However, the TAA does not carry the same level of federal preemptive force as the FAA, and it is less clear whether Texas state law would enforce a collective action waiver in the FLSA context with the same vigor as the FAA and Ridgeway Services Inc.. This is a secondary area of risk that would need to be analyzed further if the § 1 exemption argument gains traction.
E. Unconscionability Under Texas Law
Because the ICOA v3.0 specifies Texas substantive law for contract interpretation purposes (Section 14.5), any unconscionability challenge to the arbitration clause would be evaluated under Texas law. Texas courts apply a two-pronged unconscionability analysis, considering both procedural and substantive unconscionability. Both prongs must be present for a contract or contractual provision to be declared unconscionable, though Texas courts employ a "sliding scale" approach — a greater showing of substantive unconscionability requires a lesser showing of procedural unconscionability, and vice versa. In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008).
1. Procedural Unconscionability
Procedural unconscionability concerns the circumstances surrounding the formation of the contract — specifically, whether the manner in which the agreement was presented deprived one party of a meaningful opportunity to understand and negotiate its terms. Factors relevant to procedural unconscionability include the relative bargaining power of the parties, whether the contract was presented on a take-it-or-leave-it basis (i.e., as a contract of adhesion), the sophistication and education of the parties, and whether the terms were conspicuous and comprehensible.
Potential Arguments by Plaintiff. Plaintiff's counsel will likely argue that the ICOA v3.0 arbitration clause is procedurally unconscionable on the following grounds:
(a) ICOA v3.0 was presented to drivers on a take-it-or-leave-it basis — drivers were informed that continued engagement with SLG required execution of the updated agreement, with no opportunity to negotiate the arbitration terms. This is the hallmark of an adhesion contract.
(b) Drivers had significantly unequal bargaining power relative to SLG, a mid-market logistics company backed by institutional private equity capital (Ridgepoint Capital). Individual drivers, many of whom are sole proprietors operating a single delivery vehicle, had no practical ability to negotiate contract terms with a company of SLG's size and sophistication.
(c) Some SLG drivers may have limited English proficiency or limited formal education, which could have impeded their understanding of the arbitration clause and collective action waiver.
Counterarguments. These arguments, while facially plausible, are unlikely to succeed under Texas law for several reasons:
(a) Adhesion contracts are routine in commercial life and are regularly enforced by Texas courts. The mere fact that a contract is offered on a take-it-or-leave-it basis does not render it unconscionable. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 679 (Tex. 2006). Virtually every form contract — including insurance policies, employment agreements, and consumer contracts — is, in some sense, a contract of adhesion. Texas courts have consistently rejected the argument that the adhesive nature of an arbitration agreement is, standing alone, sufficient to render it unconscionable.
(b) ICOA v3.0 included a 30-day opt-out window (Section 14.8), which provided drivers with a meaningful opportunity to decline the arbitration provision while remaining bound by the other terms of the agreement. The existence of an opt-out mechanism is a significant factor weighing against a finding of procedural unconscionability, as it demonstrates that the driver had a genuine choice whether to accept the arbitration terms. See Carey v. 24 Hour Fitness USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012) (noting that an opt-out provision is relevant to the voluntariness of an arbitration agreement).
(c) Drivers had the practical option to decline the v3.0 revision and discontinue their engagement with SLG. While this option may not have been attractive to drivers who depended on SLG for their livelihood, Texas law does not require employers (or contracting parties) to ensure that the non-contracting party has alternative sources of income or opportunity as a prerequisite to enforcing an arbitration agreement.
(d) The arbitration clause in ICOA v3.0 is written in clear, conspicuous language. It is set forth in a standalone section (Section 14) with a boldface heading ("BINDING ARBITRATION AND WAIVER OF CLASS/COLLECTIVE PROCEEDINGS"), and the key provisions — including the collective action waiver — are drafted in plain English that is readily comprehensible to a layperson. The clause is not buried in fine print or concealed within unrelated contractual provisions.
