On January 15, 2019, the U.S. Supreme Court issued a decision in New Prime Inc. v. Oliveira, a case concerning the enforceability of arbitration agreements in the interstate trucking sector of our economy.
The decision was unanimous (and very anxiously watched by the trucking community nationwide).
INDEPENDENT CONTRACTOR OWNER-OPERATOR SOUGHT MINIMUM WAGE THROUGH A CLASS ACTION SUIT AGAINST NEW PRIME: The facts of the case were not at issue. New Prime Inc. ("New Prime") is an interstate trucking company that engaged plaintiff Dominic Oliveira to drive his own truck under an Independent Contractor Operating Agreement ("Agreement"). The Agreement had both an arbitration clause and a delegation clause (granting the arbitrator authority to evaluate, and then decide, questions of arbitrability).
Plaintiff Dominic Oliveira filed a class action lawsuit against New Prime seeking minimum wage (in Federal District court in Massachusetts).
DRIVER ARGUED THAT NEW PRIME COULD NOT COMPEL ARBITRATION DUE TO TRANSPORTATION WORKERS EXCLUSION: New Prime defended itself by filing a motion to compel arbitration per the Agreement under Section 4 of the Federal Arbitration Act ("FAA").
In response, Oliveira argued that (despite the signed Agreement) New Prime cannot compel arbitration because Section 1 of the Federal Arbitration Act expressly excludes "contracts of employment of ...seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." This is commonly known as the transportation workers exclusion.
The Federal District Court in Massachusetts ruled that the transportation workers exclusion does not extend to independent contractors (and therefore ordered the parties to conduct discovery as to whether Oliveira was an independent contractor or an employee).
On appeal, the First Circuit Court of Appeals ("First Circuit") overturned the Federal
District Court's holding that the transportation workers exclusion does not apply to independent contractors. The First Circuit looked at the historic meaning of the statutory phrase "contracts of employment" as used in 1925! when Congress first enacted the Federal Arbitration Act.
U.S. SUPREME COURT FOCUSED ON TWO LEGAL ISSUES: The United States Supreme Court decided to hear the New Prime case on appeal. The Court focused on two legal issues:
1. Should a court determine whether a Section 1 exclusion to the Federal Arbitration Act applies before ordering arbitration where the parties' contract contains a delegation clause? and,
2. Does the transportation workers exclusion apply to independent contractors as well as employees? [especially considering the use (in the Federal Arbitration Act) of the term "contracts of employment"].
The U.S. Supreme Court answered "Yes" to both legal issues (with no dissent!) Justice Gorsuch wrote the opinion for the U.S. Supreme Court. Justice Kavanaugh recused himself, and Justice Ginsburg submitted a brief concurring opinion.
MEANING OF "CONTRACTS OF EMPLOYMENT": The U.S. Supreme Court looked back to the meaning of "contracts of employment" as that phrase was used at the time when the Federal Arbitration Act was adopted in 1925. The U.S. Supreme Court sought to avoid attaching new meanings to "old statutory terms" in a way that would improperly change legislation as passed by Congress.
The U.S. Supreme Court concluded that the phrase "contracts of employment" was intended by Congress back in 1925 to cover any "work," such as work by independent contractor owner-operators, not just work in a formal employer-employee relationship. The Court looked at early twentieth-century decisions and laws that interpret this phrase "contracts of employment" to broadly cover work agreements involving independent contractors.
So, Oliveira won, and the U.S. Supreme Court turned down New Prime's claim for arbitration. New Prime is the first Supreme Court decision in years to ultimately reject a claim for arbitration. (Note that the U.S. Supreme Court took no position as to whether Oliveira should be classified as an independent contractor or an employee.)
The U.S. Supreme Court's decision in New Prime in no way extends the transportation workers exclusion to cover workers in other industries. The transportation workers exclusion in the Federal Arbitration Act is narrowly limited by Congress to transportation workers in interstate commerce.
Also, New Prime only focuses on Federal law and arbitration (and the transportation workers exclusion). The New Prime holding did not address whether courts may enforce arbitration agreements under other areas of legal authority, such as state arbitration laws.
STATE ARBITRATION STATUTES: It is predictable that courts presented in the future with arbitration agreements involving transportation workers in interstate commerce may need to determine the enforceability of the arbitration agreements under state law.
The New Prime decision will now encourage trucking companies to consider relying on state arbitration law or state contract law. One obvious and vexing problem with a state law-based collection of decisions is lack of uniformity from state to state. In any event, trucking companies should consider adding broad severability clauses in their arbitration agreements. And class and collective action waivers still are recommended by many attorneys for trucking companies in their arbitration agreements, even if these waivers must be evaluated under state law.
In New Prime, the U.S. Supreme Court did not address (at all) whether New Prime could use a state statute to compel arbitration. The First Circuit stated in its decision: "We emphasize that our holding is limited: It applies only when arbitration is sought under the Federal Arbitration Act, and it has no impact on other avenues (such as state law) by which a party may compel arbitration."
Many states have arbitration enforcement statutes that do not exempt contracts involving transportation workers in interstate commerce. Whether or not those state statutes' are preempted by the Federal Arbitration Act's exemption for transportation workers is an important legal question to be decided by courts in the future.
GIG ECONOMY: Some legal analysts speculate as to whether the New Prime decision impacts the gig economy (Uber, GrubHub, Lyft, et al). "On-demand companies" are likely to insist that New Prime does not apply to their drivers as they do not participate in "Interstate Commerce." Many on-demand companies will likely argue that the transportation workers exclusion does not apply to their workers and therefore their arbitration agreements (with class action waivers) are enforceable.
CONCLUSION: The key legal outcome of New Prime is that interstate truck drivers operating as employees or independent contractors cannot be compelled to arbitrate work-related claims (at least not under the Federal Arbitration Act).
If any readers want to discuss any aspect of the increasing trend to have mandatory Arbitration Agreements with Class Action Waivers (or want to discuss establishing such an agreement for their company), please contact Attorney Nancy E. Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at [email protected].