United States: New Prime v. Oliveira: Independent Contractor Truck Drivers Exempt From Arbitration Under The FAA

(March 2019) - In an 8-0 opinion, the Supreme Court ruled that New Prime, a Springfield, Missouri-based interstate trucking company cannot force its drivers to settle disputes through arbitration. See New Prime, Inc. v. Oliveira, No. 17-340, 2019 WL 189342 (U.S. Jan. 15, 2019). Dominic Oliveira works as a driver for New Prime. At least on paper, Mr. Oliveira is not an employee. The contracts between him and New Prime designate Mr. Oliveira as an independent contractor. The agreements also contained a delegation clause, stating that any disputes arising out of the parties' relationship should be resolved by an arbitrator, including disputes over the scope of the arbitrator's authority.

Mr. Oliveira initiated a class action lawsuit against New Prime. He argued that while the company classifies its drivers as independent contractors, New Prime treats them as employees and fails to pay the statutory minimum wage. In response to this action, New Prime asked the Court to invoke its authority under the Federal Arbitration Act (FAA or "the Act") and compel arbitration according to the terms of the parties' agreements. Mr. Oliveira argued that the court did not have such authority because Section 1 of the FAA excludes disputes involving "contracts of employment" of transportation workers engaged in interstate commerce, including drivers. New Prime contended that Mr. Oliveira is an independent contractor, and not an employee, so the Section 1 FAA exemption does not apply.

In deciding this case, the Supreme Court focused on two legal issues: (1) should a court determine whether a Section 1 exclusion to the FAA applies before ordering arbitration, where the parties' contract contains a delegation clause?; and (2) does the transportation worker exclusion (Section 1) apply to independent contractors as well as employees?

The Court answered both questions in the affirmative. On the question of arbitrability, the Court reasoned that courts do not have limitless power to compel arbitration of all private contracts. Section 2 of the FAA states that this power is limited to arbitration agreements involving commerce or maritime transactions, which are informed by Section 1. In order to compel arbitration, a court must first determine whether the FAA applies to the contract at issue. The Court rejected the New Prime's contention that courts are barred from making this threshold determination when the parties' contract contains a delegation clause on the scope of arbitration and arbitrability of the dispute. The Court found that that a delegation clause is "merely a specialized type of arbitration agreement," enforceable only to the extent that the "involving commerce" requirement under Section 2 of the FAA is satisfied and the exclusion under Section 1 does not apply.

Regarding New Prime's Section 1 challenge, the Court inquired into the meaning of "contracts of employment" as that term was used at the time the FAA was adopted in 1925. The Court sought to avoid giving new meaning to "old statutory terms" in a way that would improperly amend legislation. The Court looked at dictionary entries from the time for this phrase and concluded that the term was construed broadly to cover any "work," not just work in a formal employer-employee relationship. The Court found further support for this conclusion in early twentieth-century case law and statutes that construe this phrase to cover work agreements involving independent contractors. Ultimately, the Court held that Section 1 of the FAA does not cover transportation workers engaged in interstate commerce. It does not matter if the transportation worker is an employee or an independent contractor - truck drivers engaged in interstate commerce are exempt from arbitration under the FAA.

The transportation industry is likely to see an increase in class action litigation in the wake of this decision. This case, however, is not the end of arbitration agreements in the transportation industry. Transportation companies may still seek to enforce similar arbitration agreements under state or common law.

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