Assessment: The procedural unconscionability argument is weak under Texas law. The combination of the 30-day opt-out window, the clear and conspicuous drafting of the clause, and Texas courts' well-established reluctance to find adhesion contracts unconscionable makes it unlikely that a court would find procedural unconscionability sufficient to invalidate the arbitration clause.
2. Substantive Unconscionability
Substantive unconscionability concerns the terms of the contract themselves — specifically, whether the challenged terms are so one-sided, oppressive, or unreasonably favorable to one party as to be unconscionable.
Potential Arguments by Plaintiff. Plaintiff's counsel may argue that the ICOA v3.0 arbitration clause is substantively unconscionable on the following grounds:
(a) The collective action waiver effectively precludes the vindication of small-dollar FLSA claims. Under the "effective vindication" doctrine, an arbitration clause may be found unenforceable if it prevents the claimant from effectively vindicating a federal statutory right — for example, by imposing prohibitive costs or procedural barriers that make it economically irrational to pursue a claim individually. Plaintiff may argue that by waiving the right to collective action, SLG has effectively precluded drivers from pursuing overtime claims that are too small to justify individual litigation or arbitration.
(b) The non-compete clause (Section 11 of the ICOA), when combined with the arbitration clause, creates an unduly restrictive set of contractual terms that, taken together, reflect an overall imbalance of power and one-sidedness.
Counterarguments. These arguments are also unlikely to succeed:
(a) The Supreme Court largely foreclosed effective vindication arguments in the arbitration context in Halcyon Corporation v. Italian Colors Restaurant, 570 U.S. 228 (2013). The Court in Italian Colors held that the effective vindication doctrine does not invalidate a class action waiver merely because the cost of individually pursuing a claim exceeds the potential recovery. Id. at 235–36. The doctrine is limited to cases where an arbitration clause operates as a "prospective waiver" of a party's right to pursue a statutory remedy — for example, by filing prohibitive fees that prevent access to the arbitral forum altogether. Id. at 236. Moreover, the per-driver damages in this case are not trivially small. Based on SLG's own internal calculations and the damages analysis prepared by our team, the average per-driver overtime claim over the relevant period is approximately $31,153.50 (before liquidated damages). At this level of per-driver exposure, it cannot credibly be argued that individual arbitration is economically irrational or that the collective action waiver effectively precludes vindication of the drivers' claims.
(b) The FLSA provides for mandatory attorneys' fee-shifting to prevailing plaintiffs. 29 U.S.C. § 216(b). This fee-shifting provision operates in individual arbitration as well as in collective litigation, and it provides a significant economic incentive for attorneys to represent individual drivers in arbitration. The availability of fee-shifting further undermines any effective vindication argument.
(c) The cost-splitting provision in ICOA v3.0 (Section 14.7) is favorable to drivers: SLG bears all arbitrator fees and administrative costs. Drivers are not required to share in the cost of the arbitral forum, which eliminates any argument that the cost of accessing arbitration is itself unconscionable or preclusive.
(d) The presence of a non-compete clause in the same agreement does not render the arbitration clause substantively unconscionable. Texas courts analyze each contractual provision on its own terms and do not aggregate unrelated provisions to create a composite unconscionability finding. If the non-compete clause is itself unenforceable (a question not addressed in this memorandum), that would be a separate contractual challenge — it would not infect the independently enforceable arbitration clause.
Assessment: The substantive unconscionability argument is weak. The per-driver damages are substantial enough to support individual claims, fee-shifting is available, and the cost-splitting provision is driver-favorable. There is a very low likelihood that a Texas court would find the arbitration clause substantively unconscionable.
F. Adequacy of Consideration
Under Texas law, an arbitration agreement, like any contract, must be supported by adequate consideration. The question of consideration is particularly relevant with respect to existing drivers who transitioned from ICOA v1.0 or v2.0 to ICOA v3.0, because the v3.0 revision imposed a new obligation (mandatory arbitration) on drivers who had previously been engaged under agreements that did not include such an obligation.
