Interstate Motor Carriers Suffer Setback in Supreme Court

Federal Courts lack authority under the Federal Arbitration Act to compel certain transportation workers to arbitrate employment related claims.

In New Prime, Inc. v. Oliveira, the Supreme court ruled that a federal court cannot compel transportation workers engaged in interstate commerce, whether classified as employees or independent contractors, to arbitrate their misclassification/wage claims notwithstanding a mandatory arbitration clause in the workers’ “contract of employment.”

Mr. Oliveira worked as an interstate driver for New Prime under an agreement that characterized him as an independent contractor. The agreement contained a mandatory arbitration clause. Mr. Oliveira filed suit alleging New Prime had deprived him and other drivers of their lawful wages. New Prime then asked the Federal District Court to invoke its authority under the Federal Arbitration Act (the “FAA” or “Act”) by staying the litigation and referring Mr. Oliveira’s claims to arbitration pursuant to their contract’s mandatory arbitration provision.

Federal courts generally have interpreted Section 2 of the FAA broadly to allow them to order parties to arbitrate a host of different disputes in different industries so long as the matter involves “contract[s] evidencing a transaction involving commerce.” However, in defining the word “commerce,” Section 1 of the FAA also provides “nothing” in the Act “shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

New Prime argued that this FAA exception to the authority of federal courts to compel arbitration only applies to contracts that establish an employer-employee relationship and not contracts with independent contractors, such as Mr. Oliveira. Mr. Oliveira countered by arguing that it is irrelevant whether he is deemed an employee or independent contractor, because his agreement to drive for New Prime was a “contract of employment” of a “worker engaged in interstate commerce.” Thus, the Section 1 exception applied, and the federal court could not compel him to arbitrate his wage claims.

The Supreme Court agreed with Mr. Oliveira and took a literal reading of the FAA in determining how Congress would have understood the phrase “contract of employment” in 1925, when the FAA was enacted. The Court considered that the terms “employer-employee” or “master-servant,” as they are known today, did not square with the definition at the time of the FAA’s adoption in 1925. At the time, the Court concluded, “contract of employment” meant nothing more than an agreement to perform work. Thus, the Court determined there was nothing to suggest that in 1925, “a contract of employment” meant only an employer-employee relationship. Moreover, the Court considered Congress’s choice of the neighboring term “workers” to further support the conclusion Congress intended Section 1 of the FAA “to capture any contract for the performance of work by workers and not just employees.” Based on this literal and historical reading of Section 1, the Court concluded the federal courts lacked the authority under the FAA to compel Mr. Oliveira to arbitrate his claims. It did not matter if he was an employee or independent contractor.

Although federal courts cannot compel interstate transportation workers to arbitrate employment claims, that ruling does not appear to preclude a federal court from compelling arbitration involving a transportation worker whose duties are intrastate in nature. The United States District Court for the Northern District of California recently concluded the exception did not apply to a worker whose activities were exclusively within the State of California and, therefore, ordered the worker to arbitrate a misclassification claim.

Moreover, for further consideration is the possibility that a motor carrier may be able to compel arbitration of a “contract of employment” with a mandatory arbitration provisions where the contract is governed by state law and is subject to a state statute enforcing arbitration agreements.

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