In a unanimous decision, New Prime, Inc. v. Oliveira (2019) 139 S. Ct. 532, the U.S. Supreme Court resolved a nationwide dispute amongst the federal circuits regarding the enforceability of mandatory arbitration agreements in employment contracts for transportation workers classified as independent contractors. In a unanimous opinion delivered by Judge Gorsuch, the Supreme Court held it is for the court to determine threshold issues of arbitrability notwithstanding any contractual provision delegating such questions to the arbitrator. The Court further held employment contracts for transportation workers who are classified as “independent contractors” are excluded from the Federal Arbitration Act’s (“FAA”) coverage.
The plaintiff in the underlying wage and hour action, Dominic Oliveira, was a truck driver working for interstate trucking company New Prime, Inc. (“New Prime”). Mr. Oliveira filed a federal class action lawsuit alleging New Prime denied its drivers lawful wages. Mr. Oliveira signed an employment contract which classified him as an “independent contractor.” The employment contract contained a mandatory arbitration provision which delegated threshold questions of arbitrability to the arbitrator rather than the court. New Prime attempted to enforce the arbitration clause under the FAA by asking the district court to stay the pending litigation and refer the matter to arbitration. However, both the District Court and the First Circuit Court of Appeals sided with Mr. Oliveira who argued the mandatory arbitration provision is unenforceable as to transportation workers who are exempted from the FAA’s coverage. New Prime filed a writ of certiorari which the Supreme Court accepted.
Courts Should Decide Threshold Issues of the FAA’s Coverage
The first issue addressed in the Oliveira decision is whether the contract’s “delegation” clause, which delegates threshold questions of arbitrability to the arbitrator, is enforceable to determine whether the carve out for transportation employees set forth in §1 of the FAA applies. In analyzing this issue, the Court emphasized the importance of the sequencing of the provisions in the FAA. Sections 3 and 4 authorize a court to stay litigation according to the contractual terms, but only if “the contract itself falls within or beyond the boundaries of §§ 1 and 2.” New Prime, Inc. v. Oliveira, 139 S. Ct. 532, at 537. Section 1 of the Act excludes from the Act’s coverage, contracts of employment for transportation workers engaged in foreign or interstate commerce. As such, if the contract falls outside the FAA, the requirements of §§ 3 and 4 to stay the litigation and refer the matter to arbitration simply do not apply. Therefore, it is within the province of the court to first determine whether the §1 exclusion for contracts of employment for transportation workers applies notwithstanding any “delegation” clause in the employment contract.
The Exclusion of Contracts of Employment for Transportation Employees Includes Independent Contractors
The second issue addressed in the Oliveira decision, is whether the FAA’s carve-out exclusion from the FAA for contracts of transportation employees includes workers classified in the employment contract as an independent contractor. New Prime argued the language of §1 excluding “contracts of employment” is limited only to contracts creating an employer-employee relationship; and therefore, because the employment contract at issue classified Mr. Oliveira as an independent contractor, the exclusion does not apply and arbitration must be compelled. On the other hand, Mr. Oliveira argued if the term “contracts of employment” requiring an independent contractor to perform work then the §1 exclusion applies, and the court lacks authority to compel arbitration.
The Supreme Court analyzed this issue from the perspective of legislative intent at the time the FAA was enacted, not on current interpretation of the term “contracts of employment” which would imply an agreement between employers and employees. At the time the FAA was enacted in 1925, the Court reasoned the term “contracts of employment” meant “nothing more than an agreement to perform work.” New Prime, Inc. v. Oliveira, 139 S. Ct. 532, at 539. The Court’s conclusion is based on the lack of any specialized definition of the word “employment” at the time, which was thought of as a synonym for “work.” The Court also found support for this interpretation in the language of the FAA itself, noting Congress used the word “workers” engaged in foreign or interstate commerce as being excluded from the Act’s coverage, not “employees” or “servants.” Id. Accordingly, the Court held the §1 exclusion for transportation workers includes independent contractors, and therefore, the trial court lacked authority to compel arbitration under the Act.
The take-away for employers of workers engaged in foreign or interstate commerce such as transportation is to be prepared to litigate disputes arising from the employment relationship. Whether the workers are classified as employees or independent contractors, the employment contract is not within the coverage of the FAA, and there is no statutory basis mandating the litigation be stayed and referred to arbitration.