General Rule. Texas courts have consistently held that mutual promises to arbitrate constitute sufficient consideration for an arbitration agreement. When both parties agree to submit disputes to binding arbitration, each party's promise to arbitrate serves as consideration for the other party's corresponding promise. In re Halliburton Co., 80 S.W.3d 566, 569–70 (Tex. 2002). This principle applies regardless of whether the arbitration agreement is a standalone document or a provision embedded within a broader contract.
Application to ICOA v3.0. The ICOA v3.0 arbitration clause contains mutual obligations: the driver agrees to arbitrate all disputes arising out of the ICOA or the engagement, and SLG likewise agrees to arbitrate such disputes. SLG does not reserve the right to litigate claims in court while requiring the driver to arbitrate; the obligation is bilateral and reciprocal. Under In re Halliburton and its progeny, these mutual promises provide adequate consideration.
Additionally, for existing drivers who transitioned from v1.0 or v2.0 to v3.0, the consideration analysis is further supported by the fact that the v3.0 revision included updated contractual terms governing the operational relationship — including revised payment tiers, updated insurance requirements, and modified vehicle standards — in addition to the arbitration clause. The driver's agreement to the full package of v3.0 terms, including the arbitration clause, in exchange for SLG's agreement to continue the engagement relationship and to be bound by its own v3.0 obligations, constitutes adequate consideration under Texas law.
Potential Challenge. A driver might argue that the v3.0 revision lacked independent consideration beyond continued engagement — i.e., that the driver received nothing new in exchange for accepting the arbitration obligation, and that the mere continuation of an at-will engagement relationship is insufficient consideration for a new contractual term. However, Texas courts have rejected this argument in the arbitration context. In In re Halliburton, the Texas Supreme Court held that an arbitration agreement supported by mutual promises to arbitrate is enforceable even in the at-will employment context, where the employer could theoretically terminate the employment relationship at any time. Id. at 569–70. The court reasoned that mutual promises to arbitrate are sufficient consideration standing alone, independent of the broader employment or engagement relationship.
Assessment: Adequate consideration exists for the ICOA v3.0 arbitration clause, including for drivers who transitioned from earlier versions. This argument is unlikely to succeed as a basis for invalidating the arbitration clause.
G. Delegation Clause
ICOA v3.0 contains a delegation clause (Section 14.4) that assigns threshold questions of arbitrability — including questions regarding the scope, validity, and enforceability of the arbitration provision — to the arbitrator rather than the court. Delegation clauses are distinct from the underlying arbitration agreement and are analyzed as a separate, severable agreement to arbitrate the question of arbitrability itself. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010).
In Rent-A-Center, the Supreme Court held that a delegation clause is enforceable unless the opposing party specifically challenges the delegation clause itself — as opposed to the arbitration agreement as a whole. Id. at 72. If the opposing party challenges only the enforceability of the arbitration agreement generally (for example, on unconscionability grounds), the court must enforce the delegation clause and refer the enforceability challenge to the arbitrator. Only if the opposing party articulates a challenge that targets the delegation clause specifically — arguing, for instance, that the delegation clause itself is unconscionable or was procured by fraud — may the court consider the challenge rather than referring it to the arbitrator. Id. at 72–73.
Strategic Significance. The delegation clause significantly strengthens SLG's position. If Hartwell & Brashear challenges the enforceability of the ICOA v3.0 arbitration clause on unconscionability or other grounds but fails to specifically challenge the delegation clause, the court should enforce the delegation clause and refer the enforceability question to the arbitrator. The arbitrator, rather than the court, would then determine whether the arbitration clause is enforceable — and arbitrators have historically been more favorably inclined toward enforcement of arbitration agreements than courts.
To avoid this result, plaintiff would need to articulate a specific challenge to the delegation clause itself. This is a procedural hurdle that many plaintiffs' counsel fail to clear, either because they are unfamiliar with the Rent-A-Center framework or because they focus their arguments on the arbitration agreement as a whole without separately addressing the delegation provision. In any motion to compel, we should prominently invoke the delegation clause and argue that the court must enforce it unless the plaintiff has specifically and independently challenged its validity.
