The Federal Arbitration Act in certain circumstances gives the court the authority to compel arbitration, when a party brings a case before the court but, there is a valid arbitration agreement in place that states that type of dispute between those parties should be handled through arbitration. However, the Federal Arbitration Act (“Act”) also states that the Act does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
This was the crux of the issue decided by the Supreme Court in the recent case New Prime Inc. v. Oliveira, No. 17-340, 2019 WL 189342 (U.S. January 15, 2019). Mr. Oliveira worked as an independent contractor for New Prime as a truck driver. He filed a lawsuit alleging that New Prime denied him and other drivers lawful wages by failing to pay minimum wage. He filed his lawsuit as a class action, also alleging that he and other drivers were misclassified as independent contractors and were really employees of New Prime. New Prime asserted that Mr. Oliveira should be compelled to arbitrate his claims because of the arbitration provision in his independent contractor agreement. Mr. Oliveira asserted that because of the exception in the Federal Arbitration Act: that the Act did not apply to contracts of employment of transportation workers, the court could not compel arbitration.
A threshold question examined by the Supreme Court was whether the court or the arbitrator had the authority to decide the gateway issue of whether the exception for transportation workers in the Federal Arbitration Act was applicable to the Oliveira dispute. The Supreme Court decided that this question is properly decided by the court, holding that in order to decide whether arbitration should be compelled it must first know whether the contract at issue falls within the any of the Act’s exceptions.
One of New Prime’s main arguments was that Mr. Oliveira had an independent contractor agreement and not an employment agreement with New Prime and therefore the exception for “contract of employment” with transportation workers (engaged in interstate commerce) in the Federal Arbitration Act did not apply. The Supreme Court disagreed with this argument in an in-depth analysis of the term “employment” historically and the use of the term “worker” within the statute, paying particular attention to the meaning of those terms at the time the Act was enacted in 1925. The Supreme Court concluded that in 1925 when the Act was adopted “employment” was more or less a “synonym for “work.”” Therefore, Mr. Oliveira’s work relationship with New Prime (even if he was correctly categorized as a independent contractor) fell within the Act’s exception.
In an important decision for transportation workers seeking to bring class actions in court instead of being forced into a single party (and often costly) arbitration process, the Supreme Court leaves us with this:
When Congress enacted the Arbitration Act in 1925, the term “contracts of employment” referred to agreements to perform work. No less than those who came before him, Mr. Oliveira is entitled to the benefit of that same understanding today. Accordingly, his agreement with New Prime falls within §1 [of the Federal Arbitration Act’s] exception, the court of appeals was correct that it lacked authority under the Act to order arbitration…
What does this mean for workers? In the very least, transportation workers, whether employees or independent contractors, have the opportunity to avoid an arbitration clause and have their cases heard in court as a class or collective action.
What does this mean for employers? Be aware that an otherwise valid arbitration provision may not be enforceable against a transportation worker engaged in interstate commerce. Even if an arbitration provision is included in the company’s employment or independent contractor agreements, employers should ensure that the company’s practices minimize the risk for collective or class actions as it may have to litigate such claims in court.