Workers Win Rare Victory in Fight Against Mandatory Arbitration

The U.S. Supreme Court handed a rare victory to workers this
week, unanimously ruling that independent trucking contractors cannot be forced
to arbitrate their disputes against the companies for whom they work.

At issue was whether the Federal Arbitration Act (FAA),
which requires enforcement of most private arbitration agreements, applies to
the operating agreements signed by the independent contractors.

The high court, in an opinion
written by Justice Neil Gorsuch, held that an FAA provision exempting
transportation workers from mandatory arbitration applied broadly—covering both
employees and independent contractors. 

Bucking a Trend

This decision, New
Prime Inc. v. Oliveira
, marks a rare departure from a trend of pro-employer
decisions restricting workers’ rights to file employment class action lawsuits.
Time after time, courts have enforced class action waivers and mandatory
arbitration provisions, which employers have increasingly been using to curtail
workers’ rights to file lawsuits to resolve disputes.

The problem for workers is that pursuing their cases
individually in arbitration is prohibitively expensive. Also, class actions
provide a vehicle for seeking large punitive awards that can prevent unfair
practices. One-off decisions have less of a deterrent effect. 

The trend of employer-friendly decisions continued last year
with the Supreme Court’s ruling in Epic Systems
Corp. v. Lewis
, which held that class action waivers in employee
arbitration agreements are valid.

Class Action or Individual Arbitration?

Driver Dominic Oliveira filed the latest case in 2015 against
interstate trucking company New Prime Inc. Oliveira sued on behalf of himself
and thousands of other drivers, alleging they were misclassified as independent
contractors, unlawfully depriving them of minimum wage protections and overtime

New Prime responded by seeking an order compelling
arbitration of the dispute based on the terms of the operator agreement signed
by Oliveira.

A Massachusetts federal judge denied the motion to compel
arbitration and New Prime appealed.

The trucking company argued
that the courts had no authority to decide whether the FAA and its mandate for
enforcement of arbitration agreements applied. Instead, it contended that an
arbitrator had that power. It pointed to the operating agreement’s so-called
“delegation clause,” which explicitly gave an arbitrator authority to decide
even the initial question of whether the matter is subject to arbitration.

New Prime also argued that the provision exempting
interstate transportation workers only applied to employees, not independent

The 1st U.S. Circuit Court of Appeals affirmed the lower
court’s decision.

New Prime appealed to the Supreme Court. A coalition of
pro-business groups, including the U.S. Chamber of Commerce, backed the company.
Meanwhile, Labor Unions, workers’ rights advocates and the attorneys general of
14 states backed Oliveira.

Who Decides – Court or Arbitrator?

A contractual preference for arbitration is not
unconditional and does not extend to all private contracts, the Court held. The
FAA‘s mandate to compel arbitration is still limited by the statute’s terms.

The Supreme Court found that a court, not an arbitrator,
must determine whether the FAA covers an arbitration agreement, even if the
agreement, itself, provides that an arbitrator should make those decisions.

“A delegation clause is merely a specialized type of arbitration
agreement,” Justice Gorsuch wrote, finding that the FAA applies to such a
provision just as it does to any other arbitration agreement.

The Supreme Court of Linguistics

The high court then turned to whether independent contractor
can invoke the FAA exemption for transportation workers.

The exemption, contained in Section 1 of the FAA, provides
that “nothing herein contained shall apply to contracts of employment of
seamen, railroad employees, or any other class of workers engaged in foreign or
interstate commerce.”

The Court focused on the meaning of “contracts of
employment” at the time the law was enacted in 1925. The phrase did not have
the modern specialized meaning to differentiate between employees and
independent contractors.

“Back then, dictionaries tended to treat ‘em­ployment’ more or
less as a synonym for ‘work,’” Justice Gorsuch wrote. “Nor did they distinguish
between different kinds of work or work­ers: All work was treated as
employment, whether or not the common law criteria for a master-servant
relationship happened to be satisfied.”

Thus, the Court found that Congress used the phrase
“contracts of employment” broadly, “to capture any contract for the performance
of work by workers,” the Court held.

Since Oliveira fits the definition of an interstate
transportation worker, he is entitled to invoke the exemption from the FAA, the
Court ruled.

The case marks an important step in the strategy of workers’
rights advocates and labor unions. They were able to use
a technical argument
relying on the strict text of the statute and
its meaning at the time it was adopted. Such an argument is meant to persuade
the more conservative members of the court, particularly Justice Gorsuch, whose
judicial philosophy calls for adhering to the original intent of Congress at
the time the law was passed. 

What it Means for Workers

Potentially hundreds of thousands of workers in the trucking
industry could be impacted by this decision. The classification of those
workers as independent contractors has become more common in the industry. This
decision means that they should have a better chance to resolve their disputes
in court.

It will also do the same for workers in other sectors of the
transportation industry that are governed by the exemption.

The decision may also have some precedential value for
having courts, rather than arbitrators, decide whether the FAA applies, even
where an agreement explicitly delegates the authority over such questions to

If nothing else, the decision stems the tide of pro-employer
decisions regarding mandatory arbitration and offers a path for future workers’
rights victories for by focusing on the text and the original statutory intent.

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