Assessment: The delegation clause is a valuable procedural tool that strengthens SLG's position and should be aggressively invoked in any motion to compel. The risk that the delegation clause itself will be successfully challenged is low.
H. Interaction with FLSA § 216(b)
Section 216(b) of the FLSA provides that an action to recover unpaid overtime or minimum wages "may be maintained against any employer . . . by any one or more employees for and in behalf of himself or themselves and other employees similarly situated." 29 U.S.C. § 216(b). Plaintiff will undoubtedly argue that § 216(b) creates a substantive, non-waivable right to collective action that cannot be overridden by an arbitration agreement.
This argument was directly addressed and rejected by the Supreme Court in Ridgeway Services Inc.. As discussed in Section III.B, the Court held that the FLSA's collective action mechanism is a procedural device for the efficient resolution of individual claims — it is not a substantive right that overrides the FAA's command to enforce arbitration agreements according to their terms. 584 U.S. at 520–21. A collective action waiver in an arbitration agreement does not "waive" a substantive right; it simply channels the resolution of the underlying claims into an individual arbitral forum rather than a collective judicial forum. The underlying substantive rights — the right to overtime pay, the right to minimum wages, the right to liquidated damages — remain fully available to the driver in individual arbitration.
The Fifth Circuit has consistently applied Ridgeway Services Inc. in the FLSA context and has compelled individual arbitration of FLSA overtime claims where the arbitration agreement contains a valid collective action waiver. There is no independent FLSA bar to enforcement of the collective action waiver in ICOA v3.0.
Assessment: This argument has been definitively foreclosed by Ridgeway Services Inc. and is very unlikely to succeed in the Fifth Circuit.
IV. Applicability Analysis — Which Drivers Are Subject to Arbitration
A motion to compel individual arbitration would apply only to the subset of drivers in the proposed collective who executed ICOA v3.0 and did not exercise the 30-day opt-out right. Based on the information available to date, the applicability analysis is as follows:
ICOA v3.0 Signatories. Approximately 640 drivers signed ICOA v3.0 during the period relevant to this litigation (April 30, 2022, to the present). These drivers are subject to the arbitration clause and collective action waiver, and SLG may move to compel individual arbitration of their claims.
Non-v3.0 Drivers. Approximately 547 drivers signed only ICOA v1.0 or ICOA v2.0, neither of which contained an arbitration clause or collective action waiver. These drivers cannot be compelled to arbitrate and would remain in the proposed collective action.
Named Plaintiff Marcus Delano. Delano signed ICOA v1.0 in March 2021. He did not execute ICOA v3.0. Accordingly, the arbitration clause does not apply to him, and he would continue to serve as the named plaintiff in the collective action with respect to the non-v3.0 drivers.
Verification Required. Before filing a motion to compel, several factual matters must be confirmed through a thorough audit of SLG's records:
(a) Precise count of v3.0 signatories. The approximate figure of 640 drivers is based on preliminary information from Karen Lund, Director of Driver Relations. This figure must be verified through a comprehensive review of SLG's driver onboarding and contract management records to confirm which drivers executed v3.0, the date of execution, and whether all signatures are authentic and properly documented.
(b) Opt-out exercises. Although SLG's records indicate a "negligible" opt-out rate, the precise number of drivers who exercised the 30-day opt-out right must be confirmed. Any driver who timely exercised the opt-out would not be subject to the arbitration clause, even if they otherwise signed v3.0.
(c) Drivers with multiple ICOA versions. Some drivers who were originally onboarded under v1.0 or v2.0 may have subsequently signed v3.0 as part of the transition process. If any such driver has both an older ICOA (without arbitration) and a v3.0 ICOA (with arbitration), we must confirm that the v3.0 superseded the earlier version and that there is no contractual ambiguity regarding which version governs.
