Supreme Court Rules That Interstate Trucking Company Cannot Require Independent Contractors To Arbitrate Wage and Hour Claims

Saul Ewing Arnstein & Lehr LLP
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Last week, the United States Supreme Court delivered a decision that will have a substantial impact on business owners in the transportation industry.  In New Prime Inc. v. Oliveira, the Court ruled that a private company that hired interstate truck drivers, including independent contractors, could not require these workers to bring their wage and hour disputes to arbitration, despite the mandatory arbitration provision included in the workers’ operating agreements.

New Prime, Inc. is an interstate trucking company that hired Oliveira and other drivers as independent contractors. Oliveira and a class of drivers eventually brought a lawsuit against New Prime, Inc. in federal court, claiming that the company failed to pay lawful wages to its drivers, including failure to pay minimum wage in violation of the Fair Labor Standards Act ("FLSA").  New Prime, Inc. tried to remove the class action to arbitration by enforcing the mandatory arbitration provision of the workers’ operating agreements under the Federal Arbitration Act ("FAA").  The workers claimed that the mandatory arbitration clause could not be enforced because the FAA does not control "contracts of employment" for certain workers engaged in interstate commerce.

When the case reached the Supreme Court, the justices had two questions to decide: (1) did the court have authority to decide whether the arbitration agreement could be enforced; and (2) did the FAA exception concerning "contracts for employment" apply to both employees and independent contractors? In an 8-0 decision (excluding Justice Kavanaugh who did not participate in this case), the Supreme Court answered both questions in favor of the workers.

Justice Gorsuch, who issued the majority opinion, found that a court of law, not an arbitrator, should determine whether the FAA exclusion concerning "contracts for employment" applies before compelling parties to arbitration.  The FAA, which governs most private arbitration agreements, does not apply to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."  The Court determined that it cannot use its authority to stay litigation and compel arbitration without first knowing if the parties’ agreement is covered by the FAA.  Not even the "delegation clause" of the workers’ operating agreements (designating the arbitrator as the sole decider of these issues) could overcome the court’s authority on this subject.

The Court further determined that the FAA’s interstate commerce exclusion covers "any agreement to perform work," including independent contractor agreements.  In reaching this decision, the Court considered the phrase "contract of employment" as it was used when the FAA was adopted in 1925.  In that regard, the term "contract" was synonymous with "work," and did not necessarily require a "formal employer-employee relationship" to qualify for this exclusion.  The Court did not find any evidence in the text of the FAA that Congress intended to distinguish independent contractors from other workers who qualified for the interstate commerce exclusion.

Following this decision, companies who hire independent contractors to transport, buy, or sell products across state lines may not be able to require those workers to arbitrate wage and hour claims and other employment-related disputes as they had done previously.  Companies who may be impacted by this case should contact seasoned employment counsel to review their independent contractor and employment agreements and discuss the implications of this decision on business operations and potential litigation.

 

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