In a previous article, we updated you on New Prime, Inc. v. Oliveira, a case that was argued before the United States Supreme Court on October 3, 2018. Generally, this case concerned how the Federal Arbitration Act (“FAA”) applies to independent contractor agreements in the transportation industry. On Tuesday, January 15, 2019, the Supreme Court issued its opinion – a unanimous decision in favor of the transportation worker.
To some, this decision comes as a bit of a surprise as the Supreme Court has favored claims of arbitration in a string of numerous cases dating back more than a decade. As a reminder, this case involved an exception to the FAA, a statute that requires courts to enforce arbitration agreements that involve interstate commerce. The transportation exclusion in the Act states that the FAA does not apply to “contracts of employment of … seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” All parties agreed that the drivers driving trucks for New Prime, including Mr. Oliveira, were “workers engaged in foreign or interstate commerce.” The million-dollar question was whether the exception applied to employees of New Prime only or also independent contractors. Mr. Oliveira was an independent contractor.
New Prime argued that the FAA exception would not apply to independent contractors because “contracts of employment” would include only employment contracts and not independent contractor agreements. Mr. Oliveira believed that “contracts of employment” would include independent contractor agreements. Therefore, he should be entitled to have his day in court and not be forced into a proceeding before an arbitrator.
The unanimous Court’s opinion was written by Justice Neil Gorsuch. In determining what categories of contracts should be included under the umbrella of “contracts of employment,” Justice Gorsuch said that the “key to the case” was looking to the meaning of that phrase “at the time Congress enacted the statute.” Speaking to exclusion in the FAA, Gorsuch said that “at the time of the Act’s adoption in 1925 … most people … would have understood § 1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.” While in the modern landscape, “employee” and “independent contractor” have become distinct terms of art, the Court points out that such a distinction was not as fine in 1925 when the FAA was enacted by Congress. The term “employment” was more akin to the term “work.”
Despite its usual preference for favoring arbitration agreements, the Court unanimously decided that the text of the statute, based off the 1925 meaning, was clear, and that the exclusion also applied to independent contractor agreements. This is a big ruling in favor of the truck driver and could have profound impacts across the transportation industry. As a result of this ruling, carriers cannot compel independent contractors into arbitrations to settle disputes. These owner-operators would be entitled to bring their action into court, including class-action suits.
The American Trucking Associations pushed back on this ruling stating that resolving these disputes through the courts, rather than through arbitration, would result in higher costs for the trucking industry – costs that could be passed along the supply chain. One final note worth mentioning is that Mr. Oliveira’s suit that started the fight to the Supreme Court was a class action suit alleging that he and other drivers were being misclassified as independent contractors and were, therefore, being underpaid. The Supreme Court did not take up the substantive question of whether Mr. Oliveira was misclassified or not. The ruling simply allowed that question to be decided by a court and not an arbitrator. The misclassification question will need to wait for another day.