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 pay.
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 contractors.
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 arbitrators.
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.