Court Enforces Arbitration Agreement Against Railcar Repairman in Wage-and-Hour Class Action
When employees sign arbitration agreements, the enforceability of those agreements often turns on whether the Federal Arbitration Act applies. That question can become more complicated when the worker’s job touches transportation, railroads, shipping, or interstate commerce.
In Vela v. Harbor Rail Services of California, Inc., the California Court of Appeal addressed that issue in a wage-and-hour class action brought by a railcar repairman. The employee argued he was exempt from the Federal Arbitration Act because he was either a “railroad employee” or a transportation worker engaged in interstate commerce. If he was right, California law might have allowed him to avoid arbitration for some wage claims and challenge the class action waiver in his agreement. If he was wrong, the FAA applied, and the arbitration agreement, including the class waiver, would be enforced.
The Court of Appeal sided with the employer. It held that the worker did not fall within the FAA exemption and affirmed the order striking his class claims. The court also treated the appeal from the order compelling arbitration as a writ petition and denied it.
The Employment Relationship and Arbitration Agreement
Harbor Rail Services of California, Inc. hired Arturo Vela as a rail freight car repairman in May 2021 and terminated his employment in October 2021. Before he began work, Vela signed a mutual arbitration agreement. The agreement required arbitration of claims arising from his employment or its termination and included a waiver of class, collective, and representative claims, with an exception for claims that could not lawfully be waived.
In October 2023, Vela sued Harbor in Los Angeles County Superior Court. He alleged wage-and-hour violations under the California Labor Code, including unpaid overtime, unpaid meal and rest period premiums, unpaid minimum wages, failure to timely pay final wages, noncompliant wage statements, failure to reimburse business expenses, and a related Unfair Competition Law claim. He brought the case both individually and as a proposed class action. He did not bring a representative PAGA claim.
Harbor moved to compel Vela’s individual claims to arbitration and to dismiss or strike the class claims based on the class action waiver. Harbor argued the agreement was enforceable under the FAA. Vela opposed the motion, arguing he fell within the FAA’s exemption for certain transportation and railroad workers.
Did the Federal Arbitration Act Preempt California Law?
The FAA generally makes arbitration agreements enforceable. But section 1 of the FAA exempts “contracts of employment” of seamen, railroad employees, and “any other class of workers engaged in foreign or interstate commerce.” Courts have interpreted that last category to mean transportation workers engaged in interstate or foreign commerce.
That exemption was central to Vela’s argument. If the FAA did not apply, California law could potentially affect the enforceability of the arbitration agreement. Vela argued California Labor Code section 229 would keep some unpaid wage claims in court, and that the class action waiver might be unenforceable under California law. Harbor argued the FAA applied, which meant federal law preempted those state-law objections.
The Worker Repaired Railcars, But That Was Not Enough
Vela’s specific job duties were considered. Harbor performed freight car inspections and repairs for railroads. During Vela’s employment, Harbor was under contract with Pacific Harbor Line to inspect and repair freight cars at a train yard in Wilmington, California. Railroads such as BNSF and Union Pacific delivered freight cars to the yard, where they were left for inspection and repair. Harbor’s evidence stated the cars were withdrawn from service and were not usable unless and until they passed inspection.
Vela described his work as repairing train cars, changing wheels and brake pads, disassembling and reassembling train cars, welding, and fabricating metal for train ladders. The Court of Appeal accepted the general nature of that work but focused on whether it made him a railroad employee or transportation worker under the FAA exemption.
Vela Was Not a “Railroad Employee” Under the FAA
Vela did not claim Harbor itself was a railroad. Instead, he argued he should be treated as a railroad employee because Harbor provided repair services to Pacific Harbor Line under a contract.
The Court of Appeal rejected that argument. The court reasoned that Vela had no contract with Pacific Harbor Line. The contract was between Harbor and Pacific Harbor Line, and that business-to-business service contract was not Vela’s “contract of employment.” The FAA exemption required a contract involving the qualifying worker. Vela’s work may have supported railroad operations, but he was employed by Harbor, not by Pacific Harbor Line.
The court also rejected Vela’s reliance on the Railway Labor Act definition of railroad employee. Even assuming that definition could apply, the evidence did not show Vela was in the service of Pacific Harbor Line or subject to its authority to supervise and direct his work. To the contrary, Harbor controlled and managed its employees, and the Harbor–Pacific Harbor Line contract identified Harbor as an independent contractor with the right to supervise and direct its own performance.
Vela Was Also Not a Transportation Worker
The court then considered whether Vela qualified as a transportation worker engaged in interstate commerce. Applying the United States Supreme Court’s decision in Southwest Airlines Co. v. Saxon, the court looked first at the class of workers to which Vela belonged and then asked whether that class was engaged in foreign or interstate commerce.
The Court of Appeal concluded Vela’s class of workers consisted of employees who inspected and repaired rail freight cars temporarily taken out of service and delivered to a yard for inspection. That work, the court held, was too far removed from the actual transportation of goods to qualify for the FAA exemption. The freight cars were returned to transportation service only after the inspection and repair work was complete.
That distinction controlled the outcome. The court contrasted Vela’s work with cases involving workers directly involved in transportation, such as package delivery drivers, delivery truck drivers, and employees who directly supervised package shipments. Vela’s repair work was important to rail operations, but importance alone was not enough. The FAA exemption requires a sufficiently close relationship to the actual movement of goods across borders.
The Class Waiver Was Enforced
Because the FAA applied and Vela did not fall within the section 1 exemption, the Court of Appeal held the trial court did not err in striking and dismissing the class claims. Under federal law, class action waivers in arbitration agreements are generally enforceable, and contrary California rules are preempted by the FAA.
The appellate court affirmed the order dismissing and striking the class claims. The court dismissed the appeal from the order compelling arbitration because such orders generally are not immediately appealable, but it exercised discretion to treat that portion of the appeal as a petition for writ of mandate. It then denied the petition.
What Employers and Employees Should Take From the Decision
Not every employee whose work relates to railroads, vehicles, shipping, or transportation falls outside the FAA. The exemption is narrower than that. Courts look closely at what the worker actually does and whether the worker’s class is directly involved in moving goods through interstate or foreign commerce.
For employers, the decision reinforces the importance of carefully drafted arbitration agreements and class action waivers. But it also underscores why job duties will control in transportation related industries. A worker who loads cargo onto planes, drives goods across state lines, or otherwise directly participates in transportation may present a different FAA-exemption analysis than a worker who repairs equipment before it returns to service.
For employees, the case shows that working around trains or repairing rail equipment does not automatically make someone a “railroad employee” or exempt transportation worker under the FAA. The legal question depends on the worker’s employment relationship, the contract at issue, and the worker’s connection to the actual transportation of goods.
Vela v. Harbor Rail Services of California, Inc. was filed on May 1, 2026, by the California Court of Appeal, Second Appellate District, Division One, Case No. B344723. The Court of Appeal affirmed the order dismissing and striking Vela’s class claims, dismissed the appeal from the order compelling arbitration as nonappealable, treated that portion of the appeal as a petition for writ of mandate, and denied the petition.