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Keep on Trucking: SCOTUS Decision Impacts Transportation Industry

Labor & Employment Publications

On January 15, 2019, the Supreme Court issued a unanimous 8-0 decision in the matter of New Prime, Inc. v. Oliveira. Justice Kavanaugh took no part in the consideration or decision of the case. While this decision specifically applies to the trucking industry, it may also affect any employer engaged in interstate or foreign commerce that relies on independent contractors and will provide guidance to lower courts in cases involving enforcement of arbitration agreements with those workers.

Passed by Congress in 1925, the Federal Arbitration Act (“FAA”) requires courts to enforce private arbitration agreements. However, Section 1 of the FAA exempts from mandatory arbitration the “contracts of employment for seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In New Prime, the Court addressed two questions arising under this provision:

  1. When a contract provides that questions about whether a dispute is subject to arbitration are to be decided by an arbitrator, must a court leave disputes over the application of Section 1’s exception for the arbitrator to resolve?
  2. Does the term “contracts of employment” in Section 1 refer only to contracts between employers and employees, or does it also reach contracts with independent contractors?

In this case, a driver for trucking company New Prime, Inc., filed a federal wage and hour lawsuit alleging that New Prime called the drivers “independent contractors,” but treated the drivers as employees and failed to pay them the minimum wages required by law. New Prime asked the court to enforce its arbitration agreement with the driver under the FAA. The company maintained that the driver was an independent contractor, and so was not exempt under Section 1 of the FAA. Further, because the parties stipulated to arbitration, New Prime argued that any dispute about whether the driver was subject to the Section 1 exception should itself be decided by an arbitrator.

The First Circuit disagreed, holding that the term “contracts of employment” applied to both independent contractors and permanent full-time employees alike and that even if parties include a mandatory arbitration clause in their agreements, courts still retain jurisdiction to determine the applicability of that clause under the FAA.

Agreeing with the First Circuit, the Supreme Court rejected New Prime’s attempts to “explain away” or distinguish between the applicability of the exemptions to permanent full-time employees versus independent contractors. Relying on both the plain language of the Act and Congressional intent at the time the Act was passed, the Court held that Congress’ use of “workers” rather than “employees” and the phrase “contract of employment” applied to all contracts to perform work, including independent contractor agreements with truck drivers engaged in interstate commerce.

As to who decides whether Section 1 applies – an arbitrator or the court – the Supreme Court held that, “… a court should decide for itself whether [Section 1’s] ‘contracts of employment’ exclusion applies before ordering arbitration. … The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the [Act] authorizes a court to stay litigation and send the parties to an arbitral forum.” The Justices said it was immediately clear that while a court’s authority to compel arbitration under the FAA is “considerable”, it is not “unconditional.” Before immediately referring all cases with arbitration clauses to an arbitrator (under Sections 3 and 4 of the FFA), lower courts must first determine whether a contract between parties is covered by or exempted from Section 1 (or 2) of the FAA.

Following the decision, transportation industry employers should review any arbitration agreements in place with independent contractors, as those agreements are now likely unenforceable.