When is an independent contractor an employee? If you live in California, the answer might be always. Other states are more lenient. But for purposes of the Federal Arbitration Act and countless contracts signed relying on its provisions, the question will be answered by the United States Supreme Court.
In New Prime, Inc. v. Oliveira, the Court considered the scope of provisions in the Federal Arbitration Act (“FAA”) that govern arbitration provisions in contracts for workers in the transportation sector. The FAA is a federal law that generally governs arbitration provisions in contracts and that provides that those provisions are usually enforceable. Thus, employers and companies prefer the FAA and its arbitration friendly provisions. In the enforcement of arbitration provisions, the FAA is often used to preempt state laws that would otherwise disfavor arbitration provisions.
But the FAA has an exception for “contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce.” New Prime, like many trucking companies, contracts with drivers who are independent contractors and not employees. In this case, for example, Dominic Oliveira formed a limited liability company called Hallmark, which leased a truck from an affiliate of New Prime. That limited liability company then entered into an “Independent Contractor Operating Agreement,” in which the company undertook to use the truck to drive shipments for New Prime. This scenario will be familiar to most trucking companies who operate similar programs.
Under its Student Truck Driver Program (apprenticeship program), New Prime recruits and trains new drivers. Prime touts its program as offering "[p]aid [a]pprenticeship [Commercial Driver's License (CDL)] [t]raining." Dominic Oliveira, is an alum of Prime's apprenticeship program. Drivers are relieved of paying tuition for the apprenticeship program as long as they remain with Prime for one year as either company drivers or independent contractors. After completing the program, drivers choose between the two options and Prime offers a $100 bonus to those who elect independent contractor status. Oliveira elected to be an independent contractor; New Prime assisted him in forming a limited liability company to lease his truck and then for the company to enter into an equipment lease with New Prime. The equipment lease specified that the relationship between the parties was that "of carrier and independent contractor and not an employer/employee relationship" and that "[Oliveira is] and shall be deemed for all purposes to be an independent contractor, not an employee of Prime."
Additionally, under the contract, Oliveira retained the rights to provide transportation services to companies besides Prime, refuse to haul any load offered by Prime, and to determine his own driving times and delivery routes. The contract also obligated Oliveira to pay all operating and maintenance expenses, including taxes, incurred in connection with his use of the truck. Finally, the contract contained an arbitration clause under which the parties agreed to arbitrate "any disputes arising under, arising out of or relating to [the contract], . . . including the arbitrability of disputes between the parties."
Oliveira alleges that, during his Hallmark days, Prime exercised significant control over his work. According to Oliveira, Prime required him to transport Prime shipments, mandated that he complete Prime training courses and abide by its procedures, and controlled his schedule. Because of Prime's pervasive involvement in his trucking operation, Oliveira says he was unable to work for any other trucking or shipping companies. He also says Prime consistently shortchanged him during his time as an independent contractor. Eventually, Oliveira — frustrated and, he alleges, unlawfully underpaid — stopped driving for Prime. It was a short-lived separation, however; Prime rehired Oliveira a month later, this time as a company driver. Oliveira alleges that his job responsibilities as a company driver were "substantially identical" to those he had as an independent contractor.
Oliveira filed a class action against Prime, alleging that Prime violated the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219, as well as the Missouri minimum-wage statute, by failing to pay its truck drivers minimum wage. Oliveira also asserted a class claim for breach of contract or unjust enrichment and an individual claim for violation of Maine labor statutes. Prime moved to compel arbitration under the FAA. But the district court and the court of appeals held that the case was exempt from the FAA because, even though he was an independent contractor, the agreement Oliveira had with new Prime is a “contract of employment” for a worker engaged in interstate commerce.
The Supreme Court recently heard arguments in this case. A majority of the justices appeared to agree with the lower courts that Oliveira’s contract is exempt from the FAA. The Court’s opinion will answer this question definitively, and it could have a large impact. Many workers are engaged in interstate commerce, and if independent contractors have “contracts of employment” exempt from the FAA, arbitration provisions in those contracts will become more difficult to enforce.
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