(d) Rollout irregularities. Lisa Cheng (SLG's Director of Compliance) should audit the v3.0 rollout process to identify any irregularities — for example, drivers who may have been asked to sign v3.0 retroactively, drivers whose signatures may have been obtained without proper presentation of the agreement, or hubs where the rollout process deviated from the company's standard protocol.
These verification steps are essential to ensuring that any motion to compel is supported by a clean factual record and that the number of drivers subject to the arbitration clause is accurately identified.
V. Risk Assessment Summary
The following table summarizes the key legal risks to the enforceability of the ICOA v3.0 arbitration clause and collective action waiver:
Overall Enforceability Assessment: The ICOA v3.0 arbitration clause and collective action waiver are likely enforceable for the approximately 640 ICOA v3.0 signatories. The FAA § 1 transportation worker exemption is the principal area of litigation risk, but we believe the better reading of current law supports the conclusion that the exemption does not apply to the majority of SLG's drivers. The remaining legal challenges — unconscionability, adequacy of consideration, delegation clause, and FLSA override — are individually and collectively weak and are unlikely to succeed.
VI. Recommendations
A. Next Steps — Factual Development
We recommend the following immediate steps to develop the factual record necessary to support a motion to compel individual arbitration:
1. Audit SLG records. Coordinate with Karen Lund (Director, Driver Relations) and Lisa Cheng (Director, Compliance) to conduct a comprehensive audit of SLG's driver contract records. The audit should confirm: (a) the precise number of drivers who executed ICOA v3.0 during the relevant period; (b) the date of execution for each v3.0 signatory; (c) the number of drivers who exercised the 30-day opt-out right; (d) any irregularities in the v3.0 rollout process, including missing or incomplete signatures, retroactive dating, or deviation from SLG's standard onboarding protocol; and (e) whether any drivers signed both an earlier version of the ICOA and v3.0, and whether v3.0 properly superseded the earlier version.
2. Identify cross-state-line drivers. Working with SLG's operations team, identify the subset of drivers who perform cross-state-line regional freight services (as opposed to purely intrastate last-mile deliveries). This subset is more vulnerable to the FAA § 1 exemption argument, and we may need to develop a differentiated strategy for these drivers. We should obtain RouteSync dispatch data, hub assignment records, and delivery territory maps to document each driver's actual delivery patterns and determine whether and how frequently each driver crossed state lines.
3. Obtain Pennfield & Daye files. Request from SLG copies of all files maintained by Pennfield & Daye LLP relating to the drafting and rollout of ICOA v3.0, including internal memoranda, email correspondence, and any analysis performed by Pennfield & Daye regarding the enforceability of the arbitration clause, the 30-day opt-out provision, and the consideration supporting the v3.0 revision. These materials may contain information relevant to the enforceability analysis and should be reviewed for any admissions or vulnerabilities.
4. Review rollout communications. Obtain copies of all communications sent to drivers in connection with the v3.0 rollout — including emails, text messages, written notices, and any materials distributed at hub-level meetings. These communications will be relevant to the procedural unconscionability analysis, as they will demonstrate whether drivers were given adequate notice and explanation of the new arbitration provision and the 30-day opt-out right.
B. Strategic Considerations for Motion to Compel
The decision whether and when to file a motion to compel individual arbitration involves several strategic considerations that extend beyond the enforceability analysis presented in this memorandum:
1. Timing. We are preparing a separate memorandum (due June 10, 2025) addressing the optimal timing for filing a motion to compel. The principal strategic question is whether to file the motion before, concurrent with, or after the court's ruling on conditional certification of the FLSA collective. Filing before conditional certification may allow SLG to reduce the size of the proposed collective before opt-in notices are sent, but it may also signal SLG's litigation strategy prematurely. Filing after conditional certification would allow SLG to respond to the actual composition of the collective but would require additional briefing and could be seen as dilatory. The timing analysis will be addressed in detail in the forthcoming memorandum.
2. Residual collective action. It is important to recognize that even a fully successful motion to compel would not eliminate the collective action. Named plaintiff Marcus Delano and the approximately 547 non-v3.0 drive