U.S. Supreme Court Puts the Brakes on Mandatory Arbitration, Holds Transportation Workers Exempt from the Federal Arbitration Act

Hinshaw & Culbertson LLP

The United States Supreme Court recently handed workers a rare victory in New Prime Inc. v. Oliveira. The Supreme Court ruled that transportation workers engaged in interstate commerce—including those labeled as independent contractors—are exempt from the Federal Arbitration Act (FAA) and thus cannot be compelled to undergo mandatory arbitration.  As a result of this decision, employers in the transportation industry will have to review their existing arbitration policies and assess whether or not they comply with applicable local, state, and federal laws.

Plaintiff Dominic Oliveira was employed as an independent contractor for trucking company New Prime, Inc. Under the operating agreement, Oliveira was subject to mandatory arbitration. When Oliveira filed a class action for unpaid wages, New Prime asked the court to invoke its authority under the FAA to compel arbitration. Oliveira objected, stating that Section 1 of the Act exempts disputes involving contracts of employment of certain transportation workers. New Prime asserted that contracts of employment did not include independent contractors and that any questions related to enforcement was best left to the arbitrator.

The Supreme Court sided with Oliveira, finding that the lower tribunal should have first determined whether an exclusion applies prior to compelling arbitration. The Court reasoned that a lower tribunal's authority to compel arbitration under the Act does not extend to all contracts, no matter how emphatically the tribunal may express a preference for arbitration. Further, the Court found that under the Act, the term "contract of employment" refers to any agreement to perform work. While Oliveira was an independent contractor, his agreement fell within Section 1 of the Act and he was therefore relieved from participating in mandatory arbitration.

Mandatory arbitration has become a hot topic in recent years. Employees within the tech, legal, and transportation industries increasingly question both the fairness and application of mandatory arbitration agreements. While employees in the transportation industry can celebrate this decision, it is unlikely to be the last time we hear from the federal appellate courts on the enforceability of arbitration agreements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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