A federal appeals court overturned a lower court Tuesday and held that a group of “final-mile” delivery drivers, who deliver goods and materials that have been shipped from out of state to a local warehouse, may not be exempt from arbitration under the Federal Arbitration Act.

A group of drivers for New York-based U.S. Pack Holdings LLC, led by Curtis Hamrick, who had signed an independent contractor agreement with the company, had filed suit in U.S. District Court in Orlando, seeking a ruling they were exempt under the FAA from having to arbitrate their Fair Labor Standards Act claims, according to the ruling in Curtis Hamrick vs. Partsfleet LLC et al.

The workers contended that because U.S. Pack controlled their job duties and pay, instructed them which customer to service, dictated customer pay rates and assigned them routes, they were actually employees under the FLSA and entitled to overtime.

The district court ruled the drivers are exempt under the FAA, which does not “apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” and refused to compel them or arbitrate their FLSA claims.

The ruling was overturned by a unanimous three-judge appeals court panel. “The district court concluded that the drivers fell within the transportation worker exemption because ‘the goods at issue in this case originate(d) in interstate commerce and (were) delivered, untransformed to their destination,’” the ruling said.

“Like the drivers, the district court focused on the movement of the goods and not the class of workers. This was error,” it said. “The transportation worker exemption applies only if the worker belongs to a class of workers in the transportation industry and the class of workers actually engages in foreign or interstate commerce,” it said.

It remanded the case back to the district court to determine whether the drivers “are a class of workers employed in the transportation industry and whether, in the main, the class actually engages in interstate commerce (even if some individual plaintiffs do not).”

It agreed with the lower court’s denial of the employer’s motion to compel arbitration under state arbitration law, stating it does not have jurisdiction.

An attorney for Mr. Hamrick had no comment, while U.S. Pack attorneys did not respond to a request for comment.

In May, the Labor Department rescinded a Trump-era rule that would have made it easier for businesses to classify workers as independent contractors instead of employees under the FLSA.