Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.R.I.: Bakery distributor must arbitrate worker misclassification claims, (Mar 26, 2025)

By George Basharis, J.D.

Federal court grants motion to compel arbitration in case against Flowers Foods and subsidiaries, finding distributor agreement was between companies, not individual worker.

The federal district court in Providence, Rhode Island has ruled that a bakery distributor must arbitrate his claims that he was misclassified as an independent contractor rather than an employee. The court concluded that the Federal Arbitration Act (FAA) required enforcement of the arbitration agreement absent evidence to show the distributor had an employment contract with the defendants. Without establishing the existence of such a contract, the distributor could not claim the transportation worker exemption under Section 1 of the FAA and therefore had to honor his agreement to arbitrate the misclassification and wage claims rather than pursue them in court (Peltier v. Lepage Bakeries Park Street LLC, No. 1:24-cv-00452-JJM-PAS (D.R.I. Mar. 20, 2025)).

Distribution relationship. The case involves a bakery distributor who filed suit against Lepage Bakeries Park Street LLC, CK Sales Co., LLC, and Flowers Foods, Inc., alleging that the companies misclassified him as an independent contractor in violation of both Rhode Island and federal labor laws.

Flowers Foods operates as a holding company for various subsidiary bakeries, including defendant Lepage. To get its baked goods to market, Lepage employs a direct-store-delivery system, where its wholly-owned subsidiary, CK Sales, sells “distribution rights” to independent distributors who then sell and distribute Lepage’s products in defined geographic territories.

Between 2017 and 2022, the plaintiff, through his distribution company K A Peltier Distributing Inc. (KAP), purchased distribution rights from three separate Lepage distributors: BigLidBread, Inc., The Dude Inc., and Early Bird Distributing Corp. These rights allowed KAP to sell the defendants’ baked goods in two territories operating out of a warehouse in Providence, Rhode Island, although the distributor has since abandoned one territory and currently distributes only in one.

In these transactions, KAP assumed the rights and obligations under existing distributor agreements that CK Sales had entered into with the previous distributors. In two of these transactions, the plaintiff signed a separate personal guaranty in his individual capacity, committing him to guaranteeing KAP’s compliance with the terms, conditions, and obligations of the distributor agreements.

Distributor agreement requirements. The distributor agreements imposed various standards and guidelines on KAP’s operations. KAP was required to use “commercially reasonably best efforts” to maximize sales of the defendants’ products within its territories according to “Good Industry Practice,” which included actively soliciting unserved businesses, maintaining fresh product supplies, and promptly removing stale products.

KAP was prohibited from carrying “outside merchandise” that competed with the defendants’ products or noncompetitive products that interfered with distributing the defendants’ products. KAP also had to “maintain a clean and neat personal appearance consistent with the professional image customers and the public associate with [the Defendants] and customer requirements.” Additionally, KAP was required to use CK Sales’ “proprietary administrative services” for communication, collecting sales data, receiving suggested orders, and other logistical information.

However, the distributor agreements did not require KAP’s obligations to be performed personally or by any specific individual working for KAP—instead granting KAP discretion to hire any personnel necessary to fulfill its responsibilities. Despite this provision, the plaintiff personally performed the services required to distribute the products, working more than fifty hours per week, mostly driving, to distribute the goods within his territory.

The products the distributor delivered were produced in Maine, then delivered to the defendants’ Rhode Island warehouse in trucks owned and controlled by the defendants, before the plaintiff would pick them up for delivery to customer stores in his territory.

Arbitration agreement. Incorporated in one of the distributor agreements was an arbitration agreement requiring that any claims or disputes arising from or related to the parties’ distributor agreement be determined “exclusively by binding arbitration under the [FAA].” Claims covered under this agreement explicitly included allegations that the independent distributor was misclassified as an independent contractor and claims for unpaid compensation.

When the plaintiff filed his five-count suit alleging violations of the Fair Labor Standards Act and Rhode Island labor laws, the defendants moved to compel arbitration, citing this agreement.

Court’s analysis. In his opposition to arbitration, the distributor did not dispute entering into a valid arbitration agreement but argued he could not be compelled to arbitrate because he fell under the transportation worker exemption in Section 1 of the FAA, which exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the statute’s enforcement requirements.

The defendants countered with three arguments: (1) the distributor agreement between CK Sales and KAP was not “a contract of employment of workers;” (2) the plaintiff was not the type of worker Congress intended to cover under Section 1’s residual clause; and (3) the distributor was not engaged in interstate commerce in his role as an independent distributor.

The court focused primarily on the first argument, noting that whether there was a contract of employment between the plaintiff and the defendants was the dispositive inquiry. The court acknowledged this presented a matter of first impression within the First Circuit.

Drawing on recent decisions from other circuits, particularly a Ninth Circuit ruling in which the court of appeals determined that “for a contract to be a contract of employment covered by § 1, it must have a qualifying worker as one of the parties.” The Rhode Island court distinguished the bakery distributor’s case from those involving only business entity plaintiffs but ultimately concluded that neither the personal guaranty nor the arbitration agreement transformed the distributor agreement into a contract of employment.

The court found that while the plaintiff had signed a personal guaranty, this document did not mandate that he personally perform KAP’s obligations. Instead, it simply gave CK Sales the right to demand that the distributor guarantee KAP’s performance if KAP defaulted on its obligations. The court noted that “such a guarantee does not require [the plaintiff] to act jointly with KAP to perform its contracted obligations” and thus could not “reasonably be construed to be a contract of employment that governs ‘work by workers.’”

The court also rejected the distributor’s argument that being subject to the arbitration agreement made him party to the distributor agreement. The court emphasized that nothing in the distributor agreement or incorporated arbitration agreement required any one individual to personally perform KAP’s obligations. In fact, the distributor agreement explicitly stated it “does not require that DISTRIBUTOR’s obligations be conducted personally, or by any specific individual in DISTRIBUTOR’s organization.”

Contrasting Oregon federal court decision. The Rhode Island decision stands in contrast to a recent ruling from the U.S. District Court for the District of Oregon in a similar Flowers Foods case. On February 12, 2025, the Oregon court denied Flowers Foods’ attempt to compel arbitration of a delivery driver’s misclassification claims, finding that the driver, as a “last-mile” delivery person, fell within the transportation worker exception to the FAA (Porteous v. Flowers Foods, Inc., No. 6:23-cv-01840-AA (D. Or. Feb. 12, 2025)).

Unlike in the Rhode Island case, the Oregon court determined that the driver’s personal guaranty did create an employment contract, making him individually bound to ensure performance of all terms and obligations under the distributor agreement. The Oregon court found it significant that Flowers Foods maintained extensive control over the driver’s operations, including requirements for handling goods, obligations to maximize sales, and various operational restrictions.

The Oregon court also distinguished its case from the Ninth Circuit precedent that the Rhode Island court relied upon, emphasizing that the Oregon plaintiff brought claims in his individual capacity and was personally bound through the guaranty to perform the delivery work.

The Case is No. 1:24-cv-00452-JJM-PAS.

Judge: McConnell, Jr., J.

Attorneys: Benjamin C. Rudolf (Rudolf, Smith, Griffis & Ruggieri, LLP) for Ray Peltier. Frederick B. Finberg (The Bennett Law Firm, P.A.) and Michael E. Monti (Sayer Regan & Thayer, LLP) for Lepage Bakeries Park Street, LLC, CK Sales Co., LLC and Flowers Foods, Inc.

Companies: Lepage Bakeries Park Street, LLC; CK Sales Co., LLC; Flowers Foods, Inc.

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