In a recent Federal Arbitration Act (“FAA”) decision, the United States Supreme Court unanimously made getting to arbitration more difficult for trucking companies. In Oliveira v. New Prime, the Supreme Court determined that it was for a court, not an arbitrator, to decide if the exemption in Section 1 of the FAA applies. More importantly for truckers, the Court decided that the Section 1 exemption applied to all truck drivers, whether employees or independent contractors. This means the FAA cannot be used to compel arbitration of claims involving truck drivers.
In this case, Oliveira was a driver who provided services for New Prime, an interstate transportation company, as an independent contractor. He brought suit arguing New Prime violated minimum wage requirements and various labor statutes. New Prime’s contract with Oliveira required the parties to arbitrate. However, when New Prime sought to have the case taken to arbitration their motion was denied. New Prime’s appeal eventually made its way to the Supreme Court
The FAA requires courts to enforce private arbitration agreements; however, Section 1 of the FAA provides an exception for “contracts of employment” for certain transportation workers engaged in foreign or interstate commerce. For quite a while it has been clear that truck drivers hauling interstate cargo were among those types of transportation workers. What was meant by the phrase “contracts of employment” was not so clear. The questions before the Court became whether an independent contractor agreement was a “contract of employment” requiring Section 1 to apply and whether it was for the court to make that determination.
Though the contract between Oliveira and New Prime stated that questions of arbitration should be left for the arbitrator, the Supreme Court ultimately determined that the application of Section 1 of the FAA should be determined by the court. Essentially, before a court can order arbitration it must decide if the FAA and the Section 1 exception apply rather than leaving this issue for the arbitration.
After this, the Supreme Court further determined that an agreement between a company and an independent contractor is a “contract of employment.” This means that Section 1 of the FAA applies to those contracts. In doing so, the Court relied on a central rule of statutory interpretation: “[I]t’s a ‘fundamental canon of statutory construction’ that words generally should be ‘interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.'” The Court then undertook some historical analysis of the phrase concluding that the modern distinction between employees and independent contractors did not exist in 1925. The Court wrote “The only question in this case concerns the meaning of the term “contracts of employment” in 1925. And, whatever the word “employee” may have meant at that time, and however it may have later influenced the meaning of “employment,” the evidence before us remains that, as dominantly understood in 1925, a contract of employment did not necessarily imply the existence of an employer-employee or master-servant relationship.” The court concluded that “contract of employment” simply meant an agreement to perform work and that the worker’s status was not an issue in 1925 and should not be an issue today.
The two questions answered by the Supreme Court in Oliveira are a one-two punch that make arbitration much more difficult for trucking companies in particular.
First, they cannot necessarily move straight to arbitration even when their contract states that all issues, including issues of arbitrability, are to be determined by the arbitrator. Instead, the court will have its say on whether the case should move in that direction.
Second, most trucking companies’ contracts with workers, even independent contractors, will be subject to the exception in Section 1 of the FAA. This means that when the court does make the decision on arbitration it is not required by the FAA to enforce the arbitration agreement at all and makes it entirely likely that the court will deny arbitration.
Oliveira then leaves trucking companies looking for arbitration with a need to work through state law arbitration rules. For companies operating in multiple states, having uniform arbitration provisions might prove difficult. As trucking companies determine the way forward from the Oliveira case it is imperative, they have a strong legal team to resolve and advise them on how to accomplish their goals in light of the new standard set out by the Supreme Court.