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U.S. Supreme Court Weighs in on Arbitration Agreements for Transportation Workers

The U.S. Supreme Court has been in the news a lot lately, but, now that the calendar has turned to the fall, the Justices are back to work. In fact, one of the first cases to be heard at oral argument in this new term could have significant effects on the transportation industry.

On October 3, 2018, the Supreme Court heard oral arguments in the case of New Prime, Inc. v. Oliveira. Generally, this case concerns how the Federal Arbitration Act (“FAA”) applies to independent contractor agreements in the transportation industry. Employees typically are not fans of arbitration because they believe an arbitrator might favor the employer more so than would a judge or jury. As such, employers often seek to have arbitration agreements enforced. 

The FAA has an exception for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Long-haul truck drivers certainly engage in interstate commerce. In this case, Oliveira, the driver, formed a limited liability company that leased a truck from an affiliate of New Prime, the trucking company. Oliveira then entered an “Independent Contractor Operating Agreement” where Oliveira would use the truck to drive shipments for New Prime. The Supreme Court must decide whether this independent contractor agreement is a “contract of employment” that the FAA would not govern.

New Prime argued before the Court that the arbitration agreements should be enforced under the FAA because the FAA exempts contracts of “employment,” not independent contracts. Because the drivers are contractors and not employees, they would not be exempt under the FAA and would, therefore, be bound by arbitration. While it may seem clear that it refers to employees and not contractors, like many questions in the law, this one is not so simple.

At oral argument, the Justices appeared more sympathetic to the driver’s position than the trucking company’s position. The Court pushed back on New Prime’s lawyer’s argument that the exception only applies to employees. Justice Sotomayor pointed to the statutes use of the term “workers” engaged in interstate commerce. Her point was that if Congress meant to except employees it would have said “employees,” but it chose instead to except the broader class of “workers.” Her position that is that an independent contractor would fall under the category of a “worker.”

Even the conservative-leaning Chief Justice John Roberts and Justice Neil Gorsuch appeared sympathetic to the worker’s position. The Chief Justice stated that the term “contract of employment” is not necessarily limited to contracts covering “employees,” as what it means to be in someone’s employ could be broader than the technical employer/employee relationship. Justice Gorsuch pressed New Prime’s lawyer on the specific statutory language as it was interpreted when the law was passed back in 1925 – “[w]hat do we do about the fact that … your colleague on the other side has documented that back in 1925, which is when the statute was enacted … [the law] didn’t necessarily distinguish between independent contractors and employees with the same degree of care that the law has subsequently come to use.” He emphasized the fact that the distinction between employee and independent contractor was not as clear-cut when the statute was written as it may have developed over time. Taken as a whole, the Justice’s comments indicate that their view of an “employment” contract is broader than it appears.

Mr. Oliveira’s attorney received little push back from the Court on her argument that “contracts of employment” include both employees and independent contractors. The main issue the Court raised with Oliveira’s position was over the distinction between contracts with companies and contracts with individual workers. Given the language of the statute, the FAA only excepts contracts with the worker, so if a contract is signed by a company, it would not be excepted.

Overall, in reading the tea leaves, it appears that this case is going to be a win for the independent-contractor-truck-driver. The Supreme Court appears poised to find that “contracts of employment of . . . workers engaged in foreign or interstate commerce” would include both employment contracts and independent contractor agreements. Therefore, disputes between trucking companies and independent contractors would be excepted from the FAA, and these disputes would not be required to be sent to arbitration. Therefore, both employees and independent contractors alike can seek their day in court in a dispute with the company. Of course, nothing is official until the Court issues its final opinion!

If you have questions about this article, or the topic in general, please contact Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261 or Justin Thatch (jthatch@setlifflaw.com) at (804) 377-1260.

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