U.S. Supreme Court to Decide Whether Federal Arbitration Act Covers
This term, the United States Supreme Court will address whether an exemption to the Federal Arbitration Act (FAA) for certain transportation workers applies to claims by independent contractors. The issue before the Supreme Court is on appeal from the First Circuit Court of Appeal’s decision in Oliveira v. New Prime, Inc., 857 F.3d 7, 9 (1st Cir. 2017).
Oliveira began with a class action in Massachusetts federal district court filed by Dominic Oliveira against New Prime, Inc., an interstate motor carrier. Oliveira alleged that after completing a driver apprenticeship program with New Prime, Inc. it steered him towards becoming an independent owner-operator for the company and assisted him with this process, including by helping him form an LLC and obtaining a truck and equipment. Oliveira signed an Independent Contractor Operating Agreement (the "Contract") between New Prime and Oliveira’s newly created company, Hallmark Trucking LLC. Like many similar contracts in the transportation industry, the Contract defined the parties’ relationship as “of carrier and independent contractor and not an employer/employee relationship.” The Contract also contained an arbitration clause for “any disputes arising under, arising out of or relating to [the Contract]...including the arbitrability of disputes between the parties.”
Oliveira alleged that despite the independent-contractor arrangement, New Prime exercised significant control over his work and underpaid him. He further alleged that after he ceased working as an independent contractor and was then rehired as a company driver, his responsibilities and compensation were substantially the same as before. He filed a class action against New Prime, alleging that it violated the Fair Labor Standards Act (FLSA) and other employment-related claims. New Prime moved to compel arbitration under the FAA and the Contract’s arbitration provision.
The Federal Arbitration Act was enacted in 1925 to address traditional judicial hostility towards arbitration agreements. To support a “liberal federal policy favoring arbitration agreements,” the FAA makes arbitration agreements “valid, irrevocable, and enforceable.” However, the FAA has certain limits, including FAA § 1 that states that the FAA shall not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C.A. § 1. The Supreme Court had previously interpreted this exemption to include “contracts of employment of transportation workers.” Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001).
FAA Section 1 was at issue in Oliveira; specifically whether the exemption applied to independent contractors like Dominic Oliveira. Oliveira argued that the exemption applied to all transportation workers, including independent contractors, whereas New Prime argued that only employees were exempted.
After performing a statutory analysis of § 1, the First Circuit held that “contracts of employment” are not limited to employer-employee relationships but were more broadly construed as “agreements to do work,” which included independent-contractor relationships. The Court also considered Congress’s concern in enacting the exemption with broadly protecting transportation workers essential to the “free flow of goods,” noting that independent contractors in transportation were also essential to this public policy favoring free interstate commerce.
As a result, the court affirmed the district court’s denial of New Prime’s motion to compel arbitration, which would have the practical effect of allowing the underlying lawsuit to proceed in the courts rather than arbitration. The Court also noted that its ruling was limited to arbitration sought under the FAA and would not affect other avenues (such as state law) by which a party may seek to compel arbitration.
The Supreme Court granted the petitioner’s writ of certiorari on February 26, 2018. New Prime Inc. v. Oliveira, 138 S. Ct. 1164, 200 L. Ed. 2d 313 (2018). If the Supreme Court affirms the First Circuit, this could have significant effects on the numerous existing owner-operator agreements containing arbitration clauses.
The KRCL Transportation Blog looks forward to keeping you advised of the Court’s ruling, its effect on such agreements, and the implications for the various claims that could be asserted by independent transportation contractors.