United States: Arbitration Out Of Reach In Transportation Workers' "Employment Contracts" Disputes

There's a war raging over the legal status of independent contractors in the transportation industry. A major battle for independent contractors was lost. But clear reasons from the same battle show the war is far from over in maintaining the legally recognized category of independent contractors in the transportation industry.

That battlefield was the Supreme Court, and the loss for independent contractors was its decision that determined all transportation workers were exempted under Section 1 of the Federal Arbitration Act (FAA) of 1925 in New Prime Inc. v Oliveira on January 15, 2019. A decision forecasted in our previous newsletter by Fredric Marcinak.

The Court provided two answers in its decision. First, that a court should determine the applicability of the exemption under Section 1 of the FAA. Second, that "contracts of employment" in Section 1 included any agreement to perform transportation work.

The loss isn't the decision, itself, but the decision's failure to stem the tide of enterprising class action lawyers seeking to profit from certain courts' erosion of the status of independent contractors in the transportation industry. New Prime's attempt to compel arbitration of disputes with independent contractors went beyond proper interpretation of the exemption in Section 1 of the FAA to the much larger conflict on the existential status of independent contractors where arbitration offered some relief.

On the critical front of the Supreme Court, its decision could not have been clearer on the valid status of independent contractors in the transportation industry. The Court's very reasoning depended upon it. It explained that the meaning of "contracts of employment" in Section 1 covered both employee and independent contractors for any agreement to perform transportation work. The Court explained it was the expansive reach of "contracts of employment" that captured all work agreements, including those with independent contractors, and not that all workers were considered employees. New Prime Inc. v Oliveira, 139 S.Ct. 532, 539-40 (2019). The Court highlighted proper definitions contrasting an employee, "in the service of another person," with that of an independent contractor, "entrusted to undertake a specific project... free to do the assigned work and to choose the method for accomplishing it," id. at 541, and noted that the category of employee eventually became to mean "those who work for a wage at the direction of another." Id.

The Court's attention to the difference between employees and independent contractors may be all the more significant in the context of removing arbitration as one of the last resorts for transportation companies seeking a haven to protect that difference. With its recent New Prime decision, the Supreme Court has more squarely identified its own responsibility for maintaining the difference it has relied upon.

Nowhere have these distinctions been under greater attack than in California where exactly two months earlier the labor differentiations were given new life in a federal district court decision, Alvarez v. XPO Logistics, 2018 WL 6271965 (C.D. Cal. Nov. 15, 2018).

The California federal district court addressed one issue in Alvarez, whether plaintiff truck drivers' claims were preempted by federal law. It explicitly did not address whether plaintiffs were properly classified as independent contractors or employees. 2018 WL 6271965, at *3. The Court maintained CA precedent that CA wage laws were not preempted in line with Dilts v. Penske Logistics, LLC, 769 F.3d 637, 649 (9th Cir. 2014).

However, the Court held that the ABC standard to determine whether workers were employees or independent contractors recently embraced in Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903, 955 (2018) was preempted. The court reasoned that "the ABC test— as adopted by the California Supreme Court—'relates' to a motor carrier's services in more than a '[tenuous]' manner and is therefore preempted by the FAAAA." Id. at *5. This holding should serve as a touchstone for other California courts testing for independent contractor status.

Based on the Supreme Court's New Prime decision relying upon, in part, the valid status of independent contractors, there should be little anticipation that they will get it correct again when they finally take up the division between the First and Ninth's Circuit's divide on recognizing that status. And when the Supremes weigh in, the decision should be nothing short of the unanimous upholding of that status included with all transportation workers exempt from arbitration under New Prime. 

Originally published by Transportation Industry News.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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