written by matt Bemis
On January 15th, 2019, in an 8-0 unanimous decision, the United States Supreme Court ruled that independent contractors who work in transportation cannot be forced into mandatory arbitration (Justice Brett Kavanaugh, who joined the Court after oral arguments in the case, did not participate in the decision). The ruling, written by Justice Neil Gorsuch, holds that a court’s authority to compel arbitration under the Federal Arbitration Act does not extend to all private contracts, and under Section 1 of the Act, excludes independent contractors engaged in foreign or interstate commerce.
Background Information
The petitioner, New Prime, Inc. is an interstate trucking company. The respondent, Dominic Oliveira, joined New Prime’s “Student Truck Driver Program,” a company-specific apprenticeship program. During his membership in this program, Oliveira had to first drive 10,000 miles as an unpaid trainee, followed by an additional 30,000 miles as an “apprentice,” working for approximately four dollars an hour. After his successful completion of the program, New Prime offered Oliveira a permanent position at the firm and gave him the option to work as an employee or as an independent contractor, the latter of which New Prime asserted would be more economical and beneficial to Oliveira. Oliveira ultimately elected independent contractor status, but soon found that, by virtue of his elected status, he would be responsible for a number of different additional expenses, including truck leasing fees, fuel, and equipment paycheck deductions. These costs often exceeded Oliveira’s base rate. He later rejoined New Prime as an employee, and although his duties remained the same, his take home pay greatly increased. In 2015, Oliveira started a class-action lawsuit against New Prime, arguing the company failed to pay fair wages to its independent contractors.
After filing a class action suit, New Prime asked the United States District Court for the District of Massachusetts (and later, on appeal, the United States Court of Appeals for the First Circuit) to invoke its statutory authority under the Federal Arbitration Act to compel arbitration. Oliveira countered and argued that Section 1 of the Act exempts disputes involving “contracts of employment” of certain transportation workers engaged in interstate commerce, and therefore, contractors hired by New Prime were exempt from compulsory arbitration. In response, New Prime argued that “contracts of employment” referred only to contracts that establish an employer-employee relationship, and not to agreements with independent contractors.
What is the Federal Arbitration Act (FAA)?
Generally speaking, arbitration is a method of legal dispute resolution in which a neutral, private third party, rather than a judge or jury, renders a decision on a particular matter. Although cheaper and more expedient than a traditional judicial proceeding, critics of arbitration contend that mandatory arbitration agreements create one-sided outcomes that deny consumers and employees the advantages (such as a jury trial) afforded in a court proceeding. President Calvin Coolidge signed the FAA in 1925. Congress’s primary motivation for drafting the Act was to protect the enforcement of arbitration agreements as agreed to by contracting parties. Under Section 2 of the Act, a written arbitration provision in any contract involving commerce is valid, irrevocable and enforceable. If either party fails to abide by the arbitration terms in the relevant agreement, a federal court may compel arbitration under Section 4 of the Act. However, Section 1 of the Act includes several transactions exempt from the scope of the Act, notably, “contracts of employment of. . .any class of workers engaged in foreign or interstate commerce,” the language at the heart of the dispute in the New Prime case.
Supreme Court Ruling
In its analysis, the Court employed a traditional textualist approach to the statutory question presented. To ascertain whether “contracts of employment” in Section 1 of the FAA includes employment contracts only (with a formal employer-employee relationship present), or more broadly includes independent contractor agreements, the Court interpreted the words within the FAA by looking to their ordinary meaning at the time Congress enacted the statute. According to the Court, in 1925, a “contract for employment” meant nothing more than an agreement to perform work, and was not yet a phrase of art implying a formalized employer-employee relationship. This interpretation is in step with other 20th century cases where the Court itself used the phrase “contract of employment” to describe work agreements involving independent contractors. Further, the Court looked to the statutory text to glean meaning. In Section 1 of the FAA, the Act excludes “contracts of employment of. . . any. . . class of workers. . .” (emphasis added). By using the word “workers,” the Court reasons, Congress intended to reach a broad class of work arrangements. As such, Dominic Oliveira’s independent contractor agreement with New Prime (as well as those of his similarly situated peers) falls within Section 1 of the FAA’s exception and as a result, the lower courts’ refusal to compel arbitration was correct and in keeping with FAA requirements.
Workers’ Rights Going Forward
Although this is a relatively narrow ruling, it is the second major case (following Epic Systems Corp. v. Lewis last year) addressing the confluence of workers’ rights and employer-friendly, compulsory arbitration. Following the release of the decision, shares of transportation stocks fell in the larger market. With millions of employees nationwide working under an independent contractor label in today’s “gig economy,” it is uncertain as to the extent that New Prime and future cases will permeate into the many commercial arenas where the definition of “work” has taken on new form.
Sources
9 U.S.C §§1–4 (2012).
Ed Kilgore, Gorsuch Defends Workers’ Rights in Trucking Arbitration Decision, NEW YORK MAG. (Jan. 15, 2019), .
JON O. SHIMABUKURO & JENNIFER A. STAMAN, CONG. RESEARCH SERV., 7-5700, MANDATORY ARBITRATION AND THE FEDERAL ARBITRATION ACT (2017).
New Prime Inc. v. Oliveira, 586 U.S. ______ (2019)
Tucker Higgins, Transportation stocks sink after Supreme Court backs truct who resisted being forced into arbitration after suing over wages, CNBC (Jan. 15, 2019, 4:39 PM).
Photo courtesy of Fueloyal.