The U.S. Supreme Court Ends Arbitration Trend under the FAA for Employee and Contract Transportation Workers
In New Prime Inc. v. Oliveira, -- U.S. – (2019), the Supreme Court made two primary holdings: First, notwithstanding its recent decision affirming the ability of parties to an arbitration agreement to delegate issues of arbitrability to an arbitrator through contractual agreement, there are still limits on that ability. Second, the Federal Arbitration Act’s (FAA) “transportation” exception applies to transportation workers, regardless of their classification as employees or independent contractors. As such, employers should be wary of relying on form arbitration agreements and the FAA to default disputes with transportation workers to arbitration.
New Prime is an interstate trucking company that entered into an operating agreement with truck driver Oliveira. The operating agreement classified Oliveira as an independent contractor and contained a mandatory arbitration provision whereby the parties agreed that any disputes arising out of the parties’ relationship, including disputes over the scope of the arbitrator’s authority, should be resolved by an arbitrator. Oliveira believed that he and other drivers were employees entitled to minimum wage, and, thus, the arbitration provision could not be enforced because they were covered by the FAA’s “transportation” worker exception. New Prime argued that, due to the parties’ delegation of gateway issues to an arbitrator, an arbitrator should decide whether the “transportation” exception applies and that it should not apply because it applies only to employees, not independent contractors like Oliveira.
The Court first held that before it can use the FAA’s power to enforce a contractual agreement of the parties to delegate issues of arbitrability (also called “gateway” questions) to an arbitrator, the Court (not an arbitrator) must decide whether the FAA applies to the contract at all. Thus, the Court was required to consider whether Oliveira falls into the FAA’s “transportation” worker exception. This holding is not inconsistent with the Supreme Court’s decision last week in Henry Schein Inc. v Archer & White Sales, Inc., which reaffirmed the right of parties to delegate gateway questions to an arbitrator.
The Court next decided whether Oliveira, who very well might be an independent contractor, falls into the “transportation” exception. The “transportation” exception provides that “nothing” in the FAA “shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The parties did not dispute that Oliveira was a “worker engaged in . . . interstate commerce,” leaving the Court to decide the term “contracts of employment.” After reviewing the plain meaning and usage of the word when the FAA was enacted in 1925, the Court concluded that at that time it usually meant “nothing more than an agreement to perform work,” and held that the FAA’s transportation worker exception applies to employees and independent contractors.
While the trend of court decisions has favored enforcement of arbitration agreements, employers cannot assume that delegation provisions in arbitration agreements will immediately remove an arbitration dispute from a court to an arbitration proceeding under the FAA. For classes of workers excluded from the FAA, like employee and contract truck drivers, it will not. Employers should seek counsel to help maximize the enforceability of arbitration agreements under the FAA, if applicable. Such agreements must evidence a transaction involving commerce and not trigger an exception to the FAA. Alternatively, employers may be able to use state arbitration laws or state contract common law to help funnel disputes to arbitration.