Labor & Employment Law Daily Wrap Up, ARBITRATION—9th Cir.: District court erred in compelling arbitration without deciding applicability of state or federal law, (Jun 10, 2026)

By Todd Harrison, J.D.

“…no federal court of appeals decision supports the district court’s refusal to specify whether it compelled arbitration pursuant to federal or state law.”

Granting a request for a writ of mandamus ordering a district court to decide on the basis for arbitration and whether the FAA or state law should apply, the Ninth Circuit found that three of the five Bauman factors for granting a writ were met, including the commitment of a clear error of law by the district court. New Prime Inc. v. Oliveira held that the district court, not an arbitrator, must decide whether the contracts of employment exclusion in 9 U.S.C. § 1 applies to an agreement before ordering arbitration. 586 U.S. 105 (2019). In compelling arbitration of the plaintiff’s individual claims without deciding whether the FAA or state law applies, the district court improperly delegated the FAA Section 1 exclusion question to the arbitrator (Orr v. United Parcel Service, Inc., No. 25-2330 (9th Cir. June 9, 2026)).

The plaintiff in this case worked as a seasonal support driver for UPS in late 2023. This is a temporary position where drivers support deliveries in areas with increased holiday volume. The employee soon found herself bereft of delivery routes, despite making repeated inquiries for available work.

Lawsuit. Subsequently, the employee filed suit, alleging five state-law claims against UPS, several claims on behalf of three putative classes, and one claim under PAGA. UPS filed a motion to compel arbitration based on an arbitration agreement the employee had entered into with the company.

Granting UPS’s motion, the district court ordered the employee to arbitrate her individual claims consistent with the agreement while staying litigation of the class claims pending resolution of the arbitration. The district court held that it “need not decide” whether the FAA or state law governed the agreement because the “result is the same” under either statute.

In response, the employee filed a motion for clarification requesting the district court clarify the intended scope of its order. She maintained that the order compelling arbitration was flawed, contending that the district court must decide for itself whether the agreement falls within an exemption to the FAA as described in 9 U.S.C. § 1. The district court denied the motion, leading the employee to petition the Ninth Circuit for a writ of mandamus.

Clear error. First, the court applied the factors as set forth under Bauman in considering whether to grant the employee’s petition, beginning with whether the district court’s order was clearly erroneous as a matter of law. Answering this question in the affirmative, the appellate court noted that the district court refused to determine whether the FAA or state law governed arbitration in this matter.

In compelling arbitration without stating the basis for its authority to do so, thus sidestepping whether the FAA’s contracts of employment exclusion applied, the order compelling arbitration was “clearly erroneous,” said the court.

Choice-of-law provision. There were two particular reasons for finding error on the part of the district court. The first was the fact that the agreement’s terms made it necessary for the district court to decide whether the FAA applied. A choice-of-law provision provided that the FAA would govern unless the FAA “does not apply to a particular dispute or to one or both parties.”

This provision indicated the parties’ expectation that the FAA will control absent a ruling to the contrary and thus suggests that, as a contractual matter, the issue of the FAA’s applicability should be decided before ordering arbitration. The court noted that although the agreement did not dictate who should decide whether the FAA applies, New Prime does.

“By compelling arbitration of [the employee’s] individual claims without deciding whether the FAA or state law applies, the district court improperly delegated the FAA § 1 exclusion question to the arbitrator,” said the court.

Laws are not identical. Second, the court observed that whether the FAA or state law should apply was not merely a technical question. The laws are not identical, explained the court, and differed in ways that might be relevant to this case. As a result, without any district court determination of the governing law, the arbitrator, when evaluating the threshold issues of the agreement’s enforceability and arbitrability, will need to decide in the first instance whether the FAA governs.

Several of the employee’s claims, including those falling under Section 229 of the California Labor Code, might be litigable in court if the agreement falls within a Section 1 exemption. The agreement’s delegation clause requires the arbitrator, not the court, to decide in the first instance whether Section 229 applies to the employee’s claims “for the collection of due and unpaid wages.”

“Because section 229 cannot apply if the FAA does, the arbitrator will have to decide whether the § 1 exemption applies if the district court does not. New Prime forbids that result,” said the court.

State law alternative. Nonetheless, UPS insisted that, because there was an alternative state arbitration law under which arbitration may proceed, New Prime should not govern because that case only concerned compelled arbitration under the FAA. The court was not persuaded.

UPS cited to several district court cases in support of its argument but cited to no instance in which a federal court of appeals has declined before compelling arbitration to select the legal basis for its authority to do so. “Notably,” observed the court, “no federal court of appeals that has addressed this set of circumstances has permitted district courts wholly to abstain from addressing the FAA § 1 exclusion question before compelling arbitration solely because an alternative state law might also provide for arbitration.”

Although the approaches of the court’s sister circuits to the issues presently before the court varied to some degree, “no federal court of appeals decision supports the district court’s refusal to specify whether it compelled arbitration pursuant to federal or state law,” said the court, finding no reason to depart from well-established consensus.

Alternative adequate remedy. Turning to the Bauman factor of whether an alternative adequate remedy existed, the court noted that although the FAA authorizes a discretionary interlocutory appeal from an order granting a motion to compel arbitration, it had concluded in an earlier case that the order compelling arbitration was not a final decision subject to ordinary appeal under 28 U.S.C. § 1291, and thus exercised its mandamus jurisdiction to review it. Following that reasoning here, the court found that as no contemporaneous ordinary appeal of the district court’s order was available to the employee, the first Bauman factor was also met.

Uncorrectable prejudice. Finally, the court considered the second Bauman factor, that of prejudice not correctable on appeal. First, the court found that uncorrectable prejudice stemmed from the district court’s refusal to specify the source of authority for its order compelling arbitration. The improper delegation to the arbitrator on the question of whether the FAA or state law should apply distorted the judiciary’s role in determining the applicable law and prejudiced the employee, who should not be subject to arbitration based on the erroneous delegation of judicial authority, explained the court.

Second, continued the court, because the outcome in arbitration could depend on whether the FAA or state law applies, the employee faced prejudice uncorrectable on appeal if she were to proceed to arbitration without the district court’s determination of that issue. Thus, the employee satisfied the second Bauman factor.

As to the remaining Bauman factors, the court found the fourth factor, oft-repeated error, did not matter for the result reached in this case. The final factor, an issue of first impression, was not met.

Based on the employee’s sufficient showing as to the first three Bauman factors, including the factor of clear legal error, the court found mandamus relief appropriate, and directed the district court to determine the appropriate statutory basis for its authority to compel arbitration.

The case is No. 25-2330.

Judge: Berzon, M.

Attorneys: Vladmir J. Kozina (Mayall Hurley) for Rebecca Orr. Elizabeth A. Falcone (Ogletree Deakins) for United Parcel Service, Inc.

Companies: United Parcel Service, Inc.

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