Yesterday the U.S. Supreme Court ruled against a large national trucking company in its attempt to enforce an arbitration agreement against one of its independent contractor truck-drivers. New Prime Inc. v. Oliveira, No. 17-340 (U.S. January 15, 2019). The lawsuit alleged that New Prime contractors were actually employees, but were not paid minimum wage. New Prime defended by seeking to enforce Mr. Oliveira’s arbitration agreement, which required all disputes, including disputes over the scope of the agreement, to be submitted to an arbitrator. Oliveira successfully argued at the trial court and in the Court of Appeals that the Federal Arbitration Act exempts from its coverage “contracts of employment” of certain transportation workers.
Before the Supreme Court, New Prime argued that the phrase “contracts of employment” in the FAA could not possibly apply to its independent contractor truck drivers because they are not employees in the first place. The Supreme Court disagreed in a unanimous decision (Justice Kavanaugh did not participate). First, the Court held that despite the agreement’s broad grant of authority to the arbitrator, the trial court (and not the arbitrator) should first determine whether an FAA exception applies to the agreement. Second, the Court held that the term “contracts of employment” must be defined based on its meaning back when the FAA was passed in 1925. Third, the Court concluded that, as of 1925, the phrase “contracts of employment” had a very broad meaning that included independent contractor relationships. So, despite the broad scope of the FAA and the strong federal public policy encouraging private arbitration, New Prime cannot enforce Oliveira’s arbitration agreement under the FAA.
The case is a game-changer for the trucking industry, as many interstate trucking companies rely on an independent contractor model coupled with mandatory arbitration. The case is also noteworthy as a rare example of the Supreme Court finding against an arbitration covenant, although the ruling is limited to contracts involving interstate transportation.