The U.S. Supreme Court accepted the case, New Prime Inc. v. Oliveira,for review to resolve disagreements among courts across the country regarding the exclusion in Section 1 of the Federal Arbitration Act (FAA) of “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from compelled arbitration. 

The decision in this case is expected to significantly impact employers throughout the transportation industry as well as hundreds of thousands of owner-operators and independent contractors. 

On January 15, 2019, in this unanimous decision delivered by Justice Neil Gorsuch, the U.S. Supreme Court held that on a motion to compel arbitration, the court itself must determine whether the exclusion in Section 1 of the FAA applies before ordering arbitration.

Further the court decided that the term “contract of employment” refers to any agreement to perform work and was broad enough to cover an independent contractor relationship. This conclusion was based on evidence that as “dominantly understood” in 1925 the term “contract of employment” did not necessarily imply the existence of an employer-employee relationship.  As pointed out in this decision, a fundamental canon of statutory interpretation is that words should generally take the meaning at the time Congress enacted the statute. 

This particular case involves New Prime, an interstate trucking company, and Dominic Oliveira, a driver classified as an independent contractor. Mr. Oliveira’s independent contractor agreement included a provision requiring the parties to arbitrate any disputes and prohibited class, collective or multi-party action. Despite the terms of the agreement, Mr. Oliveira filed a class action lawsuit in federal court, arguing that New Prime denied its drivers lawful wages. In response, New Prime asked the court to invoke its statutory authority under the FAA and compel arbitration according to the terms in the agreement. The U.S. District Court for the District of Massachusetts and the U.S. Court of Appeals for the First Circuit denied that request.

Following the high court’s decision in the case, employers are no longer able to differentiate between employee and independent contractors when assessing application of the FAA’s Section 1 exclusion.  Many predict the decision in this case will result in an increase in litigation against transportation companies that hire independent contractors due to the unavailability of arbitration as an option to resolve disputes. Consumers may ultimately bear the brunt of any cost increases. 

What ramifications will this decision have for the use of “independent contractors” or employees in other sectors of the U.S. economy? 

The scope of the FAA’s applicability should not be underestimated. In 1995, the U.S. Supreme Court in Allied-Bruce Terminix Cos. v. Dobson found that the FAA governs any agreement to arbitrate if some economic activity of one of the parties is related to interstate commerce.  

Given the broad application of the FAA and overall trends in the workforce, is it possible that this case will eventually impact the gig economy? Will on-demand drivers who transport people or items across state lines eventually be deemed to be “engaged in interstate commerce?” Many gig economy companies have classified workers as independent contractors and require arbitration to resolve disputes.  

In the meantime, employers in the transportation sector should consider reviewing their arbitration agreements with legal counsel, and those operating in the gig economy should keep an eye on future legislative trends.